BY MITCHELL J. KASSOFF
Should a court issue an injunction ordering a fran-chisor to allow a franchisee to continue to operate his franchise pending conclusion of trial on charges that a franchise was improperly terminated? The position taken here is that in many cases such relief should be granted.
The primary argument of the franchisee will be that an injunction is necessary to prevent irreparable harm if the injunction is not granted. A secondary argument is that during this process a franchisor will earn money from the franchise fees paid by a franchisee, thereby benefiting from this relationship.
The facts in such cases are usually quite simple. A franchisor will have terminated a franchise due to an al¬leged breach of the franchise agreement. The franchisee will argue that either (a) the breach of the franchise agreement did not exist or (b) it was de minimis and not worthy of the drastic step of terminating a franchise. In some cases, a franchisee will allege that it has been dis¬criminated against.
The franchisee will state that its request is simply that the court order a franchisor to maintain the status quo ante while this matter is litigated. The franchisee will continue in that if the injunctions are not granted, mon¬etary damages will not suffice and it will be impossible to put a franchisee back in its former position because it will be impossible to know how much a franchisee would have made or would have sold at their fran-chises.
The U.S. Supreme Court held that a court must weigh “the relative harms to the parties” when deciding if an injunction should be issued.1
In a case in the Eastern District of New York,2 the plaintiff dealer filed a motion for a preliminary injunc¬tion enjoining the defendant distributor from terminat¬ing its dealership until the dealer’s suit against the dis¬tributor was concluded. The court concluded that the dealer made a sufficient showing of irreparable harm if his business were closed.
In a case in the Southern District of New York,3 plain¬tiffs brought an order to show cause why the defendant should not be preliminarily enjoined from terminating their carrier agreements and from committing other acts of harassment. The court held:
If the defendant does in fact terminate the plaintiffs, the plaintiffs will be irreparably harmed. They will have lost their business and their customers and should they eventually succeed on the merits of this case, it may be impossible to reestablish the businesses as going con¬cerns. Such a victory would, indeed, be pyrrhic.
That the court has the power to issue an injunction when the likelihood that the franchise will be termi¬nated is quite clear. “Many courts have held that defen¬dants who are or may be guilty of anticompetitive prac¬tices should not be permitted to terminate franchises, leases or sales contracts when such terminations would effectuate those practices.” This is true even though “the plaintiff had violated the terms of the franchise or sales agreement and had given [the] defendant a contractual basis for termination.”4
In a case in the Eastern District of New York,5 a fran¬chisee violated its franchise agreement on several occa¬sions. Finally, the franchisor threatened to terminate the franchise agreement. The franchisee filed a complaint in state court seeking a temporary restraining order pro¬hibiting the franchisor from removing the franchisee from the franchisor’s reservation system. The tempo¬rary restraining order was granted and the defendant removed the case to the Eastern District, where the court held:
The primary argument of the franchisee will be that an injunction is necessary to prevent irreparable harm if the injunction is not granted. A secondary argument is that during this process a franchisor will earn money from the franchise fees paid by a franchisee, thereby benefiting from this relationship.
The facts in such cases are usually quite simple. A franchisor will have terminated a franchise due to an al¬leged breach of the franchise agreement. The franchisee will argue that either (a) the breach of the franchise agreement did not exist or (b) it was de minimis and not worthy of the drastic step of terminating a franchise. In some cases, a franchisee will allege that it has been dis¬criminated against.
The franchisee will state that its request is simply that the court order a franchisor to maintain the status quo ante while this matter is litigated. The franchisee will continue in that if the injunctions are not granted, mon¬etary damages will not suffice and it will be impossible to put a franchisee back in its former position because it will be impossible to know how much a franchisee would have made or would have sold at their fran-chises.
The U.S. Supreme Court held that a court must weigh “the relative harms to the parties” when deciding if an injunction should be issued.1
In a case in the Eastern District of New York,2 the plaintiff dealer filed a motion for a preliminary injunc¬tion enjoining the defendant distributor from terminat¬ing its dealership until the dealer’s suit against the dis¬tributor was concluded. The court concluded that the dealer made a sufficient showing of irreparable harm if his business were closed.
In a case in the Southern District of New York,3 plain¬tiffs brought an order to show cause why the defendant should not be preliminarily enjoined from terminating their carrier agreements and from committing other acts of harassment. The court held:
If the defendant does in fact terminate the plaintiffs, the plaintiffs will be irreparably harmed. They will have lost their business and their customers and should they eventually succeed on the merits of this case, it may be impossible to reestablish the businesses as going con¬cerns. Such a victory would, indeed, be pyrrhic.
That the court has the power to issue an injunction when the likelihood that the franchise will be termi¬nated is quite clear. “Many courts have held that defen¬dants who are or may be guilty of anticompetitive prac¬tices should not be permitted to terminate franchises, leases or sales contracts when such terminations would effectuate those practices.” This is true even though “the plaintiff had violated the terms of the franchise or sales agreement and had given [the] defendant a contractual basis for termination.”4
In a case in the Eastern District of New York,5 a fran¬chisee violated its franchise agreement on several occa¬sions. Finally, the franchisor threatened to terminate the franchise agreement. The franchisee filed a complaint in state court seeking a temporary restraining order pro¬hibiting the franchisor from removing the franchisee from the franchisor’s reservation system. The tempo¬rary restraining order was granted and the defendant removed the case to the Eastern District, where the court held:
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