Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—8th Cir.: Denial of injunction enforcing post-term obligations remanded for lack of specific findings, (Feb 13, 2014)

By Linda O’Brien, J.D., LL.M.

In an action by a tax preparation business franchisor against a former franchisee, the federal district court erred in failing to make specific findings and explain its denial of the tax services provider’s motion for preliminary injunction as required by Federal Rule of Civil Procedure 52, the U.S. Court of Appeals in St. Louis has held (H&R Block Tax Services LLC v. Acevedo-Lopez, February 12, 2014, Per Curiam). Accordingly, the district court order was reversed and remanded.

In 2007, H&R Block Tax Services LLC purchased the client lists of Lutgardo Acevedo-Lopez from his existing tax preparation business in Puerto Rico. Block and Acevedo-Lopez entered into a franchise license agreement (FLA) in which Acevedo-Lopez agreed to convert his existing office locations to Block branded franchise offices. The agreement provided that Block would license the client lists to Acevedo-Lopez for use pursuant to the FLA. In January 2012, Block loaned Acevedo-Lopez funds to acquire client lists and other assets of another tax advisor at four locations that would become additional Block branded locations. In August 2012, Block notified Acevedo-Lopez that certain royalty and other payments were overdue and if he did not cure the breach, the franchise agreement would be terminated. In September 2012, Block sent notification to Acevedo-Lopez that (1) the FLA was terminated, (2) all amounts owed under the loan were immediately due, (3) all client lists and data had to be returned, and (4) he had to comply with the post-termination covenant not to engage in a similar business within 25 miles of the franchise territory for two years.

Subsequently, Block filed suit against Acevedo-Lopez, asserting breach of contract, and moved for a preliminary injunction ordering the return of the client lists and the refrain from operating a tax preparation business within 25 miles of his former franchise locations. Without an evidentiary hearing, the district court denied the motion for preliminary injunction in an order stating that the court considered the four factors set forth in Dataphase Sys. Inc. v. CL Sys. Inc., 640 F2d 109 (1981) and the plaintiff failed to demonstrate that it will suffer irreparable harm if the injunction is not issued. Block appealed.

The court determined that the district court’s failure to make specific findings and set forth the reasons for its ruling resulted in a record that did not sufficiently inform the appellate court of the basis of its decision on a material issue. Federal Rule of Civil Procedure 52 requires the court to state the findings and conclusions that support its grant or denial of a preliminary injunction. The cursory statement by the district court that Block failed to demonstrate that it will suffer irreparable harm absent the grant of the preliminary injunction was insufficient. Also, neither Block nor Acevedo-Lopez submitted fact affidavits or expert testimony to support their respective positions on the possibility of irreparable injury during the pendency of the suit. Without adequate Rule 52 findings and reasons, the question of whether the summary denial of Block’s motion without an evidentiary hearing was an abuse of discretion cannot be evaluated, the court noted.

Additionally, the district court made no ruling on three of the four factors set forth in Dataphase Sys. Inc. that must be considered in exercising its discretion to grant or deny a preliminary injunction. In light of the minimal record, the district court’s discretion is clearly needed, the appellate court concluded.

The case is No. 13-1387.

Attorneys: Jeffery L. Karlin (Gray & Plant) for H&R Block Tax Services, LLC. Marie E. Lopez Adames (Gonzalez & Lopez) for Lutgardo Acevedo-Lopez.

Companies: H&R Block Tax Services LLC

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