A Kansas district court denied a franchisor’s motion for preliminary injunction against its former franchisee who engaged in competing businesses immediately after terminating the franchise relationship.
Happy Feet – Legends International, Inc. franchises soccer clubs nationwide. Happy Feet signed a franchise agreement with an experienced soccer coach for the operation of a franchise in Wichita, Kansas.
After over 16 years of operating a Happy Feet franchise, the franchisee notified Happy Feet of his intention to shut down the franchise. After consulting counsel, the franchisee also notified Happy Feet that he was not precluded from and would continue to provide soccer services in the Wichita area. After ending his relationship with the franchisor, the former franchisee started providing coaching and soccer lessons for a nationwide competitor of Happy Feet.
Happy Feet filed suit against its former franchisee alleging trademark infringement, unfair competition, breach of contract, and conversion, among other claims. Happy Feet also sought injunctive relief enjoining its former franchisee from violating the non-compete clause in the franchise agreement and from using or misusing the Happy Feet trademarks.
The parties disagreed on whether there was a covenant not to compete in place, however, the former franchisee did not object to the injunction as to use of the trademarks because he was not using Happy Feet’s trademarks. The court granted the injunction only to prohibit the former franchisee from potential, future use of Happy Feet’s trademark.
The court denied the injunction related to the non-compete clause, finding Happy Feet failed to establish irreparable harm required for injunctive relief. Happy Feet could not prove the alleged harm could not be compensated by monetary damages and could not establish loss of customers, business reputation and goodwill because the former franchisee was not using Happy Feet’s trademarks. Further, Happy Feet failed to show irreparable harm resulting from an alleged breach of the covenant not to compete, if any, since Happy Feet had not recruited another franchisee to operate in the Wichita area.
The court also found Happy Feet did not establish it was likely to prevail on the merits of its claims. In a sworn declaration, the former franchisee stated he did not execute the standard franchise agreement or otherwise agree not to compete after termination of the franchise relationship. Happy Feet did not reply or submit evidence to contradict the declaration.
Franchisees should consult with counsel before directly competing after termination or expiration of their franchise agreement. Where, as here, a franchisee does not execute a franchise agreement with a non-compete clause, counsel should evaluate whether express anti-competition provisions exist or other provisions that would preclude competitive activity.
Happy Feet – Legends Int’l, Inc. v. Cundy, No. 24-2294-KHV, 2024 U.S. Dist. LEXIS 191695 (D. Kan. Oct. 22, 2024).
