Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—EDNY: Childcare/Education Franchisor Denied Injunction Against Former Franchisees , (Nov 15, 2012)

By Jody Coultas, J.D.

A franchisor was denied a preliminary injunction seeking to enforce non-compete provisions against franchisees by the federal district court in Brooklyn for failure to establish irreparable harm and a public interest in the injunction (Tutor Time Learning Centers, LLC v. KOG Industries, Inc., November 13, 2012, Garaufis, N.).

The franchisor, Tutor Time Learning Centers, LLC, entered into a franchise agreement with KOG Industries, Inc. and GabeCo Industries, Inc. governing the operation of Tutor Time childcare and education services centers. Because KOG failed to pay certain royalty fees, Tutor Time terminated the franchise agreement. KOG and GabeCo changed the names of the centers, but the state of the de-identification of the centers was disputed. Tutor Time sought a preliminary injunction to enjoin the franchisees from continuing to use Tutor Time’s trademark and other intellectual property and sought to terminate the franchisees’ continued operation of the center as violations of a non-compete agreement.

In order to obtain a preliminary injunction, Tutor Time needed to show it would be irreparably harmed absent injunctive relief, a likelihood of success on the merits, and that the public interest weighed in favor of an injunction. The injury must be actual and imminent, not remote or speculative and one that cannot be redressed through a monetary award.

There was no evidence that Tutor Time would be irreparably harmed absent a preliminary injunction, according to the court. Tutor Time argued that continued operation of the centers, now operating as the Ivy League Early Learning Academy, would cause irreparable harm based on public confusion, loss of good will, and injury to current franchisees. The franchisees agreed not to use or display any Tutor Time marks, curriculum, educational materials, or copies of Tutor Time forms. Thus, there was no need for an injunction to prevent public confusion. There was also no evidence that Tutor Time lost goodwill based on the franchisees breach of the franchise agreement. Finally, there was no evidence that Tutor Time’s current franchisees would be harmed by the centers’ operations. Any value that Tutor Time might obtain from enforcing non-compete restrictions was too speculative to justify the injunction.

Tutor Time could not show that a preliminary injunction would benefit the public, according to the court. A preliminary injunction would close the Ivy League centers and force customers to find new childcare services. Denying the motion would, at most, allow limited financial harm to continue. Thus, the motion for the injunction was denied.

The case is No. 1:12-CV-4129 (NGG)(RER).

Stuart P. Slotnick (Buchanan Ingersoll, PC) for Tutor Time Learning Centers, LLC. Michael Einbinder (Einbinder & Dunn, LLP) for KOG Industries, Inc.

Cases: FranchisingDistribution NewYorkNews