Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—E.D. Va.: Former tax service franchisee enjoined from operating competing business, (Feb 16, 2016)

By Michael Menzhuber, J.D., LL.M.

A default judgment and permanent injunction were entered against a former Liberty Tax Service franchisee by the federal district court in Norfolk, Virginia. The court determined that the former franchisee breached the franchise agreement and its post-termination provisions, which included non-compete and non-solicitation covenants (JTH Tax, Inc. v. Olivo, February 12, 2016, Jackson, R.).

JTH Tax, Inc., d/b/a Liberty Tax Service, terminated its franchise agreement with Daniel Olivo due to multiple breaches that included his failure to submit reports, use the software provided by Liberty, maintain required business hours, and pay amounts owed to Liberty. After termination of the franchise agreement, Olivo failed to comply with its post-termination provisions by continuing to compete with Liberty within a 25-mile area of his former Liberty office and by soliciting his former Liberty customers.

After Olivo did not comply with a cease-and-desist letter demanding compliance with his post-termination duties, Liberty filed a complaint against him. At the time the complaint was filed, Olivo also had unpaid fees and a balance owing on his promissory note. After Olivo failed to appear at the hearing, Liberty filed a motion for a default judgment.

The court determined that Olivo breached the franchise agreement by failing to submit reports, failing to use Liberty’s software, failing to maintain required business hours, failing to pay amounts owed to Liberty, and failing to comply with the franchise agreement’s post-termination provisions.

The court also determined that Liberty was entitled to injunctive relief. It found that: (1) Liberty would suffer irreparable injury in the absence of injunctive relief because Olivo’s continued breach of the post-termination non-compete and non-solicitation covenants threatened Liberty’s customer base and goodwill; (2) legal remedies would be inadequate to compensate for the potential loss of customers and goodwill; (3) the balance of a hardships favored Liberty because granting the injunction would only be enforcing Olivo’s contractual obligations; and (4) enforcement of a valid non-complete clause aids the public interest by preventing customer confusion and requiring parties to value the sanctity of contract.

The case is No. 2:15CV345.

Attorneys: Brett Alexander Spain (Willcox & Savage PC) for JTH Tax, Inc. d/b/a Liberty Tax Service.

Companies: JTH Tax, Inc. d/b/a Liberty Tax Service

Cases: FranchisingDistribution VirginiaNews