Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—Cal. App.: Dissolution of preliminary injunction, permitting franchisee restaurant operation, upheld, (Dec 18, 2013)

By Edward L. Puzzo, J.D.

A trial court’s decision, to modify a preliminary injunction it had granted to a franchisee allowing the continued operation of restaurants during pending litigation, was not invalidated by the appellate court’s setting aside of another portion of its decision regarding terminating sanctions, the California First District Court of Appeal in San Francisco has ruled (Husain v. McDonald’s Corp., December 17, 2013, Margulies, S.).

Background. In 2005, the Husains, holders of five McDonald’s franchises, entered into an agreement with third parties to purchase an additional seven McDonald’s restaurants in Marin County, California. The underlying dispute centered on whether McDonald’s made an enforceable promise to the Husains to provide new 20-year franchises to them for three of the restaurants whose franchise terms were due to expire in 2009 and 2010. The Husains sued McDonald’s to enforce the alleged promise, and McDonald’s cross-complained to compel the Husains to restore the three disputed restaurants to McDonald’s.

In December 2010, the trial court granted the Husains a preliminary injunction, allowing them to continue operating the restaurants during the litigation. The appellate court affirmed this decision in Husain v. McDonald’s Corp., 205 Cal.App.4th 860 (2012).

In June 2012 and later, McDonald’s moved for terminating sanctions, based on alleged evidence of perjury and evidence fabrication. In September 2012, the trial court granted terminating sanctions, dissolved Husain’s preliminary injunction and granted McDonald’s a preliminary injunction preventing the Husains from continuing to use McDonald’s trademarks and occupy McDonald’s restaurants, pending entry of a final judgment on McDonald’s cross-complaint.

In March 2013, the appellate court overruled the trial court with regard to terminating sanctions, finding that an award of terminating sanctions was not warranted under either the California Civil Discovery Act or the court’s inherent powers. Therefore the sanctions were set aside and plaintiff’s third amended complaint was reinstated, and a new trial set.

Challenge to dissolution of plaintiffs’ preliminary injunction. In the current decision, the Husains claimed that the injunctive relief portions of the September 2012 order must be reversed and the restaurant locations restored to them due to the effect of subsequent court decisions in this matter. Plaintiffs claimed that the September 2012 order had impermissibly granted case-dispositive relief to McDonald’s.

The appellate court disagreed. The September 2012 order, the court explained, granted McDonald’s injunctive relief, not a permanent injunction or a premature declaratory judgment. The order specified that McDonald’s, rather than the Husains, would have the right going forward to occupy and operate the subject McDonald’s restaurant locations, pending entry of a final judgment on McDonald’s cross-complaint.

The appellate court also found no merit in plaintiffs’ contention that the March 2013 order, setting aside terminating sanctions, undercut the trial court’s order dissolving the preliminary injunction it had issued in favor of the Husains in 2010. The Husains claimed that the dissolution of the preliminary injunction was based on the terminating sanctions, which were later set aside.

Again, the appellate court disagreed. The terminating sanctions imposed by the trial court were not its sole and exclusive basis for modifying the December 2010 preliminary injunction rulings, the appellate court explained. The order makes clear that the court also relied on its assessment of Mr. Husain’s credibility to find that plaintiffs had no likelihood of prevailing on the merits. If the injunctive relief portions of the September 2012 order rested solely on the terminating sanctions imposed, without any discretionary weighing of likelihood of success, no assessment of Mr. Husain’s credibility would have been necessary, according to the appellate court.

Therefore, the appellate court ruled, the trial court did not abuse its discretion in dissolving the preliminary injunction in favor of the Husains, and nothing in the March 2013 appellate decision setting aside the terminating sanctions undermined that assessment.

The case is Civil Action No. A136623.

Attorneys: George Knopfler (Hamrick & Evans) for Syed Ali Husain. Michael J. Shepard (Hogan Lovells US LLP) and Christopher William Keegan (Kirkland & Ellis) for McDonald’s Corp.

Companies: McDonald’s Corp.

Cases: FranchisingDistribution CaliforniaNews