Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. N.J.: Ex-franchisee not enjoined from continuing to operate home care business, (Mar 31, 2015)

By John W. Arden, J.D., LL.M.

A former home care franchisee that allegedly breached payment obligations, abandoned the franchised business, and violated restrictive covenants contained in its franchise agreement was not preliminarily enjoined from continuing to operate an independent home care business. Executive Home Care Franchising failed to show that it would suffer irreparable harm that could not be redressed by a legal or equitable remedy, according to the federal district court in Newark, New Jersey (Executive Home Care Franchising LLC v. Marshall Health Corp., March 26, 2015, Linares, J.).

In February 2013, Clint, Mansaree, and Greer Marshall signed an agreement to operate an in-home care franchise in Morristown, New Jersey. In January 2015, the franchisees ceased operations of the franchise, without the franchisor’s authorization. Franchisor counsel sent a termination letter, stating that the termination was based on the franchisee’s “decline in business” and “inability to gain new business.” The franchisee asserted that the franchise achieved gross revenues of $500,000 in its first year and that the Marshalls were operating their franchise location as an independent business, under the name “Well-Being,” and servicing the franchise customers.

Executive Home Care alleges that the franchisee refused to pay the royalty fees due in January and February 2015, failed to cure the breach of payment obligations, and abandoned the franchise. The franchisor further asserts that the franchisee failed to return proprietary business information and continued to operate the competing business, despite a two-year, post-term noncompetition clause in the franchise agreement. Executive Home Care brought an action for a declaratory judgment regarding termination of the franchise, breach of contract, unfair competition, violation of Section 43 of the Lanham Act, and trade dress infringement.

In its application for injunctive relief, Executive Home Care requested that the franchisee be enjoined from (1) continuing to operate its franchise; (2) operating a competing, independent in-home care business; (3) violating the non-disclosure, non-competition, and non-solicitation clauses of the franchise agreement; and (4) using proprietary materials, trademarks, trade names, or trade dress.

A court may grant a preliminary injunction only if a moving party shows that there is a likelihood of success on the merits; the moving party would suffer irreparable harm if the injunction is denied; the granting of the injunction will not result in even greater harm to the nonmoving party; and the public interest favored such relief. In this case, Executive Home Care failed to demonstrate irreparable harm that cannot be redressed by a legal or equitable remedy following trial. The court rejected a contention that the parties established irreparable harm by agreement. While the franchise agreement stated that irreparable harm would be caused to the franchisor if the franchisee violated its obligations, a contractual provision simply cannot act as a substitute for a finding by a court on whether a preliminary injunction is proper, the court observed.

Executive Home Care claimed that the franchisee’s unilateral termination of the franchise agreement and use of its proprietary information as a competitor constituted irreparable harm. The court disagreed, finding that the former franchisees were not using the proprietary materials, the same office location, or the franchisor’s trademarks.

The former franchisee certified that it expressly informed existing clients that the business was no longer associated with Executive Home Care, that it returned all proprietary information to Executive Home Care, and that the franchisor took back the franchise location. Thus, Executive Care could not demonstrate that it suffered irreparable harm that could not be remedied monetarily.

The case is Civil Action No. 15-760 (JLL).

Attorneys: Justin M. Klein (Marks & Klein, LLP) for Executive Home Care Franchising, LLC. Louis Harvey Miron (Louis H. Miron, Attorney at Law) for Marshall Health Corp., and Well-Being Home Care Corp.

Companies: Executive Home Care Franchising, LLC; Marshall Health Corp.; Well-Being Home Care Corp.

Cases: FranchisingDistribution NewJerseyNews