Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—M.D. Ga.: Bookkeeping franchisee enjoined from violating covenant not to compete, (Jun 12, 2014)

By Greg Hammond, J.D.

A former franchisee who failed to comply with the post-termination obligations of his franchise agreement with SmallBizPros, Inc. d/b/a Padgett Business Services (Padgett)—a bookkeeping, tax preparation, and business services company—was enjoined from competing with Padgett for a period of one year. The federal district court in Athens, Georgia determined that a preliminary injunction was appropriate after substantial evidence demonstrated that the franchisee lied about his post-termination compliance with the franchise agreement (SmallBizPros, Inc. v Terris, June 10, 2014, Land, C).

Background. John A. Terris, Sr. was a franchisee of Padgett for 20 years when he decided not to extend his franchise agreement and to retire. The agreement’s post-termination obligations included: (1) a duty not to compete in the same county for a one-year period; (2) a duty not to divert clients to a competing business; and (3) an obligation to cooperate in the transition of clients to Padgett. However, Padgett filed suit, seeking preliminary injunction after Terris allegedly violated all three post-termination obligations under the agreement.

Evidentiary hearing. During an evidentiary hearing, Terris testified that his wife established a new limited liability company, Numbers by the Sea, LLC, doing business as Premiere Business Services. He also testified that, although Premiere provides the same bookkeeping, tax preparation, and business services as Padgett, he had no involvement with the operation.

However, Padgett submitted evidence that directly contradicted Terris’ testimony. In particular, Padgett provided the court with a photocopy of Premiere’s website, which included a photograph of Terris and a professional biography that described him as a “valued member of the team.” Consequently, the court concluded that the website gave the impression that Terris was actively involved in the operation and management of Premiere. In addition, the website listed him as “John Alvin,” as opposed to his full name, which the court found to be “egregiously deceptive and dishonest” in Terris’ attempt to avoid his contractual obligations.

Padgett also submitted a video and audio recording of a private investigator who posed as a potential client with Premiere. The video depicted Terris as working for Premiere in a managerial role and attempting to induce the investigator to bring his accounting and tax business to the company. Consequently, the court determined that: (1) there was a substantial likelihood that Padgett would be able to prove Terris breached his post-termination obligations by failing to cooperate with Padgett and violating his covenant not to compete; (2) Padgett would suffer irreparable harm without preliminary injunction; (3) the balance of hardships to the parties favors granting preliminary injunction; and (4) such relief was in the public interest.

Preliminary injunction. According to the court’s order, Terris must cooperate in the transfer of clients that were served by his Padgett franchise, as well as any rights and interests in such clients; work with Padgett in transferring any telephone numbers that were used by the franchise; and return all client lists, files, manuals, signs, and related materials to the company. In addition, Terris was enjoined from working at a competing business as a manger or owner, for a period of one year; working at Premiere or otherwise being associated with that business, for a period of one year; diverting or attempting to divert any customers to Premiere; employing or attempting to employ any former employee of his franchise; and disclosing any information or knowledge regarding Padgett customers, methods, promotion, advertising, or other methods of operation. The court also ordered that in the event Terris violates any terms of the preliminary injunction order, the time-period will be tolled and begin again for the activity he was ordered to refrain from.

The case number is 3:14-CV-34 (CDL).

Attorneys: Thomas F. Hollingsworth, III (Blasingame, Burch, Garrard & Ashley, PC) for SmallBizPros, Inc. Joseph R. Odachowski (Taylor, Odachowski, Schmidt & Crossland, LLC) for John A. Terris, Sr.

Companies: SmallBizPros, Inc.

Cases: FranchisingDistribution GeorgiaNews