Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—S.D. N.Y.: Absent showing of irreparable harm, franchisee denied injunction against termination, (Mar 27, 2014)

By Linda O’Brien, J.D., LL.M.

An Edible Arrangements franchisee was denied remand of his action for injunctive relief to prevent the termination of its franchises, the federal district court in New York City has ruled. The franchisee was also denied a preliminary injunction, absent a demonstration of irreparable harm (Sunni, LLC v. Edible Arrangements, Inc., March 25, 2014, Failla, K.).

In 2003, Sammy Hinnawi, through his companies, entered into franchise agreements with Edible Arrangements (EA) for three EA franchises. The agreements provided that EA could terminate the agreements upon notice if the franchisee was convicted or pleaded guilty to a felony, engaged in dishonest or unethical conduct, or failed to pay federal or state income taxes. In January 2012, Hinnawi pleaded guilty to criminal tax fraud, a felony, relating to the theft of sales tax receipts from his EA stores. After receiving a copy of Hinnawi’s plea agreement, EA notified Hinnawi that it was terminating their franchise agreements due to his felony convictions. Hinnawi filed for arbitration. He also filed an action for injunctive relief in state court to continue operating the franchises during the arbitration proceedings. EA removed the action to federal court. Subsequently, Hinnawi moved for a remand and for a preliminary injunction.

Because the jurisdictional amount was satisfied, the court denied Hinnawi’s motion for remand. Under 28 U.S.C. §1332(a), the district court has jurisdiction where the matter in controversy exceeds $75,000. Using sales data for three years for each of Hinnawi’s stores, EA showed a reasonable probability that the potential lost revenues from at one of Hinnawi’s store during the arbitration proceedings would exceed $75,000. Hinnawi presented no evidence to refute EA’s profit estimate.

In denying the plaintiffs’ request for a preliminary injunction, the court held that Hinnawi failed to adequately demonstrate any irreparable harm. EA stated that it would assume management of the three franchises during the pendency of the arbitration. The stores would remain open and the employees would be retained. EA would keep track of any profits earned and repay them to the plaintiffs if they should succeed in arbitration. On that basis, Hinnawi could not show that he would suffer any harm or any harm that would irreparable. In fact, Hinnawi conceded that any loss of business during the short period of the arbitration proceedings could be remedied within a year. Furthermore, Hinnawi had no legal right to continue the businesses under the terms of the franchise agreements as a direct and foreseeable result of his admitted criminal conduct, according to the court.

Hinnawi also failed to show a likelihood of success of the merits. His admissions that he used his EA franchises to defraud taxpayers for almost the entire duration of the agreements clearly permitted EA to terminate the agreements on that basis, the court concluded.

The case is No. 14 Civ. 461 KPF.

Attorneys: Roland Richard Acevedo (Seiff Kretz & Abercrombie) for Sunni, LLC and Sunni III, LLC. Christopher Thomas Scanlon (Clausen Miller, PC) for Edible Arrangements International, Inc.

Companies: Sunni, LLC; Sunni III, LLC; Edible Arrangements, Inc.

Cases: FranchisingDistribution NewYorkNews