McDonald Hopkins represented a franchisee in the business of installing residential waterproofing systems. The franchisee’s franchise agreement was originally signed in 1995. It was extended for a ten year term in 2005, and expires at the end of September 2015. The franchisor notified the franchisee that it was in default of certain financial reporting and record keeping provisions under the franchise agreement. The franchisor issued a notice of default and right to cure letter to the franchisee on April 30, 2014. The notice of default stated that the franchisee had 30 days to cure the defaults. Then on May 23, 2014, prior to the expiration of the 30-day cure period, the franchisor sent a letter to the franchisee terminating the franchise agreement.
McDonald Hopkins filed a complaint for declaratory judgment to have the court determine that no pending defaults existed under the franchise agreement and that the franchise agreement was wrongfully terminated by the franchisor. In addition, a motion for temporary restraining order and preliminary injunction was filed to prevent the irreparable harm that would be caused to the franchisee by the franchisor’s wrongful termination of the franchise agreement.
In deciding whether injunctive relief is appropriate a court considers the following:
- the likelihood of the plaintiff’s success on the merits;
- whether there exists an adequate remedy at law;
- whether the injunction would prevent irreparable harm;
- a balancing of the potential injury to the defendant and the general public; and
- whether the injunctive relief sought is for the purpose of maintaining the status quo pending a trial on the merits.
Gati v. Americredit Fin., 8th Dist. No. 96919, 2012-Ohio-361, ¶11.
After conducting an evidentiary hearing, the court held that:
- the franchisee produced clear and convincing evidence that it did not breach the franchise agreement;
- the franchisor breached the franchise agreement by terminating the franchise agreement prior to the expiration of the 30-day cure period;
- the franchisee would be irreparably harmed by the discontinuation of its business, the inability to calculate lost sales opportunities, and the loss of any ability to renew the franchise agreement in 2015;
- the franchisee’s employees and existing customers would be negatively impacted by the discontinuation of the franchisee’s business; and
- a preliminary injunction would act to maintain the status quo pending a trial on the merits.
Based on the foregoing, the court entered an order granting a preliminary injunction. The court ordered the franchisor to not take any action to terminate the franchisee’s franchise and to prohibit the franchisor from taking any action to take possession of the franchisee’s property, including, signs, materials, records, and accounts.
Ultimately, the franchisor and the franchisee agreed to a consensual resolution of the allegations raised by the franchisor and a trial on the merits of the case was not necessary.