Case 9: Tutor Time Learning Centers, LLC v. KOG Industries, Inc., Gabriel Colmenares, and GABECO Industries, Inc.
Einbinder & Dunn recently prevailed on behalf of a former franchisee in the child care industry. The franchisor filed a motion in federal court asking for an injunction to enforce a noncompetition agreement, which the court denied, ruling that the franchisor failed to establish that it would suffer irreparable harm or that the public interests element weighed in its favor. In the case of Tutor Time Learning Centers, LLC v. KOG Industries, Inc., et. al., Case No. 1:12-CV-4129 (EDNY), Tutor Time, a franchisor of childcare services franchises, filed a motion to enforce a post-term non-compete provision against a former franchisee and its owner. The defendants had de-identified their child care location and were operating a similar business at the former franchised location under a new name. Tutor Time argued that the non-compete should be enforced because its name, methods and other materials used to operate a Tutor Time franchise were valuable and protectable interests and that Tutor Time would suffer an actual loss of customers and damage to its trademarks and franchise system if the defendants were permitted to continue operating their childcare business at the former franchised location. The court rejected Tutor Time's claims basing its decision, in part, on Tutor Time's failure to submit "concrete evidence" of its irreparable harm. Here, the court refused to rely on Tutor Time's unsupported assertions that its name, methods and other materials were protectable interests warranting an injunction.
Importantly, the court also agreed with the former franchisee's arguments that when Tutor Time terminated the franchise agreement, it ended its relationship with the customers of that franchise thereby causing its loss of good will. Moreover, the fact that Tutor Time was not then registered to sell franchises in New York precluded a finding that the injunction was required so that Tutor Time could refranchise the territory. While the court recognized that the successful enforcement of the non-compete provision may increase the price that current franchisees would be able to obtain from prospective buyers, it held that such added value only affects the selling franchisee, not Tutor Time. The court also gave weight to the franchisee's argument that the franchisor had failed to require or enforce non-competition agreements in its system, thus undermining the notion that Tutor Time needed to enforce the provision in the agreement in this case to protect it brand. Finally, the court held that even if Tutor Time had established irreparable harm, the relief it sought would harm the public interest more than if the injunction were enforced. The court recognized that the injunction would force customers of the Ivy League Learning Academy to secure new childcare services which can be costly and problematic for families and that such harm was greater than any purported harm caused to Tutor Time.
As a result, Tutor Time's motion for preliminary injunction was denied. For more information on this case or franchise issues generally, please contact the attorneys at Einbinder & Dunn.
Case 8: Singas Famous Pizza v. Ganesha Oak
Einbinder & Dunn, LLP obtained a preliminary injunction on behalf of a franchisor, enjoining a former franchisee from operating at its former franchise location as well as at a second non-franchise location. In Singas v. Ganesha Oak, Case No. 10-cv-8976 (SDNY), defendants opened up a competing pizza restaurant approximately seven miles away from its franchised Singas Famous Restaurant, using the name Queens NY Famous Pizza in violation of the non compete in the parties' franchise agreement. Based on this violation, the franchisor terminated the franchise and sought an injunction stopping the former franchisee from operating at both locations. The District Court granted the motion in all respects terming the former franchisee a "renegade" and holding defendants were enjoined from operating either restaurant and from doing business as Singas Famous Pizza or Queens NY Famous Pizza.
Case 7: Case Dismissed
Einbinder & Dunn represented a franchisee client in defending two lawsuits brought by a franchisor seeking to enjoin the franchisee from operating his health care business after the termination of the franchise agreement on the basis that the franchisee was using confidential trade secrets belonging to the franchisor. The firm's defense of the case resulted in the dismissal of all claims, after the court found that no trade secrets were being used.
Case 6: Emfore Corp. v. Blimpie Assoc., Ltd
Einbinder & Dunn represented a franchisee in a very important case for franchisees. The Appellate Division, First Department of the Supreme Court of the State of New York in Emfore Corp. v. Blimpie Assoc., Ltd., 46 A.D.3d 389, 848 N.Y.S.2d 89 (1st Dep't 2007), affirmed as modified, 51 A.D.3d 434, 860 N.Y.S.2d 12 (1st Dep't 2008), reversed the trial court's order and allowed the plaintiff franchisee to proceed with its claims that the defendant franchisor had violated Sections 683 (disclosure requirements) and 687 (fraud) of the New York State Franchise Act by providing false and misleading earnings statements to the plaintiff. The appellate court ruled that separate questionnaires and other documents containing disclaimers or waivers that the franchisor requires the franchisee to sign as well as contract clauses in the franchise agreement proper are invalid under the Franchise Act.
Case 5: Aftermarket Automobile Repair Franchise Dispute
In a case in the Superior Court of New Jersey, Einbinder & Dunn gained judgment on behalf of a franchisee of a well-known aftermarket automobile repair franchise. The franchisee was provided with pre-sale earnings disclosures. The court ordered full restitution of all franchisee fees and the franchisee's operating losses and attorneys' fees.
Case 4: Encroachment Claim
Einbinder & Dunn successfully defended a national franchisor against a claim of encroachment based on the franchisor's sales in the franchisee's territory. The arbitrator adopted Einbinder & Dunn's interpretation of the franchise agreement as accurate: The agreement gave the franchisee the exclusive right to operate a retail business in the territory at issue, but not the exclusive right to all sales there. The arbitrator also held that the franchisee's own breaches of the franchise agreement barred any recovery.
Case 3: Island Ink-Jet Earnings Claim
Einbinder & Dunn obtained an arbitration award - compensating a client for her entire investment and attorney's fees - on behalf of an area developer and franchisee of Island Ink-Jet in New York City. The franchisee had acquired the right to obtain or develop 47 franchises. The arbitrator ruled the franchisor's salesperson's indication that franchisees on average had revenues of over $200,000/year per unit to be an earnings claim. Significantly, the arbitrator did not determine that the earnings claim was false but simply determined that the franchisor had violated New York law by providing such earnings information outside the UFOC.
Case 2: New York Burger Co.
Einbinder & Dunn was able to protect the trademark rights of two-time AOL CityGuide "Best Burger" winner New York Burger Co. by compelling another restaurant, on the eve of its grand opening, to change its intended name from "N.Y. Steak & Burger Co." to something that was not improperly substantially similar to that of the firm's client.
Case 1: Restaurant Franchisee Shareholder Buyout
Einbinder & Dunn successfully represented a restaurant franchisee shareholder in an arbitration proceeding against the other shareholder in their six-unit network of restaurants. The parties had agreed that Einbinder & Dunn's client would buy out his soon to be former partner at a price to be determined by an arbitrator based on the parties' respective investments in the franchise and the value of their franchise network. The partner claimed his interest was worth more than $2 million. However, the arbitrator agreed with Einbinder & Dunn's client and only awarded the partner a low five-figure payment.
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- Franchise Law Overview
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- Franchise Real Estate
- Representative Franchise Systems
- Franchise Dispute Resolution: Litigation, Arbitration & Mediation
- Franchise News / Case Notes
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- Franchising Successes
- Bankruptcy and Franchising
- Group or Association Claims
- Commercial Litigation
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For questions or additional information about Einbinder & Dunn's franchise law services, please contact Einbinder & Dunn by clicking here to fill out a contact form or by calling 866-490-4909 or 212-391-9500 to speak with one of the firm's partners.
Julie Lusthaus was interviewed on WVOX 1460 AM by Marsha Gordon, President and CEO of The Business Council of Westchester about issues in franchising.
