Franchisee 101: The Difficult Franchisor Mountain to Climb for TRO | Lewitt Hackman

A California federal court denied Mountain Mike’s Pizza a temporary restraining order (“TRO”) against one of its franchisees who did not renew their franchise agreement and opened a new restaurant under a different name.

In response to the franchisee’s notice of non-renewal, Mountain Mike’s advised the franchisee of its right to purchase the franchisee restaurant and assume the franchisee lease. The franchisee refused and signed an addendum to the lease to operate a pizza restaurant under the name Viscuso’s Pizza and Draft House. The alleged Mountain Mike franchisee used the brand’s goodwill to profit at its expense and requested a TRO based on trademark infringement.

Mountain Mike’s provided evidence that the franchisee advertised Viscuso’s on a third-party delivery app, while orders were picked up from Mountain Mike’s still-operating business. Viscuso’s online menu was copied directly from Mountain Mike’s menu, including product names, pizza sizes and descriptions. The delivery app said Viscuso’s was opening a month after the non-renewal notice.

The franchisee countered that he had no intention of operating the restaurant as Mountain Mike’s after the franchise agreement ended. The franchisee said that the delivery app was only supposed to come into effect after the franchise agreement ended and that it deactivated the app when Viscuso’s first app order was received. The franchisee claimed to have anonymized Mountain Mike’s signage upon request.

A TRO will only be issued if four elements are established by the applicant: (1) it is likely to succeed on the merits; (2) he is likely to suffer irreparable harm in the absence of preliminary measures; (3) the balance of equities tilts in its favour; and (4) an injunction is in the public interest.

The party requesting a TRO must establish that it is likely to suffer irreparable harm in the absence of preliminary measures. The court held that Mountain Mike’s could not prove that it would suffer irreparable harm because the damages it claimed were in the past and did not show a substantial threat of future harm from the franchisee. The court noted that Mountain Mike’s failed to provide sufficient evidence to prove irreparable harm, and that harm is neither inherent nor presumed.

Franchisees may want to leave their franchise system at the end of the term and start their own business. This is especially true in California, given the public policy against enforcement of non-compete agreements. A franchisee considering this course of action should consult with the franchise attorney to ensure that they are not infringing on the franchisor’s trademarks and are complying with the post-expiration covenants.

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