Listen to this articleAlthough a tax preparation franchisee admitted that he breached obligations under his franchise agreements by filing tax returns from the same location following his termination, but the franchisor failed to show it would otherwise suffer irreparable harm or that the equities were in its favor, its motion for injunctive relief was denied.
Background
JTH Tax LLC franchises tax preparation businesses nationwide. In 2016, defendant Bassam Younan entered into two agreements with JTH. Pursuant to those agreements, the defendant operated a tax preparation business in North Hollywood, California. JTH terminated the franchise agreements on Jan. 26, 2022.
On Sept. 13, 2023, JTH filed a verified complaint that included claims for breach of contract, unjust enrichment and conversion. Simultaneously, JTH filed a motion for a preliminary injunction to prohibit the defendant from (1) operating a tax return preparation business within 25 miles of the territories identified in the franchise agreements for a period of two years from the date of the injunction, (2) soliciting any former Liberty or SiempreTax customer within 25 miles of those territories for a period of two years from the date of the injunction and (3) using any confidential information belonging to JTH.
Analysis
In a deposition taken July 7, 2023, the defendant admitted that he breached his obligations under the franchise agreements by “fil[ing] tax returns within two years [of termination] from the exact same location as [his] Liberty franchise.” On the basis of the facts the defendant does not dispute, the court concludes that JTH is likely to succeed on its breach of contract claim at trial, at least as to the defendant’s non-compete obligations.
Next JTH argues that the defendant’s conduct is presently causing it irreparable harm but provides no proof that such harm is more than speculative. In contrast, the defendant’s assertions counter JTH’s allegations and weigh against a finding of irreparable harm. JTH originally alleged “on information and belief” that the defendant “has used and continues to use [JTH]’s operations manuals and customer records to solicit [JTH]’s customers” and “is using [JTH]’s Confidential Information to unlawfully compete with [JTH].” However, after the defendant disputed those allegations, JTH did not provide evidence to contradict the defendant’s account.
Next, JTH asserts that the defendant is causing “actual and imminent” harm by “operating Zaya Financial Group at the Franchise Location.” JTH makes much of the fact that the defendant is operating his new business at the same location where he previously operated a Liberty franchise, and it claims that “[s]everal federal courts have held that irreparable harm is inherent where, as here, a franchisee operates a competing business out of the same location as his former franchise.” But operating a new business in the same place as a former franchise does not inherently cause irreparable harm as JTH suggests.
Finally, JTH attempts to satisfy the irreparable harm requirement by arguing that monetary damages for loss of customers at the defendant’s former franchise location would be “difficult to ascertain.” But curiously, JTH does not assert that an unknowable number of would-be Liberty customers will have their taxes prepared instead by the defendant’s independent business, before trial in this case. Instead, JTH claims “[i]t will not be possible to determine which customers went to another tax preparer because [JTH was] not operating at the former Franchise Location” and complains that it loses “customer relationships and revenue” “every time” customers “return[ ] to the location [of the defendant’s former franchise] to have their taxes prepared, and Liberty is no longer branded [there].”
This language suggests JTH believes it is suffering irreparable harm merely because it no longer has a Liberty franchise in a location where one formerly existed. If that is JTH’s argument, it fails because the defendant’s conduct is not the sole and proximate cause of the injury.
The court finds that the “harm to [the defendant] resulting from the injunction … would outweigh the irreparable harm that [JTH] would likely suffer absent an injunction.” Thus, JTH has failed to carry its burden to show that the balance of equities tips in its favor. Having concluded that JTH has failed to show that it would suffer irreparable harm absent a preliminary injunction or that the balance of equities tips in its favor, the court declines to reach the public-interest element.
Plaintiff’s motion for preliminary injunction denied.
JTH Tax LLC v. Younan, Case No. 2:22-cv-00383, Sept. 27, 2023. EDVA at Norfolk (Walker). VLW 023-3-621. 23 pp.