Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—S.D. N.Y.: Walk-in tub dealership slips in attempt at injunctive relief, (Oct 28, 2015)

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

A preliminary injunction and temporary restraining order barring dealership termination, requested by a dealer on the basis that the dealership/licensing agreement remained in effect or was inadvertently converted to a franchise agreement requiring notice of termination, was denied by the federal district court in White Plains, New York. The court also determined that, even if the agreement was still in effect, injunctive relief should be denied because there was no evidence of irreparable harm (Safe Step Walk-In Tub Co. v. CKH Industries, Inc., October 26, 2015, Román, N.).

Background. CKH Industries, Inc. entered into a dealership/licensing agreement with Safe Step Walk-In Tubs Co. on May 7, 2009, to sell Safe Step Walk-In Tubs. The agreement provided that: (1) it was for five-years, absent early termination for cause; and (2) it could be renewed for two additional five-year terms upon written notice to Safe Step no less than 90 days prior to the end of the term. CKH failed to provide the required notice and the agreement was terminated on May 10, 2014.

CKH filed a motion for a preliminary injunction and TRO on the grounds that: (1) the dealership/licensing agreement remained in effect and Safe Step was breaching that agreement; and/or (2) the dealer/licensing agreement was inadvertently converted to a franchise agreement, which extended additional rights to CKH, such as notice provisions prior to the termination of the agreement.

Agreement. The court determined that the agreement was no longer in effect because renewal of the agreement required a 90-day written notice, which CKH conceded it did not provide. Moreover, CKH’s argument that an automatic renewal was created, in absence of the written notice, was wholly inconsistent with a plain reading of the agreement.

Furthermore, the agreement was not inadvertently converted to a franchise agreement. The court noted that, although federal and state requirements for franchises differ slightly, generally a franchisor must exhibit a significant degree of control over the franchisee, and the franchisee must pay a franchise fee. In this case, CKH did not make a sufficient showing that Safe Step exhibited a significant degree of control over its business and conceded that it did not have evidence of payment of a franchise fee.

Irreparable Harm. The court found that, even if CKH had been able to demonstrate that the agreement was still in effect by its terms or by operation of a federal or state franchise law, it did not demonstrate irreparable harm. CKH’s generalized and conclusory statements concerning the termination of employees and the ultimate demise of the business was insufficient, as a matter of law, to demonstrate the requisite harm for injunctive relief. The court also was not convinced that CKH would not be adequately compensated, for any damages arising under the contract or by franchise law, by monetary damages in an amount greater than or equal to the dollar value of the products sold by Safe Step in CKH’s exclusive territory during the pendency of the litigation.

The case is No. 15-cv-07543 (NSR).

Attorneys: John Sellner (Winthrop & Weinstine PA) for Safe Step Walk-In Tub Co. Donald Joseph Feerick, Jr. (Feerick Lynch MaCartney) for CKH Industries, Inc.

Companies: Safe Step Walk-In Tub Co.; CKH Industries, Inc.

Cases: FranchisingDistribution NewYorkNews