Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—S.D. Ind.: Former home care franchisee not enjoined from operating home health agency, (Sep 17, 2015)

By Michael Menzhuber, J.D., LL.M.

A former franchisee of Home Instead, Inc., a franchisor of non-medical companionship and domestic care services for seniors, was not enjoined from operating a home health agency (HHA) because the franchisor would not suffer irreparable if the injunction were not granted, there was no likelihood that the franchisor would succeed on the merits of its claim, and the balance of equities weighed strongly against the requested injunctive relief (Elder Care Providers of Indiana, Inc. v. Home Instead, Inc., September 14, 2015, Barker, S.). However, the former franchisee was preliminarily enjoined from using licensed marks, or marks similar to the licensed marks, by the federal district court in Indianapolis. The former franchise owners were also required to return Home Instead related documents.

Background. Home Instead, operating under the trade name “Home Instead Senior Care”, entered into a franchise agreement on October 16, 2006, with Elder Care Providers of Indiana, Inc. (ECP), through sole shareholders Anthony and Georgette Smith (Smiths). Pursuant to the agreement and Indiana licensure restrictions, ECP was not permitted to provide any medical care because it was licensed as a personal service agency (PSA), rather than as a HHA. In November of 2011, the Smith’s formed Home Again Senior Care, Inc. (Home Again), as a separately licensed corporation through which medical home health care was provided to clients referred to it by ECP and other area Home Instead franchises.

In March of 2013, after learning about Home Again’s operation, Home Instead conducted a 20-month investigation to determine whether ECP was diverting business from Home Instead. After concluding that the operation of Home Again constituted a breach of the franchise agreement’s competitive restrictions, as well as a trademark infringement, Home Instead notified the Smiths that their franchise agreement would be terminated if they did not comply with certain conditions relating to the operation of Home Again. The Smiths did not agree and their franchise was terminated.

On November 18, 2014, ECP filed suit alleging that Home Instead breached the franchise agreement and violated the Indiana Deceptive Franchise Practices Act. Home Instead filed a counterclaim against ECP, the Smiths, and Home Again for breach of contract, civil conspiracy, misappropriation of trade secrets, unfair competition, and trademark infringement. On February 17, 2015, Home Instead filed a motion for a preliminary injunction that required the Smith parties to: (1) cease using the names Home Instead and Home Instead Senior Care; (2) cease using the names Home Again and Home Again Senior Care; (3) comply with post-termination covenants including covenants against disclosure of confidential information and non-compete covenants; and (4) deliver all materials relating to the ECP’s business to Home Instead.

ECP stopped operating as a Home Instead franchise during the first week of February 2015 and, according to ECP, returned all of their proprietary materials. On July 15, 2015, a transfer agreement was executed that transferred ECP’s patients to a neighboring Home Instead franchise. As of August 26, 2015, Home Again’s legal business name became Purpose Home Health Inc.

Use of names and related documents. The court granted Home Instead’s motion to enjoin the Smith parties from using the names Home Instead, Home Instead Senior Care, Again and Home Again Senior Care. It also required the Smith parties to return all business-related materials pertaining to the operation of ECP. In granting the motion, the court determined that: (1) the balance of harms favored Home Instead; (2) there was a reasonable likelihood that Home Instead would succeed on the merits; and (3) Home Instead lacked an adequate remedy at law and would suffer irreparable harm if the preliminary injunction was not granted.

The balance of harms favored Home Instead because the Smith parties represented that they were no longer using the names. The Smith parties argued that that a preliminary injunction enjoining them from using licensed marks, or the return of confidential information, was moot because they stopped using the Home Instead related names and had returned all of Home Instead materials. However, the court noted that the Smith parties were continuing to use the Home Instead related names in their correspondences.

The court determined that there was a reasonable likelihood that Home Instead would succeed on the merits with respect to its trademark infringement and breach of the franchise agreement claim related to the return of confidential information because the Smith parties: (1) continued to use the name “Home Instead” after the termination of the franchise agreement; (2) used the name “Home Instead”, without permission, in conjunction with their other company, “Home Again”, in an attempt to market the two companies together; and (3) often intertwined the details of their two companies together.

The court also determined that Home Instead demonstrated a likelihood of success on its trademark claims because: (1) there was no dispute that Home Instead had a protectable mark; and (2) Home Instead provided sufficient evidence that the Smith parties’ use of the names “Home Instead” and “Home Again” created confusion between the marks and the parties.

Finally, the court concluded that Home Instead lacked an adequate remedy at law and would suffer irreparable harm if the preliminary injunction was not granted because: (1) Home Instead submitted undisputed evidence of the strength of its marks; and (2) the Smith parties’ unauthorized use of Home Instead’s marks, including the similarity of the Home Again name, threatened to irreparably harm Home Instead’s reputation and goodwill.

Enforcement of post-termination covenants. The court denied Home Instead’s motion to enforce post-termination covenant’s which prohibited the Smiths from operating, or having any financial or beneficial interest, in a non-medical and domestic case service business in ECP’s former exclusive territory. The court determined that Home Instead would not suffer irreparable harm if the Smiths were not enjoined from continuing to operate the HHA because Home Instead, after learning of the Smith’s HHA, waited almost two years before seeking a preliminary injunction. The court also determined that because the HHA provided medical services, which were not prohibited by the post-termination non-compete provisions, there was only a modest likelihood that Home Instead would succeed on the merits. Finally, the court concluded that the balance of harms weighed strongly against enjoining the operation of the HHA because doing so would deprive 230 patients of continuity of care and 124 employees could potentially be out of work.

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

Attorneys: Josh F. Brown (Law Offices Of Josh F. Brown, LLC) for Elder Care Providers Of Indiana, Inc. Adam Arceneaux (Ice Miller LLP) for Home Instead, Inc.

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

Cases: FranchisingDistribution IndianaNews