A New Jersey federal court denied a franchisor’s motion for preliminary injunction against a franchisee due to franchisor’s 11 month delay in bringing the motion. Franchisee entered into two franchise agreements with H-1 Auto Care, to operate in Mercerville and Flemington, New Jersey. In October 2020, the franchisee told H-1 he planned to close both locations and file for bankruptcy.
The parties agreed to terminate the Mercerville franchise agreement by November 30. The termination agreement said the non-compete and non-solicitation covenants in the franchise agreement would remain effective. The franchisee told H-1 that the Flemington location would close by December 31. Although H-1 agreed to terminate the Flemington franchise in December 2020, the franchisee continued to operate in Flemington as an H-1 Auto Care location, using the same phone number as the franchised business and calling customers to the new store, in violation of the non-compete provisions of the franchise agreement.
In January 2021, H-1 discovered the franchisee formed two entities to operate competing businesses at the previously franchised locations. Eleven months later, H-1 filed a lawsuit seeking an injunction and money damages against its former franchisee for using H-1’s business resources and employees to open competing businesses in violation of the franchise agreements. H-1 sought a preliminary injunction.
The court limited its analysis to whether there was irreparable harm, which is required for a preliminary injunction. The court explained that H-1 needed to demonstrate irreparable harm by a clear showing of immediate irreparable injury and show that an injunction was the only way to protect H-1 from such harm. Because H-1 waited 11 months to seek the preliminary injunction after learning of franchisee’s competing businesses, with no effort to justify the delay, the court found the delay showed H-1’s anticipated injuries were not irreparable harm and therefore denied the motion.
Franchisors should consult counsel immediately on discovering a franchisee’s breach of any agreement to determine what action should be taken to preserve the franchisor’s rights. Unnecessary delay in bringing suit may limit a franchisor’s available remedies.
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