Injunctions and Franchise Disputes in the State of New Jersey
When it comes to "franchise litigation" and disputes between franchisors and franchisees almost, inevitably, the issue of injunctive relief is raised. Franchisors typically seek injunctions involving (a) the turn-over of the franchise location, (b) the de-identification of the franchise location, (c) specific performance requiring the franchisee to protect the franchisors marks, and/or (d) the enforcement of non-competition covenants where the franchisee establishes a competing business. Franchisees typically seek injunctive relief focused on the franchisee's preservation of its franchise location, enforcement of protected territories and specific performance as to the franchisor's on-going obligation to support the franchisees business and to maintain access to proprietary products and services.
So, when faced with a franchise dispute in the State of New Jersey, franchisors, franchisees and their legal counsel need to be aware of the basic but thoroughly applied standard of review that New Jersey courts apply to applications / motions for injunctive relief. The most commonly cited and relied upon legal decision is the decision of the New Jersey Supreme Court in Crowe v. DeGioia. Although the Crowe decision did not involve a business or franchise dispute (worse - it involved a marital dispute) it, nevertheless, sets the standard for New Jersey injunctions. Under the Crowe decision, franchisors and/or franchisees seeking injunctive relief must evaluate and be aware of the following legal proofs:
- Demonstration of "Irreparable Harm". When seeking an injunction the moving party - whether franchisor or franchisee - must demonstrate that absent the award of a preliminary injunction that such party will suffer "irreparable harm". Irreparable harm is typically equated with a harm for which a future "monetary award" cannot serve as proper or adequate compensation. For franchisors, "irreparable harm" is typically alleged to occur where the franchisor's trademarks are in jeopardy or where the franchisors proprietary trade secrets are alleged to have been disclosed or violated by the franchisee. For franchisee's irreparable harm, typically, comes in the form of franchisor violations (i.e., non-renewal and violation of protected territories) where the goodwill of the franchisees business is placed in jeopardy.
- "Likelihood of Success on the Merits". The moving party must demonstrate that as to the causes of action set forth in the underlying complaint that the moving party possesses a "likelihood of success on the merits". For franchisors it is common to rely on claims and causes of action alleging a franchisees violation of the detailed "franchisee obligations" set forth in the applicable franchise agreement. Since franchise agreements, typically, favor a franchisor, franchisees seeking an injunction are, many times, forced to rely upon New Jersey's franchise relation statute - the New Jersey Franchise Practices Act. That is a franchisee would argue that the franchisors threatened actions violate the mandates of the New Jersey Franchise Practices act and that injunctive relief is merited.
- Maintenance of the "Status Quo". The purpose of a preliminary injunction and/or temporary restraints is to maintain the "status quo" pending the ultimate resolution of each parties legal rights in the litigation. Accordingly, injunctive relief proper only where the moving party seeks to preserve and maintain its rights in a condition that is the same as when the litigation began. From a franchisee perspective the proper scope of an injunction should be to preserve the status of the franchisor / franchisee relationship and the on-going operations of the franchisees business. As to this standard, franchisors are, typically, afforded more latitude due to the express terms of the franchise agreement. For Franchisor's preserving the "status quo" is typically viewed from the point in time after termination of the franchisees rights.
In all instances it is critical for franchisors and franchisees to recognize that "injunctive relief" is an equitable remedy and is subject to the jurisdiction of New Jersey's Chancery Courts. Applications for injunctive relief (and opposition thereto) must be supported and backed-up by detailed factual certifications and affidavits. Applications for injunctive relief serve a critical tactical and substantive role in New Jersey franchise litigation.
When evaluating the purchase of a franchise, prospective franchisees, frequently, question the purpose of a franchise fee and question: "what do I get in exchange for paying the franchise fee". The following are some important factors that prospective franchisees should know about "franchise fees":.jpg)
In the State of New Jersey any determination as to the existence or non-existence of a franchise relationship requires a a factual evaluation of the legal rights and obligations between the parties.
