Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION NEWS: Franchisor of tax preparation businesses files suit against terminated franchisee, (Jul 31, 2013)

By Peter Reap, J.D., LL.M.

JTH Tax, Inc., which franchises tax preparation businesses under the name Liberty Tax Service, has filed suit in the federal district court in Norfolk against James and Paula Oenning, the terminated franchisees of one such business.

According to the complaint, the Oennings entered into a franchise agreement with JTH on October 31, 2007, for a territory in California. The agreement expired by its own terms on October 31, 2012, and it was not renewed. However, following the agreement’s expiration, the Oennings continued to operate as a Liberty Tax Service franchised office throughout the 2013 tax season.

On June 25, 2013, JTH sent a letter to the Oennings terminating their franchise. The letter listed the Oennings’ failure to maintain active operations, failure to maintain required off-season business hours, failure to renew the franchise agreement, failure to properly advertise tax school, and failure to pay amounts owing to the franchisor as the reasons for the termination.

Upon termination, the Oennings’ post-termination obligations came into effect, JTH asserts. Those duties included the removal of all Liberty signage, and the transfer of all telephone numbers, customer tax returns, and records to JTH. In addition, upon termination the Oennings became obligated to comply with the covenants not to compete and not to solicit contained in the parties’ agreement. JTH alleges that the Oennings have failed to comply with all of their post-termination duties and that they are in violation of both the covenant not to compete and the covenant not to solicit.

In a letter dated June 26, 2013, the Oennings stated that “we will continue to make our living processing tax returns" in violation of their non-compete obligation, JTH contends. Further, the letter stated that the Oennings would "continue to solicit tax clients" in violation of their non-solicit obligation. The letter indicated that the Oennings were operating a competing tax preparation business under the name of Fallbrook Tax Professionals out of the location of their former franchise.

JTH asserts claims for breach of the franchise agreement and a promissory note (against Mr. Oenning only), for civil conspiracy, and for business conspiracy under a Virginia statute. JTH asks for damages in the amount of $250,000 from the Oennings and for an additional amount of $2,730 from Mr. Oenning for breach of the promissory note. It also requests injunctive relief requiring the Oennings to comply with their contractual obligations.

The complaint in JTH Tax, Inc. v. Oenning, Case No. 213CV422, was filed July 29, 2013.

Attorneys: David Lindley (JTH Tax, Inc.) for JTH Tax, Inc.

Companies: JTH Tax, Inc.

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