ABSTRACT

The Minnesota Court of Appeals affirmed a district court’s grant of a temporary injunction in favor of Ellie Fam LLC, a Minnesota-based mental health clinic franchisor, against franchisees operating in Arizona and Nevada. The franchisees had attempted to terminate their franchise agreements citing Ellie’s alleged breaches and began operating independently under new names. Ellie sought enforcement of noncompete clauses in the franchise agreements. The appellate court applied the five-factor Dahlberg test and found that despite the district court determining the balance-of-harms factor favored the franchisees, the remaining four factors supported granting the temporary injunction. The court rejected franchisees’ arguments that substantial harm to them should bar the injunction, that their affirmative defenses precluded Ellie’s likelihood of success, and that arbitration clauses prevented injunctive relief. The decision emphasizes the importance of preserving contractual relationships pending full adjudication and demonstrates judicial willingness to enforce noncompete provisions in franchise agreements even when operational disputes exist.

CASE IDENTIFICATION AND PARTIES

This case, Ellie Fam LLC v. Coelho, 2026 Minn. App. Unpub. LEXIS 374, was decided by the Minnesota Court of Appeals on April 13, 2026. The case consolidated two appeals, A251515 and A25-1517, arising from Ramsey County District Court. Ellie Fam LLC served as respondent and franchisor, a Minnesota limited liability company that franchises mental-health clinics providing outpatient counseling and therapy services. The appellants and franchisees included Felipe Coelho and his company FKL Enterprises LLC, Allyson and Justin Fernstrom and their company AJ Southwest Ventures Inc., who operated Ellie clinics in Arizona, and Jim Baffone and his company Fredco LLC, who operated Ellie clinics in Nevada. As of May 2025, Ellie operated 240 franchise clinics across 37 states. The opinion was authored by Judge Wheelock and considered by Presiding Judge Connolly, Judge Smith, and Judge Wheelock.

FACTUAL BACKGROUND

Ellie Fam LLC operated as a franchisor of mental-health clinics that provided outpatient counseling and therapy services throughout the United States. The franchisees entered into franchise agreements with Ellie to operate mental-health clinics under Ellie’s franchise system, with each agreement having a ten-year term.

Under the franchise system, franchisees attended Ellie trainings after entering into their agreements. Ellie assisted franchisees with finding prospective clinic locations and negotiating contracts with insurance companies, and provided marketing services to the franchisees. Ellie provided the clinics with its confidential operations manual and client database, and managed certain operational aspects of the clinics on an ongoing basis, including credentialling of providers, insurance verification, scheduling, and billing services. Ellie also promised franchisees on-call administrative support as part of the franchise relationship.

The franchisees asserted that their experiences with Ellie leading up to the filing of complaints were consistently problematic and fell far short of their expectations. They claimed that Ellie frequently scheduled patients who were out-of-network and scheduled multiple patients at the same time, and that there were substantial issues with Ellie’s billing services. The clinics reported seeing patients for numerous sessions only to discover later that the patient’s insurance had denied the resulting claims, with one instance involving over $90,000 of denied claims before the clinic was informed. Franchisees further claimed that Ellie repeatedly failed to bill insurance, billed the wrong insurance, or failed to collect payments from insurance companies, and that each of these operational problems was compounded by a lack of on-call support that Ellie was obligated to provide under the agreements.

In June 2024, the Arizona franchisees sent written notices to Ellie alleging that Ellie breached their franchise agreements and demanded that Ellie cure the alleged defaults. Negotiations about the alleged breach occurred over the subsequent six months but were unsuccessful.

On February 7, 2025, the Arizona franchisees sent written notice to Ellie that they were rescinding or terminating their franchise agreements due to Ellie’s breach, and then began operating their clinics independently under names not associated with Ellie. On February 14, 2025, the Nevada franchisee sent Ellie a notice of intent to rescind or terminate the franchise agreement due to Ellie’s purported breach, and then began operating its clinics independently under a name not associated with Ellie. Ellie asserted that it upheld its end of the franchise agreements and disputed the franchisees’ characterization of the relationship.

PRIOR RULINGS AND PROCEDURAL POSTURE

On May 21, 2025, Ellie filed a complaint in Ramsey County District Court against Felipe Coelho, FKL Enterprises LLC, Allyson and Justin Fernstrom, and AJ Southwest Ventures Inc., the Arizona franchisees. On May 23, 2025, Ellie filed a second complaint in district court against Jim Baffone and Fredco LLC, the Nevada franchisee. In both complaints, Ellie requested that the court issue a temporary injunction to enforce the noncompete clauses in the franchise agreements and enjoin franchisees from operating independently in the same locations in which they operated under the franchise agreements.

On June 18, 2025, the district court held a motion hearing on Ellie’s request for injunctive relief. On August 18, 2025, the district court granted Ellie’s motion for a temporary injunction against the franchisees and stayed the order until December 30, 2025, to prevent disruption in patient care and allow for mediation.

The franchisees appealed from the order granting the temporary injunction, which was the procedural posture at the time of the current decision. The Minnesota Court of Appeals affirmed the district court’s grant of the temporary injunction, holding that the district court did not abuse its discretion in applying the five-factor Dahlberg test and determining that four of the five factors weighed in favor of granting the injunction to Ellie.

PARTIES’ POSITIONS ON APPEAL

The franchisees argued that the district court erred in its analysis of all five Dahlberg factors and abused its discretion in granting the temporary injunction. Regarding the first factor concerning the nature of the parties’ relationship, franchisees contended that the district court erred because the franchise agreements were terminated when franchisees provided notice of their termination to Ellie, and thus no contractual relationship existed. They also argued that the district court’s finding that the contractual relationship was the status quo was error because it disregarded the on-the-ground reality that franchisees had been operating independently for several months prior to the hearing.

On the second factor addressing balance of harms, franchisees contended that the district court’s finding that franchisees demonstrated substantial harm should have barred the injunction on its own without regard to the other Dahlberg factors, relying on Pacific Equipment for this proposition. They also argued that the district court abused its discretion by weighing franchisees’ substantial harm against Ellie’s mere risk of irreparable harm.

Concerning the third factor on likelihood of success on the merits, franchisees argued that the district court abused its discretion when it did not consider their colorable affirmative defenses in its analysis. They also asserted that the arbitration clause in the franchise agreements precluded the district court from granting injunctive relief, arguing that the court should apply the qualifying-language approach adopted by the Eighth Circuit.

On the fourth factor regarding public-policy considerations, franchisees argued that the district court abused its discretion because its findings on the importance of mental-health care for children alone should have precluded granting the injunction.

Regarding the fifth factor on administrative burden, franchisees argued the district court abused its discretion when it discounted the burdens associated with requiring specific performance of the 84-page franchise agreements. Franchisees also argued that the district court’s order violated constitutional protections against involuntary servitude. Ellie argued that it upheld its end of the franchise agreements and that the district court properly applied the Dahlberg factors. Ellie contended that it met its burden of showing irreparable harm because franchisees were engaging in continuing harm and exploitation by using confidential information, training and assistance, trademarks, and customer goodwill to compete with Ellie’s franchisees. Ellie asserted that it was highly likely to succeed on the merits because franchisees were operating the same clinics in the same locations with most of the same providers as when they operated under Ellie, thereby violating the noncompete provisions.

FRANCHISE AGREEMENT PROVISIONS IN DISPUTE

The franchise agreements at issue were substantially similar and contained ten-year terms. The agreements required franchisees to attend Ellie trainings and provided that Ellie would assist franchisees with finding prospective clinic locations, negotiating contracts with insurance companies, and providing marketing services. Under the agreements, Ellie provided the clinics with its confidential operations manual and client database and managed certain operational aspects of the clinics on an ongoing basis, such as credentialling of providers, insurance verification, scheduling, and billing. The agreements also promised franchisees on-call administrative support.

The central provisions in dispute were the noncompete clauses in the franchise agreements, which Ellie sought to enforce through the temporary injunction. These noncompete provisions prohibited franchisees from operating mental-health clinics in the same locations where they had operated under the Ellie franchise system. The agreements also contained arbitration clauses, which franchisees argued precluded the district court from granting injunctive relief without addressing the underlying merits of the dispute. The district court’s analysis focused primarily on enforcing the noncompete provisions pending resolution of the underlying disputes about whether Ellie had breached the agreements and whether franchisees had properly terminated them.

STANDARD OF REVIEW AND LEGAL FRAMEWORK

The Minnesota Court of Appeals reviewed the district court’s decision to grant a temporary injunction for an abuse of discretion. A decision on whether to grant a temporary injunction is left to the discretion of the district court and will not be overturned on review absent a clear abuse of that discretion. A district court abuses its discretion by making findings of fact that are unsupported by the evidence, misapplying the law, or delivering a decision that is against logic and the facts on record. Because a temporary injunction is granted before a trial on the merits, a showing of irreparable harm is required to prevent undue hardship to the party against whom the injunction is issued, whose liability has not yet been determined.

Appellate courts consider five factors, known as the Dahlberg factors, in reviewing the district court’s irreparable-harm determination. The five Dahlberg factors are:

• The nature and background of the relationship between the parties preexisting the dispute giving rise to the request for relief.
• The harm to be suffered by plaintiff if the temporary restraint is denied as compared to that inflicted on defendant if the injunction issues pending trial.
• The likelihood that one party or the other will prevail on the merits when the fact situation is viewed in light of established precedents fixing the limits of equitable relief.
• The aspects of the fact situation, if any, which permit or require consideration of public policy expressed in the statutes, State and Federal.
• The administrative burdens involved in judicial supervision and enforcement of the temporary decree. Of these factors, the most important is the third factor concerning a party’s likelihood of prevailing on the merits.

FIRST DAHLBERG FACTOR – NATURE OF PARTIES’ RELATIONSHIP

The first Dahlberg factor required looking to the nature and background of the relationship between the parties preexisting the dispute giving rise to the request for relief. The purpose of a temporary injunction is to preserve the status quo until adjudication of the case on its merits, with the status quo being the last actual, peaceable, noncontested status which preceded the pending controversy. This factor generally favors injunctive relief when the parties had a formalized or longstanding relationship prior to the dispute, and when the parties had an existing contractual relationship.

The district court found that the contractual relationship between Ellie and franchisees weighed in favor of the injunction. The district court evaluated the contentious relationship between the parties and observed that, as to franchisees’ allegations that Ellie failed to perform under the contract, without findings confirming the contrary, the parties remained in contract. The appellate court rejected franchisees’ argument that the district court erred because the franchise agreements were terminated when franchisees provided notice of their termination to Ellie. The court explained that this argument went to the merits of the underlying dispute, not the parties’ relationship preceding the dispute, and the district court did not abuse its discretion by determining that, for the purpose of this factor in deciding whether to grant a temporary injunction, the parties remained bound by the contract.

The appellate court also rejected franchisees’ argument that the district court’s finding that the contractual relationship was the status quo was error because it disregarded the on-theground reality that franchisees had been operating independently for several months. The court explained that franchisees’ independent operation was not the last noncontested status preceding this controversy, and while the record reflected that franchisees and Ellie never had a peaceable relationship, the last noncontested status was when franchisees were operating under their agreements with Ellie rather than competing with Ellie. The district court did not abuse its discretion in determining this factor weighed in favor of Ellie.

SECOND DAHLBERG FACTOR – BALANCE OF HARMS

Under the second Dahlberg factor, a district court looks to the harm to be suffered by plaintiff if the temporary restraint is denied as compared to that inflicted on defendant if the injunction issues pending trial. The appellate court’s review of the district court’s decision on this factor is deferential, giving deference to a district court’s equitable determinations because the court acts like a fact-finder, weighing all relevant factors and considering the unique facts of each case. The district court is in the best position to analyze the facts and balance the relevant factors. The burden of proof is on the party seeking an injunction to establish that the legal remedy is not adequate and that the injunction is necessary to prevent great and irreparable injury, and the movant must show that irreparable injury is likely, not just possible.

The district court included substantial discussion of the harms to each party in its order. It determined that Ellie met its burden of showing that the injunction was necessary to prevent irreparable harm based on Ellie’s showing that franchisees were engaging in continuing harm and exploitation as they were able to use confidential information, training and assistance, trademarks, and customer goodwill to compete with Ellie’s franchisees. The district court also found that franchisees established substantial harm based on their assertions of extreme difficulty in their working relationships with Ellie and that a lack of corporate support caused significant disruptions to the clinics.

The district court found that Ellie did not appear to meaningfully dispute any of the franchisees’ broad concerns at this stage. The district court also found that it would be harmful for franchisees’ patients and therapists to require franchisees to work within the system as Ellie currently operates it and that uncertainty and administrative chaos may risk harming those seeking support for their mental-health needs. The district court determined that, overall, this factor weighed in favor of franchisees.

The appellate court rejected franchisees’ contention that the district court’s finding that franchisees demonstrated substantial harm should have barred the injunction on its own without regard to the other Dahlberg factors. The court explained that franchisees’ reliance on Pacific Equipment was misplaced because that case did not stand for the proposition that a finding of substantial harm for both the movant and nonmovant requires that the district court deny the injunction. The appellate court explained that a district court must analyze each factor. The court also rejected franchisees’ argument that the district court abused its discretion by weighing franchisees’ substantial harm against Ellie’s mere risk of irreparable harm, explaining that the district court made several findings regarding Ellie’s past and continuing risk of irreparable harm and, after weighing the harms, determined that this factor weighed in favor of franchisees. The district court did not abuse its discretion in its determination of this factor.

THIRD DAHLBERG FACTOR – LIKELIHOOD OF SUCCESS ON MERITS

A plaintiff’s likelihood of success on the merits at trial is the key factor in the Dahlberg analysis. If a plaintiff makes even a doubtful showing as to the likelihood of prevailing on the merits, a district court may issue a temporary injunction to preserve the status quo. The district court analyzed the noncompete provision in the franchise agreements and found that Ellie met its burden because franchisees were operating the same clinics in the same locations with most of the same providers as when they operated under Ellie. The district court determined that Ellie was therefore highly likely to succeed on its claims. The district court also explained that franchisees had colorable affirmative defenses to Ellie’s claims.

The appellate court rejected franchisees’ argument that the district court abused its discretion when it did not consider their defenses in its analysis of this factor. The court explained that franchisees did not point to any Minnesota caselaw that requires the district court to make factual findings comparing their affirmative defenses to Ellie’s likelihood of success on its claims. Even if the district court was obligated to but did not, the appellate court was not convinced this would be prejudicial error because the district court found that Ellie was highly likely to succeed on the merits and even a doubtful showing supports the grant of a temporary injunction.

The appellate court also addressed franchisees’ assertion that the arbitration clause in the franchise agreements precluded the district court from granting injunctive relief. Franchisees argued that the court should apply the qualifying-language approach adopted by the Eighth Circuit, under which an arbitration clause must contain specific language that allows a district court to grant injunctive relief without addressing the underlying merits of the dispute.

The appellate court declined to consider this argument because franchisees forfeited it by failing to timely assert it in district court. The parties first raised any argument regarding arbitration at the motion hearing, and two weeks after written closing arguments were filed and the record closed, franchisees submitted a letter to the district court regarding the qualifyinglanguage approach.

The district court included a footnote in its order stating that it did not have the benefit of full briefing and legal argument and was not intending to foreclose further argument on the arbitration clause should the parties wish to raise it. Franchisees did not raise the issue in further argument before the district court, and the appellate court concluded that franchisees forfeited this argument for purposes of appeal of the temporary-injunction order. The district court did not abuse its discretion in determining that this factor weighed in favor of Ellie.

FOURTH DAHLBERG FACTOR – PUBLIC POLICY CONSIDERATIONS

The fourth factor requires that the district court consider the public-policy associated with injunctive relief, specifically the aspects of the fact situation, if any, which permit or require consideration of public policy expressed in the statutes, State and Federal. The district court has broad discretion to consider public policies that may provide guidance as to whether injunctive relief is appropriate.

The district court stated that there is no issue of greater public importance than ensuring the continuity of care for children experiencing a mental health crisis, and it found that protecting access to appropriate mental-health services is a moral and societal imperative. The district court found this factor to be a close call but ultimately determined that it favored Ellie because enforcing the noncompete clauses did not require franchisees to cease all operations, and thus, the public-policy interests it identified were protected. In its order granting the temporary injunction, the district court established a 90-day time period for franchisees to transition their clinics back to operating as Ellie clinics, to allow for continuity of care. The district court stated that it was deeply troubled that franchisees asserted harm on behalf of their patients, notwithstanding the role franchisees had in creating the situation that affected continuity of care by attempting to unilaterally terminate the franchise agreements and then operate under new names only days later.

The appellate court rejected franchisees’ argument that the district court abused its discretion because its findings on the importance of mental-health care for children alone should have precluded granting the injunction. The court explained that franchisees failed to cite any binding caselaw supporting the proposition that the district court’s findings on this factor required it to deny the injunction, and that it is within the district court’s discretion, after analyzing the factors, to fashion a temporary-injunction order that best protects the identified public-policy concerns. The district court did not abuse its discretion in determining that, because Ellie was merely seeking to enforce its noncompete provision and not seeking to close franchisees’ clinics entirely, this factor weighed in favor of Ellie.

FIFTH DAHLBERG FACTOR – ADMINISTRATIVE BURDEN

The fifth Dahlberg factor focuses on the administrative burden involved in judicial supervision and enforcement of a temporary injunction. The appellate court must give great deference to the district court’s factual findings because it is not the appellate court’s province to reconcile conflicting evidence. On this factor, the district court stated that, assuming all parties participate in good faith, there is little to no administrative burden for this court.

The appellate court rejected franchisees’ argument that the district court abused its discretion when it discounted the burdens associated with requiring specific performance of the 84-page franchise agreements. The court explained that the district court did not order specific performance of the franchise agreements; rather, the injunction enforced the noncompete provision of the agreements pending resolution of the underlying disputes, and franchisees were free to continue litigating their underlying disputes with Ellie. The court explained that it is well within the district court’s province to reconcile conflicting evidence and make an assessment of its own administrative burdens. The district court therefore did not abuse its discretion in its determination of this factor.

The appellate court also addressed franchisees’ argument that the district court’s order violated constitutional protections against involuntary servitude. The court concluded that this argument was without merit because the district court’s order enforced a contractual noncompete provision, and although the Thirteenth Amendment prohibits a court from specifically enforcing a personal service contract, an agreement not to compete is specifically enforceable if it is reasonable.

COURT’S REASONING FOR ACCEPTING ELLIE’S POSITION

The appellate court accepted Ellie’s position and affirmed the temporary injunction for several interconnected reasons across the five Dahlberg factors. On the first factor, the court accepted Ellie’s position that the parties remained in a contractual relationship because franchisees’ argument that the agreements were terminated went to the merits of the underlying dispute rather than the nature of the relationship preceding the dispute, and the last noncontested status was when franchisees operated under their agreements with Ellie rather than competing with Ellie.

On the second factor, although the district court found this factor weighed in favor of franchisees, the appellate court rejected franchisees’ argument that this finding alone should bar the injunction, explaining that Pacific Equipment did not support such a categorical rule and that a district court must analyze all factors rather than allowing one factor to be dispositive.

On the third factor, the court accepted Ellie’s position that it was highly likely to succeed on the merits because franchisees were operating the same clinics in the same locations with most of the same providers, thereby violating the noncompete provisions, and even a doubtful showing would support the injunction. The court rejected franchisees’ affirmative defense arguments because they failed to cite caselaw requiring the district court to make factual findings comparing defenses to likelihood of success, and rejected the arbitration argument because franchisees forfeited it by failing to timely raise it in district court.

On the fourth factor, the court accepted Ellie’s position that enforcing the noncompete provision did not require closing franchisees’ clinics entirely and thus protected the public-policy interests in continuity of mental-health care, and franchisees failed to cite binding authority requiring denial of the injunction based on public-policy findings alone.

On the fifth factor, the court accepted Ellie’s position that the injunction merely enforced the noncompete provision rather than requiring specific performance of the entire franchise agreements, and the district court was in the best position to assess its own administrative burdens.

Overall, the court emphasized that the district court addressed each Dahlberg factor and did not clearly err in any of its findings, determining that the balance-of-harms factor weighed in favor of franchisees but the remaining factors weighed in favor of granting the temporary injunction, and the court discerned no abuse of discretion in the district court’s final determination.

POTENTIAL SIGNIFICANCE FOR FRANCHISEES AND FRANCHISORS

This decision could have significant implications for both franchisees and franchisors in future disputes involving attempted termination of franchise agreements and enforcement of noncompete provisions. For franchisors, the decision appears to provide support for obtaining temporary injunctive relief to enforce noncompete clauses even when franchisees assert substantial operational failures and breach claims against the franchisor. The decision appears to establish that franchisees cannot unilaterally terminate franchise agreements and immediately begin competing operations without risking injunctive enforcement of noncompete provisions pending full adjudication of the underlying disputes.

Franchisors could take comfort that courts may preserve the contractual status quo and prevent franchisees from leveraging confidential information, training, trademarks, and customer goodwill to compete during litigation. The decision also may demonstrate that even when a district court finds substantial harm to franchisees and determines the balance-of-harms factor weighs in their favor, this single factor will not necessarily bar injunctive relief if the other Dahlberg factors support the franchisor.

For franchisees, the decision may present challenges when seeking to exit franchise relationships based on alleged franchisor breaches. Franchisees might not be able to simply provide notice of termination and begin operating independently without facing potential injunctive relief that forces them back into the franchise system pending resolution of their claims. The decision suggests that franchisees must either continue operating under the franchise agreement while litigating their breach claims or cease operations in the same locations to avoid violating noncompete provisions.

The decision appears to highlight the importance of timely raising all legal arguments, including arbitration defenses, before the district court to avoid forfeiture on appeal. Franchisees should be aware that courts may prioritize enforcement of noncompete provisions and preservation of the contractual status quo over immediate relief from allegedly problematic franchise relationships. The decision’s emphasis on continuity of care for patients receiving mental-health services may also suggest that courts may be particularly inclined to maintain existing operational structures in franchise systems involving healthcare or other essential services where disruption could harm third parties.

COMPARISON TO OTHER JURISDICTIONS

The Minnesota Court of Appeals’ approach in this case may align with the general framework used by many jurisdictions for evaluating requests for temporary injunctive relief, though the specific factors and their application vary across states. Minnesota’s five-factor Dahlberg test is similar to the four-factor test used by federal courts and many other state courts, which typically considers:

• likelihood of success on the merits,
• irreparable harm,
• balance of equities, and
• public interest.

Minnesota’s approach differs by explicitly separating the analysis of the parties’ preexisting relationship as a distinct factor and including administrative burden as a separate consideration. The court’s emphasis on the likelihood of success on the merits as the key factor appears consistent with approaches in other jurisdictions. However, Minnesota’s willingness to grant injunctive relief even with only a doubtful showing of success on the merits, as articulated in Metro Sports, may be more lenient than some jurisdictions that require a stronger showing of likelihood of success.

The court’s treatment of the arbitration issue in this case, declining to adopt the Eighth Circuit’s qualifying-language approach and instead finding forfeiture, might be viewed to leave Minnesota’s position on this issue somewhat unclear compared to jurisdictions that have definitively addressed whether arbitration clauses preclude injunctive relief in franchise disputes. Some jurisdictions have held that broad arbitration clauses do not necessarily preclude courts from granting preliminary injunctive relief to preserve the status quo pending arbitration, while others have adopted approaches similar to the Eighth Circuit’s qualifying-language test.

The court’s analysis of the status quo as the last noncontested status when franchisees operated under the franchise agreements, rather than their subsequent independent operation, appears to be consistent with approaches in other jurisdictions that focus on the contractual relationship rather than unilateral actions by one party. The decision’s consideration of public policy related to continuity of mental-health care may reflect Minnesota’s broad discretion for district courts to consider relevant public policies, which is similar to approaches in other jurisdictions but may result in different outcomes depending on the specific industry and public interests involved.

LAW AND ECONOMICS PERSPECTIVE

From a law and economics perspective, this decision implicates issues of contract enforcement, information asymmetry, and transaction costs in franchise relationships.

Enforcement of noncompete provisions through injunctive relief may help protect a franchisor’s investment in developing confidential business methods, operational systems, and goodwill that franchisees access through the relationship. At the same time, such enforcement can impose constraints on franchisees’ ability to continue operating in their field after termination, raising questions about the appropriate scope and duration of these restrictions.

This moral hazard problem could reduce franchisors’ incentives to invest in developing valuable franchise systems and sharing information with franchisees, ultimately reducing the efficiency gains from franchising as a business model. The decision’s preservation of the contractual status quo pending full adjudication also could serve to reduce strategic behavior by franchisees who might otherwise use threats of termination and immediate competition as leverage in disputes with franchisors.

However, the decision may also raise efficiency concerns related to the continued operation of allegedly dysfunctional franchise relationships. If the franchisees’ allegations of operational failures are accurate, requiring them to continue operating under the franchise system pending litigation may result in ongoing losses and harm to patients receiving substandard services, representing a deadweight loss to society. The decision’s stay period allowing for mediation and transition could reflect an attempt to balance these competing efficiency concerns.

From a transaction cost perspective, the decision could increase the costs for franchisees seeking to exit franchise relationships, which may deter some opportunistic terminations but may also trap franchisees in genuinely problematic relationships for extended periods during litigation. The decision’s treatment of the arbitration issue as forfeited due to untimely raising also may reflect transaction cost considerations, as allowing parties to raise new legal theories late in proceedings increases litigation costs and delays.

FINAL DISPOSITION

The Minnesota Court of Appeals affirmed the district court’s order granting the temporary injunction in favor of Ellie Fam LLC. The appellate court concluded that the district court addressed each Dahlberg factor and did not clearly err in any of its findings. The court determined that although the balance-of-harms factor weighed in favor of franchisees, the remaining four factors weighed in favor of granting the temporary injunction, and the district court did not abuse its discretion in its final determination that the factors supported granting injunctive relief in favor of Ellie.