Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—M.D. Fla.: Action for violation of non-competition agreement not dismissed, stayed, (Apr 22, 2015)

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

A franchisee’s motion to dismiss an action filed by a franchisor of electric services businesses, seeking to terminate the franchise agreement because of an alleged a violation of the agreement’s non-competition provision, was denied by the federal district court in Tampa. The franchisee’s alternate motion to stay the proceeding, until two other lawsuits that were alleged by the franchisee to be similar were decided, also was denied by the court (Mr. Sparky Franchising, LLC v. On Time Electricians, Inc., April 21, 2015, Covington, V.).

Mister Sparky Franchising, L.L.C. (Mr. Sparky) is in the business of franchising and licensing its business format, systems, specifications, and procedures using the name and service mark “Mister Sparky®” and associated logos for the operation of residential electrical services businesses. According to its complaint, in February 2013, the franchisor entered into a franchise agreement with On Time Electricians (OTE) for the territory surrounding Las Vegas. The agreement provided that it was a valid, binding obligation of OTE and OTE’s sole owner and president, George Donaldson, jointly or severally.

The term of the agreement was for ten years, and required OTE to pay continuing franchise fees beginning in August 2013 and a minimum franchise fee of $250,000 per year commencing in February 2018. The franchise agreement also provided that, during the term of the agreement, the franchisee and its owner could not be involved in a competitive business. A competitive business was defined as a business that offered residential electrical products and services competitive with or similar to those offered by Mister Sparky.

According to the complaint, in December 2014, Donaldson accepted employment as Division President with American Residential Services (ARS), a company that provides residential electrical services, as well as plumbing and heating and air conditioning services. Donaldson’s employment with ARS was alleged to constitute involvement with a competitive business, in direct violation of the non-competition provisions of the franchise agreement, and grounds for immediate termination of the franchise agreement.

At the time the complaint was filed, a franchise agreement was the subject of litigation in a federal district court in California between several Donaldson franchisees and Mr. Sparky’s parent company (California lawsuit). Also, a complaint seeking to terminate a franchise agreement based on the same alleged employment by Donaldson with ARS was pending in the Florida federal district court (first Florida lawsuit).

Motion to Dismiss. OTE argued that the “first-filed rule” required that the court defer to the action pending in the California lawsuit and dismiss the complaint because the California lawsuit was pending prior to the initiation of the present case and was advancing to an expected trial date. The “first-filed” rule states that “where two actions involving overlapping issues and parties are pending in two federal courts, there is a strong presumption across federal circuits that favors the forum of the first-filed suit under the “first-filed” rule. However, the court noted that application of the “first-filed” rule was within a federal district court’s discretion.

OTE also argued that judicial economy favored dismissing the complaint because similar facts and issues were at the heart of the California lawsuit and that allowing the present case to proceed would waste judicial resources and potentially produce conflicting rules.

The court determined that dismissing the complaint would be improper, noting that, at the time the present case was filed, the complaint in the California lawsuit did not overlap.

The court acknowledged OTE’s concern for potential inconsistent judgments if the complaint was not dismissed in favor of the California lawsuit. However, it noted that the California lawsuit was set for trial on May 18, 2015 and the present complaint was not on the court’s trial term until June 2015. As such, the court determined that it would have ample time to review all relevant documents and rulings in the California lawsuit to aid in its decision in the present case.

Motion to Stay. OTE, in the alternative, motioned to stay the proceeding until the California lawsuit and first Florida lawsuit were resolved. The court, however, determined that a stay was inappropriate because the cases all involve different parties and issues, as well as distinct franchise agreements. Therefore, the court determined that, although the actions were similar, they were separate and distinct cases that had to be decided under the terms of the relevant franchise agreement.

The case is No. 8:15-cv-164-T-33TGW

Attorneys: Derek Swanson (McGuire Woods, LLP) for Mister Sparky Franchising, LLC. Mark J. Criser (Hill Ward Henderson, PA) for On Time Electricians, Inc.

Companies: Mister Sparky Franchising, LLC; On Time Electricians, Inc.

Cases: FranchisingDistribution FloridaNews