Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION NEWS: Home health care franchisor charges franchisee with violating post-termination obligations, (Feb 7, 2014)

By Linda O’Brien, J.D., LL.M.

In an action for injunctive relief, a home health care services franchisor alleges that a former franchisee has failed to comply with its post-termination obligations under the franchise agreements. The complaint was filed in federal district court in Chicago (Brightstar Franchising LLC v. EPN Enterprises, LLC, February 6, 2014).

Brightstar Franchising is engaged in the business of providing home health care and nursing services to the public across the country. Brightstar’s services are distributed through authorized franchisees, which operate their agencies pursuant to written franchise agreements. Under the franchise agreements, franchisees are granted the right to use Brightstar names and marks, its proprietary procedures for the operation of medical staffing services agencies, trade secrets, guidelines for providing domestic care services, as well as operations manuals developed by Brightstar.

Brightstar alleged that, in 2009, 2010 and 2011, it entered into four franchise agreements with EPN Enterprises, LLC to operate Brightstar agencies in California, each for a ten-year term. Edward Navales, EPN’s principal, personally guaranteed EPN’s obligations under the franchise agreements. In each franchise agreement, EPN and Navales agreed that, upon termination of the agreement, they would immediately cease using Brightstar’s confidential information and operations manual, return those materials to Brightstar, and assign to Brightstar all telephone numbers used in their operation of their former Brightstar agencies.

According to the complaint, in May, October, and November 2013, Brightstar notified EPN that it was in default of the agreements for failing to (1) provide required bank statements to Brightstar; (2) maintain its Joint Commission Accreditation; and (3) maintain required insurance coverage. In December 2013, Brightstar notified EPN that it was terminating the franchise agreements for cause due to the repeated defaults.

The provision of home health care and nursing services is a highly competitive business. The complaint states that EPN and Navales have failed to comply with their post-termination obligations under the franchise agreements. The defendants have (1) failed to return the confidential information and operations manual to Brightstar; (2) changed the name of their former Brightstar agencies and continued to operate in competition with Brightstar using Brightstar’s confidential information and operations manual; and (3) continue to use the same telephone number used in connection with the operation of the former Brightstar agencies in order to divert to themselves calls intended for an authorized Brightstar agency.

Brightstar asserts claims for unfair competition, breach of contract (franchise agreement), and breach of contract (guarantees), and makes a demand for arbitration. The action seeks injunctive relief, damages, costs of suit, attorneys’ fees, and any other just and proper relief.

The case is No. 14-cv-00838.

Attorneys: Fredic A. Cohen (Cheng Cohen LLC) for Brightstar Franchising LLC

Companies: Brightstar Franchising LLC; EPN Enterprises, LLC

News: FranchisingDistribution IllinoisNews