Video Transcription

Hi. My name’s Jeff Goldstein from the Goldstein Law Group in Washington, D.C. We represent franchisees, and distributors and dealers in lawsuits around the country. We also do counseling and negotiations on behalf of franchisees, and distributors and dealers only. We don’t work both sides of the fence. What we’ve been talking about, up to now, in this series, has to do with preliminary injunctions and trying to stop a termination by a franchisor where the franchisee feels it’s been wrongful. We’ve also discussed that it’s an extraordinary remedy, very difficult to get, but it’s something you have to try and do, as the alternative is that the franchisee is enjoined himself from operating, and then is left to pursue a lawsuit for damages way down the line, which may it be a year or more. And a franchisee without any income, having been shut down, is not very likely to be able to sustain that kind of litigation. So, it’s sort of an all-or-nothing many times with the franchisee trying to hit on a preliminary injunction.

We’ve discussed, also, that the franchisee needs to show irreparable harm, which is something unique that is not compensable under the law by monetary damages. And a franchisee tries to show loss of customers, loss of good will, loss of suppliers, and things of that nature are irreparable and can’t be remedied by an award of damages later on.

We’ve also discussed that, in addition to irreparable harm, the franchisee has got to show that it’s highly likely that he’ll succeed on the merits of the case. Now, this is a problem for me, as a lawyer, because you’ve got to do preliminary injunction in a very compressed, short period of time. So, it may be a matter of weeks where you’ve got to show that the franchisor acted improperly without, many times, any discovery, any access to documents or depositions. And the problem here is that if you lose the first time, in a preliminary injunction, on this prong where the court finds that it’s not likely that you’re gonna succeed on the merits later on, it’s very difficult, in my opinion, as a litigator for many years of having worked in this area, to convince a court thereafter, later on, at a full trial, that the franchisee was right and the franchisor was wrong on the merits of the case, on the underlying facts. It’s not a question of a court not being permitted to legally go back on a full trial and say, “Well, I think that now, on more evidence and with more depositions and witnesses, I can find the franchisor did act incorrectly or wrongfully.” It’s just a question of human nature, in my experience. It’s difficult. It’s not impossible to change a judge’s mind. And many times, if you’re gonna have a jury and not a judge hear the case later on, it increases your chance. But as people know, in most franchise agreements you’re not gonna get a jury anyway, under the Waiver Provisions.

Now, with regard to likelihood of success, you look at the same issue from the other side. The franchisor, it’s relatively easy. If a franchisee hasn’t paid their royalties for the last six months and the franchisor has done what it’s required to do, serve a default notice within X number of days, and there’s no state statute saying that there has to be an additional period of time, a franchisor has good grounds and, in almost all cases, can terminate the franchisee. That’s not to say the franchisee doesn’t have a right to come back and say, “Well, the franchisor did something wrong to me, he breached the agreement or violated some statute. And therefore, the franchisor owes me money, as well.” But you’re not gonna be able to prevent a termination based on that.

So, at the end of the day, the franchisor has a leg up on that. All he needs to do is bring in his accountant, say that franchisee X hasn’t paid for the last three months, and the whole fight’s over. A franchisee, obviously, in most cases, is gonna defend by saying, “Well, the franchisor did X, Y, and Z wrongfully or didn’t perform certain obligations under the franchise agreement. And if he hadn’t done that wrongful conduct or had performed his obligations, I would have had more money in my pocket, and therefore I wouldn’t have had to breach or not pay.” That argument is raised all the time and, depending on the circuit, depending on many other circumstances, you have some chance. Whether that’s a high-probability defense, I don’t think, really, is open to interpretation. The answer is, it’s not. That’s why, obviously, you need to touch base with a franchisee lawyer before allowing a termination to take place or ignoring a termination in your particular franchise.

What I’m going to move onto, in the next tape, is going to be a balance of equities. And that’s gonna be a third prong, that’s in addition to showing irreparable harm, in addition to showing a likelihood of succeeding on the merits, and then you have to show a balancing of the equities a franchisee would, in order to get an injunction, a preliminary injunction, to prevent a termination. This also is a slippery slope for a franchisee but it does, in comparison with the other two prongs, this one presents an area that has some promise for a talented franchisee lawyer and a sophisticated franchisee client to try and sway the judge to grant a preliminary injunction.

I’ll look forward to seeing you on the next tape. My name’s Jeff Goldstein from the Goldstein Law Group. Feel free to give me a call with any questions that you have, 202-293-3947. Thanks very much.

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Goldstein Law Firm, PLLC

1629 K St. NW, Suite 300,
Washington, DC 20006

Phone: 202-293-3947
Fax: 202-315-2514

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