Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—E.D.N.C.: Terminated franchisee barred from using franchisor trademarks, proprietary information, (Jun 9, 2014)

By Edward L. Puzzo, J.D.

The federal district court in Elizabeth City, North Carolina has imposed a preliminary injunction against a terminated Grout Doctor franchisee, enjoining the continued use of the franchisor's trademarks and proprietary information (Grout Doctor Global Franchise Corp. v. Groutman, Inc., June 6, 2014, Boyle, T.). The court further enjoined the franchisee from making harassing, threatening, or other contact with Grout Doctor's officers, employees, franchisees, or business partners.

Termination. In 2014, Grout Doctor Global Franchise Corp. terminated its franchise agreement with Groutman, Inc., soon after renewing a seven-year franchise agreement. The termination was based on the franchisee's failure to pay the renewal fee and submit gross sales reports, as well as customer complaints of faulty work and fear for their safety due to the actions and statements of Gary Swanson, the sole shareholder of Groutman.

Following the termination, Groutman allegedly continued to use Grout Doctor trademarks and otherwise hold itself out as a Grout Doctor franchisee. In addition, Groutman principal Gary Swanson allegedly made threatening phone calls to officers, employees, and the website developer of the franchisor.

Grout Doctor Global Franchise Corp. sought a temporary restraining order and preliminary injunction against its terminated franchisee. The franchisor alleged that the conduct of franchisee principal Gary Swanson caused customers, who thought they were being served by an authorized franchisee, to fear for their safety. The terminated franchisee also allegedly made illegal disclosures of the franchisor's trade secrets and proprietary information.

Preliminary injunction requirements. A preliminary injunction is an extraordinary and drastic remedy, the court explained. The movant for this remedy must clearly show that (1) it was likely to succeed on the merits; (2) it was likely to suffer irreparable harm in the absence of preliminary relief; (3) the balance of equities tipped in its favor; and (4) an injunction was in the public interest.

The court was satisfied that Grout Doctor's request for a preliminary injunction met all four requirements. Grout Doctor was likely to succeed on its Lanham Act trademark infringement claims, the court found. By holding himself out as a legitimate franchisee and using Grout Doctor's actual trademarks, Swanson had and would continue to cause confusion among customers, who believe that they are contracting with a representative of Grout Doctor. Irreparable injury regularly flows from trademark infringement, the court continued.

The court also was concerned that Swanson's threatening voicemails demonstrated that he intended to continue to act in ways that would breach his franchise agreement, violate federal law, and call into question "his mental and emotional stability." The public interest would be served by enjoining this type of behavior, the court continued.

Injunction imposed. The court preliminarily enjoined defendant from using Grout Doctor trademarks, holding itself out as a Grout Doctor franchisee, continuing to breach its post-termination obligations, misappropriating Grout Doctor's proprietary information and trade secrets, or making harassing, threatening, or other contact with Grout Doctor's officers, employees, franchisees, or business partners during the pendency of the preliminary injunction.

The case is Civil Action No. 7:14-cv-00105-BO.

Attorneys: Corby C. Anderson and Matthew S. DeAntonio (Nexsen Pruet, PLLC) for Grout Doctor Global Franchise Corporation.

Companies: Grout Doctor Global Franchise Corporation; Groutman, Inc.; Doctor Plumber, LLC

Cases: FranchisingDistribution NorthCarolinaNews