Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION NEWS: Termination alleged to breach franchise agreement, Indiana franchise law, (Nov 19, 2014)

By Linda O’Brien, J.D., LL.M.

Termination of a franchise agreement by a franchisor engaged in the business of non-medical companionship and domestic care services for seniors—for the alleged unauthorized use of licensed marks—was a breach of the franchise agreement and a violation of the Indiana Deceptive Franchise Practices Act, according to a complaint filed by the franchisee in the federal district court in Indianapolis (Elder Care Providers of Indiana, Inc. v. Home Instead, Inc., November 18, 2014).

Home Instead, Inc. is engaged in the business of providing non-medical companionship and domestic care services for senior citizens operating under the trade name “Home Instead Senior Care.” Home Instead operates the business as a franchisor of over 1,000 independently owned and operated franchises. In October 2006, Elder Care Providers of Indiana, Inc., through sole shareholders Anthony and Georgette Smith, entered into a franchise agreement with Home Instead.

The agreement granted Elder Care the exclusive right to operate the business within a defined geographic area for a period of 10 years. The agreement also granted Elder Care the right to use the licensed marks and trade name of Home Instead Senior Care. The Smiths were required to pay a non-refundable royalty fee to Home Instead based on a percentage of Elder Care’s gross sales. Under the agreement, the Smiths, as principals of Elder Care, were prohibited from engaging in any other non-medical companionship and domestic care service competitive with Home Instead.

The complaint states that, in November 2011, the Smiths formed Home Again Senior Care, a certified and licensed home health agency that provides home-based medical care for senior citizens and secures reimbursement through Medicaid. Home Again was established specifically to provide medical home care services for seniors that are complementary to the non-medical services provided by Elder Care. Home Again regularly refers to Elder Care patients who become its clients. Elder Care has grown substantially since Home Again was established, largely as a result of the referrals from Home Again and the ability to provide a continuum of care for Medicaid patients.

Home Again and Elder Care are separate legal entities with separate human resources personnel and functions, according to the plaintiffs. Home Again has not utilized any Home Instead materials or information for training or operations in its business. Elder Care has never made any unauthorized use of the Home Instead trademarks or trade names. Home Instead has been aware of the operation of Home Again since September 2013 and has taken no action to prevent Home Again from using the “Home Again Senior Care” or “Home Again” trade names, the complaint alleged.

In November 2014, Home Instead allegedly contacted Elder Care via email, stating that the Smiths’ operation of Home Again was a direct violation of the competitive restrictions in the franchise agreement and the Smiths’ use of the name “Home Again Senior Care” infringed upon Home Instead’s registered trademarks. Home Instead’s email also sent a formal notice of termination of the agreement based upon the alleged unauthorized use of the Home Instead trademarks and purported to terminate the agreement within three days—although the agreement requires 30 days’ notice with a right to cure any such default. The email communication stated that the termination was suspended to allow the Smiths to accept a confidential settlement agreement, which was attached to the email. In the event the Smiths did not accept the settlement offer within three days, the email stated that the termination would take effect and Home Instead would file a lawsuit. The settlement offer purported to require the Smiths, Elder Care, and Home Again to pay a royalty fee to Home Instead based on gross sales generated by Home Again from 2011 to 2014.

Home Instead had no lawful, good faith basis under the agreement to claim royalties from Elder Care, the Smiths, or Home Again for any revenues generated by Home Again, the plaintiffs claimed. The payment of such royalties would effectively require Home Again, an entity with which Home Instead has no contractual relationship, to pay full franchise royalties to Home Instead based upon the provision of medical services that Elder Care, the franchisee, was expressly prohibited by the agreement from providing. Moreover, the threat by Home Instead to terminate the agreement pursuant to the termination notice was not issued in good faith but was an attempt to coerce Elder Care and the Smiths to enter into a settlement and pay monies to Home Instead to which it was not entitled and its prejudicial to Elder Care and the Smiths, the complaint charged.

The plaintiff asserts claims for breach of contract and violations of the Indiana Deceptive Franchise Practices Act. The action seeks declaratory relief, damages, and any other just and proper relief.

The case is No. 1:14-cv-01894-SEB-MJD.

Attorneys: Ronald E. Elberger, Gregory W. Guevara, and Philip R. Zimmerly (Bose McKinney & Evans LLP) and Jose F. Brown (The Law Office of Josh F. Brown) for Elder Care Providers of Indiana, Inc.

Companies: Elder Care Providers of Indiana, Inc.; Home Instead, Inc.

News: FranchisingDistribution IndianaNews