Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—E.D. Va.: Auto care franchisor sues to enjoin sale of franchise assets to competitor, (Nov 22, 2013)

By Linda O’Brien, J.D., LL.M.

The sale of the assets of an automotive service franchise to a third party without the prior approval of the franchisor will deprive the franchisor of an opportunity to evaluate and exercise its right of first refusal, according to a complaint filed in the federal district court in Alexandria (Precision Franchising LLC v. Wayrite Inc., filed November 19, 2013).

According to franchisor Precision Franchising, it franchises automotive repair shops under its Precision Tune Auto Care (PTAC) brand. Precision Franchising and Wayrite entered into a franchise agreement in 1999 under which Wayrite acquired the license, right, and obligation to operate a full service PTAC automotive services business.

The complaint states that Wayrite contractually agreed that Precision Franchising’s express prior written consent was a necessary condition precedent to the sale, assignment, or transfer of a majority interest in or substantially all the assets of the franchised business. Wayrite also agreed to notify Precision Franchising within five days of the receipt of a bona fide offer from a third party to purchase all or part of the franchised business, and Precision Franchising had 30 days to exercise its right to purchase Wayrite’s interest on the same terms offered by the third party. Wayrite would provide such documentation as Precision Franchising may reasonably require to determine whether to exercise its option, according to the complaint.

Wayrite has informed Precision Franchising of its intent to sell the assets of the franchised business to a third party, the complaint contends. The third party does not intend to operate the business as a PTAC, rather it will operate a business that competes with PTAC. Precision Franchising claims that it notified Wayrite of its possible interest in purchasing the business and requested information concerning the material terms and conditions of the proposed sale. Wayrite has refused to provide the requested information, including the contact information for the third party so Precision Franchising can evaluate whether it will exercise its right of first refusal .

The complaint also alleges that Wayrite has not sought Precision Franchising’s approval prior to transferring the assets of the franchised business. If Wayrite is allowed to proceed with the sale to the third party without giving Precision Franchising the opportunity to exercise its right of first refusal, Precision Franchising may lose customers due to its ability to protect and preserve the goodwill built by the operation of its service center, the franchisor alleges.

Precision Franchising requests: (1) a declaratory judgment prohibiting Wayrite from transferring assets of the franchised business without prior approval; (2) specific performance that Wayrite provide Precision Franchising with the material terms and conditions of their purchase agreement; (3) injunctive relief barring Wayrite from closing on the sale of the assets of the franchised business; (4) attorney fees and costs of suit; and (5) other relief that the court may deem just and proper.

The case is No. 1:13 CV 1418.

Attorneys: Eric L. Yaffe (Gray, Plant, Mooty, Mooty & Bennett, P.A.) for Precision Franchising LLC.

Companies: Precision Franchising LLC; Wayrite Inc.

Cases: FranchisingDistribution VirginiaNews