Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—DMinn: Franchisor Granted Injunction Against Franchisees Operating Competing Business , (Mar 21, 2013)

By Jody Coultas, J.D.

Franchisor Novus Franchising, Inc. was entitled to default judgment on its claims against a franchisee that defaulted on its royalties payment and used Novus’ trademarks to operate a competing business, according to the federal district court in Minneapolis (Novus Franchising, Inc. v. AZ Glassworks, LLC, March 18, 2013, Davis, M.). Novus was also entitled to a permanent injunction against the competing business and the franchisees.

Novus owns a business system for operating mobile glass repair and replacement businesses that specialize in the repair and replacement of automotive glass, windshields, and related items. Franchisee AZ Glassworks, LLC stopped submitting revenue reports and paying monthly royalties to Novus as required by the franchise agreement. The owners of AZ Glassworks were also charged with operating a competing automotive glass repair business in violation of the franchise agreement with Novus. The competing company was also using Novus’ trademarks. These actions prompted Novus to file Minnesota Deceptive Trade Practices Act and Minnesota Unlawful Trade Practices Act claims and for breach of the franchise agreements.

Because AZ Glasswork and its owners failed to answer or otherwise appear in this matter, despite service more than 21 days ago, the court granted Novus default judgment. Novus was also entitled to collect the past-due royalties and fees from AZ Glassworks and to audit its financial records. However, without any evidence regarding how long it takes to find a replacement franchisee, an award of future damages was not warranted.

The court granted Novus a permanent injunction against the competing glass repair business and the AZ Glasswork owners, according to the court. In order to obtain an injunction, Novus needed to show that it would suffer irreparable harm absent the injunction, the balance of harms tipped in its favor, that it would succeed on the merits of the claims, and an injunction was in the best interest of the public. Irreparable harm results from breach of a franchisee’s covenant not to compete when a franchisor has invested its training, good will, and resources. The defendants would not suffer any harm from the injunction and the public interest is served by enforcing a valid restrictive covenant. Finally, there was sufficient evidence that the owners violated the franchise agreement’s covenant not to compete and restrictive covenants by operating a competing business.

Novus’ requested attorney fees and costs were reasonable and supported, although they were high for a default judgment, according to the court. The injunction and the law involved required more work than in the typical default case.

The case is No. 12-1771 (MJD/TNL).

Attorneys: James M. Susag (Larkin Hoffman Daly & Lindgren Ltd) for Novus Franchising, Inc.

Companies: Novus Franchising, Inc.; AZ Glassworks, LLC.

Cases: FranchisingDistribution MinnesotaNews