Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION NEWS: Cleaning service franchisee sued over failure to honor post-termination obligations, (Feb 19, 2016)

By Linda O’Brien, J.D., LL.M.

A former master franchisee of a commercial cleaning service business failed to adhere to the post-termination obligations of the franchise agreement by refusing to return proprietary records and information, and by continuing business under the name of a competitor through its same sub-franchisee network, according to a complaint filed in the federal district court in Tampa, Florida (SBS Franchising, Inc. v. Modern Industrial Services, Inc., February 17, 2016).

SBS Franchising, doing business as Stratus Business Solutions, franchises businesses for comprehensive building maintenance care, commercial cleaning and maintenance services, supplies, and equipment for interior and exterior environments of business and residential locations. Specifically, SBS grants Master Franchise or Area Developer franchises that allow entities to license to sub-franchisees in a designated area.

The complaint states that, in 2012, SBS entered into an Area Developer franchise agreement (ADFA) with Modern Industrial Services and its president, Bryan Rexroat, which granted Modern a license as an area developer in certain Florida zip codes.

Modern systematically violated its obligations to SBS under the ADFA throughout the time of their business relationship, the complaint charges. SBS allegedly provided Modern numerous opportunities to cure those breaches without success. In an October 2015 letter to Rexroat, SBS provided Modern a final opportunity to cure, which included copies of significant criticism of Modern and Rexroat from sub-franchisees in Modern’s development area. After Modern and Rexroat failed to respond, SBS notified Modern that the ADFA was terminated.

According to the complaint, to date, Modern and Rexroat have failed to adhere to their post-termination obligations under the ADFA. Those obligations include the return and non-use of records and proprietary information, customer/clients lists with contact information, and copies of all customer contracts. Modern and Rexroat also have failed to comply with the two-year, 100-mile non-compete provision of the ADFA. SBS was informed that, even before termination of the ADFA, Modern and Rexroat began operating under the name of competitor “Pro Clean USA” through its same sub-franchisee network.

Modern and Rexroat have flagrantly violated their obligations under the ADFA, including the non-compete provisions and caused SBS substantial and irreparable harm, the complaint states.

The plaintiff asserts claims for breach of contract. The action seeks injunctive relief, damages, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 8:16-cv-00375-JSM-TGW.

Attorneys: S. Douglas Knox and Cassidy E. Jones (Quarles & Brady LLP) and Allan P. Hillman (Kern & Hillman, LLC) for SBS Franchising, Inc.

Companies: SBS Franchising, Inc.; Modern Industrial Services, Inc.; Pro Clean USA, Inc.

News: FranchisingDistribution FloridaNews