Labor & Employment Law Daily Wrap Up, PROCEDURE—8th Cir.: Franchisee’s antitrust claim against Sears Hometown Store franchisor affirmed as barred compulsory counterclaim, (Jul 30, 2026)

By Justin Marcus Smith, J.D.

Any counterclaim at the time of service is compulsory pursuant to Fed. R. Civ. P. 13, but two prior arbitrations complicated the compulsory counterclaim analysis.

A Sears Hometown Stores franchisee could not pursue litigation costs in an antitrust lawsuit because the franchisee waived that antitrust claim during prior arbitration, held the U.S. Court of Appeals for the Eighth Circuit, in affirming summary judgment for the franchisor. All antitrust claims accrued as compulsory counterclaims when the franchisor initiated the first arbitration against the franchisee, by operation of Fed. R. Civ. P. 13. This was equally true whether the damages were defense costs, as sought in the second arbitration; whether the franchisee should have sought a preliminary injunction preventing enforcement of the non-compete between the parties; or whether the franchisor’s initiation of the first arbitration was an overt act that caused the antitrust violation to accrue. The franchise agreement that contained the non-compete explicitly applied to spouses, but the franchisee offered no explanation or case law as to why a spouse could not have filed a costs counterclaim in the alternative. A spouse could have, without damage to the jurisdictional claim, objected to jurisdiction while simultaneously bringing the compulsory counterclaim (Goforth v. Transform Holdco, LLC, No. 25-2306 (8th Cir. Jul. 28, 2026)).

Background. Around 2012, the owner of defendant ESL Investments, Inc. (ESL), itself the owner of non-parties Sears Authorized Hometown Stores, LLC (SAHS) and nearly half of all Sears Hometown Stores (stores), added a post-expiration non-compete clause to the stores’ dealer agreement.

At length, a Missouri couple, the Goforths, along with their businesses (collectively, franchisee), brought an antitrust action under Section One of the Sherman Act arising out of SAHS’s earlier enforcement, during the first arbitration, of a non-compete restriction against them. The franchisee viewed the non-compete as illegal restraint on trade inflicted through Transform Holdco LLC and various other defendant entities (collectively, franchisor).

The federal district court in Springfield, Missouri, initially denied the franchisor’s motion to dismiss. However, the court later granted the franchisor’s motion for summary judgment because it ruled the franchisee’s federal antitrust claim was a compulsory counterclaim that the franchisee ought to have raised in arbitration, thus barring the current action. As the second arbitrator held, the franchisee had opened a “competing business” allegedly in violation of a non-compete clause in the dealer agreement. The couple’s appeal of the second arbitration, the arbitration they initiated, had been stayed pending Sears-related bankruptcy proceedings.

The franchisee filed a judicial appeal challenging the district court summary judgment holding that their antitrust claim was a compulsory counterclaim they should have raised in the initial arbitration. The franchisee argued the antitrust claims were not compulsory counterclaims because the husband’s claim did not arise until November 20, 2019, when the arbitrator granted an order enjoining the Goforths from operating their own-branded home appliance store. They also asserted that because the wife was not a party to that arbitration, she had no opportunity to respond. In addition, the Goforths argued that the district court erred when finding that the antitrust claim arose at initiation of the first arbitration, based on the Goforths seeking defense costs in the second arbitration. The Goforths contended that defense costs were not an antitrust injury needed to support an antitrust claim.

In response, Transform argued the Goforths’ claim accrued when Sears initiated the first arbitration proceeding to enforce the agreement. Specifically, Transform contended the Goforths could have and should have sought injunctive relief against the forced closing of their own-branded store. Transform argued further that Sears’ attempted enforcement of the non-compete provision constituted an overt act giving rise to the Goforth’s claims, regardless of the arbitration panel’s subsequent enforcement of the agreement. Last, Transform argued the district court did not err in holding that defense costs were a cognizable antitrust injury.

The U.S. Court of Appeals for the Eighth Circuit affirmed summary judgment on de novo review. The court explored first the issue of when the Goforth’s counterclaim, i.e., that Transform enforced an anticompetitive non-compete provision, accrued. It either accrued when Transform sought to enforce the SAHS dealer agreement through the initial arbitration proceeding, or when the arbitration panel issued the injunctive relief actually enforcing the provision. The parties agreed that the dealer agreement incorporated Fed. R. Civ. P. 13(a). That rule makes a counterclaim compulsory as of service of a pleading if the counterclaim arises out of the transaction or occurrence that is the subject matter of the pleading.

The court analyzed that while there was no dispute that the claims were all about the same transaction and occurrence as the initial arbitration, the parties disagreed as to the timing of counterclaim accrual in the antitrust context. The Goforths urged a last “overt act” analysis similar to an antitrust limitations period rule. Transform rejected this rule because it would allow a known claim to survive based on a later overt act. Transform relied instead on the R. 13(a) requirement that any counterclaim at the time of service would be compulsory.

Compulsory counterclaim. The court held the Goforths could have and should have brought their counterclaim during the first arbitration. Any counterclaim pertinent to the same transaction or occurrence, the franchisor’s enforcement of the non-compete provision in this matter, was a counterclaim that the Goforths should have stated. The court reasoned that the franchisor’s first arbitration filing constituted an overt act that allowed the cause of action to accrue, thereby triggering R. 13. The arbitrator’s later grant of interim relief enforcing the non-compete agreement was not a subsequent act of the franchisor. It was not an overt act meant to disrupt or injure the Goforths’ business. The franchisor’s initial seeking of preliminary injunctive relief was the necessary act that gave rise to the Goforths’ compulsory counterclaim by operation of R. 13.

The court footnoted that even if the Ninth Circuit arguably backed away from its holding that the initiation of a lawsuit is the final act of enforcement against an allegedly illegal contract, despite affirming later that a lawsuit was an overt act, the overt act of initiating the arbitration can cause claim accrual by operation of R. 13. The instant Eighth Circuit court said it did not need to decide whether the last overt act rule typically used in the limitations period context could ever apply in certain R. 13 contexts.

Notice implications. The Goforths argued that the franchisor’s arbitration did not in any way put them on notice of a possible antitrust violation, but the Eighth Circuit said the record belied that assertion. The husband’s response to the motion for interim relief in the initial arbitration argued the non-compete agreement was not enforceable under Illinois law and that the agreement was overly oppressive. This knowledge enabled him to allege that the franchisor violated any applicable antitrust provisions. Even after the franchisor sought emergent relief in the first arbitration, and before filing their responses, the Goforths contended the restraint of trade was unreasonable and unenforceable and continued their plans to open their own-branded store.

The Goforths also sought defense costs from the first arbitration as an antitrust injury when they initiated the second arbitration. In the instant matter, the Goforths attempted to argue that the defense costs are not an antitrust injury, because they were too consequential, and therefore could not give rise to a claim. The Eighth Circuit cited how it has previously held that causality is not necessarily determinative. The basis for antitrust compensation must relate to the harms that Congress meant the antitrust laws to rectify. In this case, there was no dispute that the Goforths alleged that the franchisor targeted them and that the Goforths did not believe their alleged injuries were indirect, secondary, or remote. Courts have allowed litigation costs as antitrust injury if an initial suit was part of a conspiracy to violate the antitrust laws.

In sum, insofar as the franchisee viewed arbitration costs from the first arbitration as an antitrust injury and part of a conspiracy to violate the antitrust laws, the franchisee’s counterclaim for those costs was a compulsory counterclaim for the first arbitration by operation of Fed. R. Civ. P. 13.

The Case is No. 25-2306.

Judge: Smith, L.

Attorneys: Nicholas Austin Fax (Lowther Johnson Attorneys at Law, LLC) for Matthew Goforth, Malinda Goforth, MG Management Co., LLC and Malinda’s Sugar and Spice, LLC. Jonathan E. Benevides (Baker Sterchi Cowden & Rice L.L.C.) for Transform Holdco, LLC, Hometown Midco, LLC, ESL Investments, Inc., ESL Partners, L.P.

Companies: MG Management Co., LLC; MG Management Co., LLC; Transform Holdco, LLC; Hometown Midco, LLC; ESL Investments, Inc.; ESL Partners, L.P.

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