Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—W.D.N.C.: Former Meineke franchisee enjoined from operating competing car care center, (Aug 15, 2014)

By Edward L. Puzzo, J.D.

Franchisor Meineke was entitled to a permanent injunction, enjoining its former franchisee from post-termination use of the franchisor’s marks and the operation of a competing car care center in the same location as the former franchise, the federal district court in Charlotte, North Carolina has ruled (Meineke Car Care Centers, LLC v. Asar Incorporated, August 13, 2014, Conrad, R.).

On June 1, 2009, Asar Incorporated and its shareholders, Ralph Ahmad and Ashvinder Ahmad, entered into a franchise agreement with Meineke Car Care Centers for the operation of an auto repair center in Carson City, Nevada. On January 23, 2013, Meineke notified the defendants that they were in default on the agreement. On September 26, 2013, after the default was not cured, the franchisor terminated the agreement. This lawsuit was filed by Meineke on March 24, 2014. Defendants failed to respond, and Meineke moved for a default judgment.

Trademark infringement. One of Asar’s post-termination obligations under the franchise agreement was to discontinue the use of Meineke’s marks. Meineke alleged that Asar continued to use its marks post-termination and therefore sought an injunction. The court stated that Meineke established that it owned its trademark, and that the defendant used it without authorization in commerce and in a manner likely to create consumer confusion.

Under the Lanham Act, the court continued, an injunction was appropriate where the complaining party (1) has suffered an irreparable injury; (2) the remedies available at law were inadequate; (3) the balance of the hardships favored the party seeking the injunction; and (4) the public interest would not be disserved by the injunction.

Here, the defendants continued to offer the same auto repair services as they did when they were authorized Meineke dealers, from the same location, with the same phone numbers, and using the Meineke marks. This, the court continued, deceived consumers and caused damage to Meineke’s goodwill and reputation, satisfying the first element required for an injunction. The remedies at law were inadequate because of the continued infringement. The balance of hardships also favored Meineke because Meineke would continue to suffer harm to its reputation if defendants’ behavior were not enjoined, whereas defendants would merely be held to compliance with the franchise agreement. Finally, the last element was satisfied because the public would continue to be deceived by defendants’ use of Meineke’s marks if they were not enjoined from doing so. Meineke, having established the elements required for a permanent injunction on its trademark infringement claim, was granted the injunction by the court.

Covenant not to compete. The franchise agreement also precluded defendants, for one year after termination, from owning a legal or beneficial interest in managing, operating, or consulting a competitive business operating out of the same premises as the former Meineke location, or within a six mile radius of those premises or any other Meineke location in existence on the date of termination.

Under North Carolina law, the restrictions of this covenant not to compete were reasonable in duration and geographic scope. Further, the covenant protected the legitimate interests of Meineke, including protecting confidential business information and maintaining goodwill among its customers and other franchisees. Thus, Meineke was entitled to a permanent injunction on the covenant not to compete as well, the court ruled.

The case is Civil Action No. 3:14-cv-129-RJC.

Attorneys: Robert L. Zisk (Gray, Plant, Mooty, Mooty & Bennett, PA) for Meineke Car Care Centers LLC.

Companies: Meineke Car Care Centers, LLC; Asar Incorporated.

Cases: FranchisingDistribution NorthCarolinaNews