In a case handled by Gray Plant Mooty and first reported in Issue No. 131 of The GPMemorandum after a prior ruling, the court in Bonus of America, Inc. v. Angel Falls Services, LLC, 2010 U.S. Dist. LEXIS 67079 (D. Minn. July 6, 2010),  has now entered a preliminary injunction against a master franchisor and two affiliated parties through which the master franchisor was conducting business,  enjoining them from violating the in term noncompete provisions of the Master Franchisor Agreement (MFA) and from using the franchisor’s name, trademarks, or proprietary materials. The master franchisor had entered into an initial MFA with the franchisor in June 2007, and entered into a subsequent MFA in August 2007 that superseded the first agreement. When the parties entered into the first MFA, the franchisor was not registered as a franchisor in Minnesota, but had registered by the time the parties entered into the second agreement.

After the franchisor discovered the competing business, it immediately sought to enjoin the defendants from operating. In response to the motion, the defendants argued that the MFA—including its noncompete provisions—was unenforceable because the franchisor had not been properly registered in Minnesota at the time the  master franchisor  was sold its  franchise, as required by the Minnesota Franchise Act. The court held that although a franchisee is allowed to seek rescission for certain violations of that Act, Minnesota courts have declined to rescind contracts based on technical violations. Here, the court concluded that the violations alleged by the master franchisor were technical in nature and allowing rescission would lead to an unjust outcome. After considering the harm to the franchisor’s goodwill, the defendants’ unclean hands, the balance of harms, the likelihood of success on the merits, and the public interest involved, the court granted the franchisor’s request for injunctive relief against both the master franchisor (who had signed the MFA) and the other defendants (who had not), the latter on the ground that they were “in active concert and participation” with the master franchisor.