Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D.N.J.: Jackson Hewitt granted default after franchisee fails to oppose motion, (Nov 4, 2014)

By Greg Hammond, J.D.

Jackson Hewitt Inc. was granted over $215,000 in past due fees, attorneys’ fees, and costs, after franchisee Larson & Savage, Inc. failed to oppose Jackson Hewitt’s motion for default judgment. The federal district court in Newark, New Jersey determined that: (1) Larson was the culpable party; (2) Jackson Hewitt was prejudiced; and (3) Larson did not have any meritorious defense against Jackson Hewitt’s requests for monetary relief and permanent injunction (Jackson Hewitt Inc. v. Larson & Savage, Inc., October 31, 2014, Martini, W.).

Background. In October 2004, Larson entered into a franchise agreement with Jackson Hewitt to operate an income tax preparation business. However, Larson violated the agreement when it—in part—transferred its franchise business without Jackson Hewitt’s written consent and failed to maintain the confidentiality of Jackson Hewitt’s proprietary information. Jackson Hewitt exercised its right to terminate the franchise agreement, and later filed suit, alleging that Larson violated its post-termination obligations. Jackson Hewitt sought monetary and injunctive relief. After Larson refused to attend in-person status conferences, the court entered a default for failure to plead or otherwise defend. Jackson Hewitt consequently brought an unopposed motion for default judgment.

Prior to entering default judgment, the court noted that it must make explicit factual findings as to: (1) whether Larson had a meritorious defense; (2) the prejudice suffered by Jackson Hewitt; and (3) the culpability of Larson. The court previously found that Larson was the culpable party, and Jackson Hewitt suffered prejudice due to Larson’s actions. Consequently, the only issue that remained was whether Larson had a meritorious defense to Jackson Hewitt’s requests for monetary relief and a permanent injunction.

Monetary relief. The court found that Jackson Hewitt sufficiently alleged that it entered into a franchise agreement with Larson; Larson failed to pay Jackson Hewitt past due fees owed under the agreement; and Larson violated the franchise agreement’s terms. Consequently it awarded Jackson Hewitt $181,589 in past due fees. In addition, the court found that Jackson Hewitt was entitled to $35,784 in attorneys’ fees and costs under the agreement.

Permanent injunction. The court also awarded permanent injunctive relief, finding that allowing Larson to continue using Jackson Hewitt’s branding, client files, and proprietary information after the agreement was terminated would pose a significant threat to that business model. Consequently, Larson was required to: (1) stop engaging in the business of filing individual tax returns within the agreed geographic boundaries for a period of two years; (2) return all client files; (3) return all trade secret, confidential, and proprietary information; and (4) transfer telephone numbers of former franchise locations to Jackson Hewitt.

The case number is 2:13-00403 (WJM).

Attorneys: James Simon Coons (Ansa Assuncao, Llp) for Jackson Hewitt Inc. Bennet Susser (Jardim, Meisner & Susser, PC) for Larson & Savage, Inc.

Companies: Jackson Hewitt Inc.; Larson & Savage, Inc.

Cases: FranchisingDistribution NewJerseyNews