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Executive Home Care Franchising LLC v. Marshall Health Corp

In the case Executive Home Care Franchising LLC v. Marshall Health Corp., the Third Circuit deliberated on the district court’s denial of injunctive relief requested by the Executive Home Care Franchising LLC. Executive Care is best described as a home health care franchisor. The franchisees entered into a franchise contract with Executive Care in February 2013. In January 2015, the franchisees deserted the franchise. The franchisor brought suit, alleging that the franchisees were operating a ‘new, identically-structured, directly-competitive home care business.’

The franchise contract covered two provisions of direct relevance to the dispute: 1) a non-compete provision that, for two years after dissolution of the agreement, prohibited the franchisees from engaging in any competitive business within a ten-mile radius of any Executive Care business office or location; and 2) a provision wherein the franchisees specifically acknowledged that Executive Care would be entitled to injunctive relief if the franchisees defied the franchise agreement.

The franchisor in this case moved for a temporary restraining order (TRO) to cease the franchisees’ competing business operation. The franchisor purported that the franchisees’ new business was competing in the same territory as the franchise had formerly operated. Additionally, the franchisor alleged that the former franchisees were able to compete unlawfully with the franchisor given: a) the education they received; and b) their access to exclusive marketing materials. Notwithstanding these arguments, the district court rejected injunctive relief, concluding Executive Care had not established it would suffer severe damage if a TRO were denied. Executive Care appealed this decision.

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The Third Circuit declared, approving the district court’s conclusion regarding irreparable harm. The Third Circuit hearing the matter found it substantial that counsel for Executive Care accepted that the former franchisees had returned all known information containing the franchisor’s trademarks, and had returned other exclusive materials. The Third Circuit hearing the matter also relied upon counsel’s concession that the previous franchisees were no longer functioning out of the franchised location and were not using Executive Care’s trademarks. Largely based on these concessions, the Third Circuit upheld the district court’s denial of injunctive relief.

Although Executive Care argued that injunctive relief was necessary to prevent harm to the system and to avoid a precedent that would encourage other franchisees to breach their franchise agreements, the federal courts analyzing the TRO motion closely considered the facts of the matter to determine that injunctive relief was unnecessary in this matter. The concessions made by counsel for the franchisor were important to the Third Circuit’s decision and serve as another warning to counsel that statements made in oral argument can cause substantial damage. It is also significant that the Third Circuit affirmed the district court’s denial of the TRO notwithstanding the presence of a provision in the franchise agreement expressly recognizing that injunctive relief should issue after a franchise agreement breach. Conscientious franchise counsel must inform their clients that such language in a franchise agreement, all other things being equal, may not be enough to secure injunctive relief.’

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