A Minnesota district court issued a preliminary injunction against a former franchisee who engaged in a competing business during the franchise relationship.
Snap Fitness, Inc., a gym franchisor, entered into a franchise agreement with the franchisee for the operation of a Snap Fitness gym franchise in Hixson, Tennessee. The franchisee attempted to terminate their franchise agreement prior to expiration and began operating a competing gym from the Snap Fitness location. The franchisee announced on their Snap Fitness Facebook page that they were de-branding from Snap Fitness and transferring to their own independent gym, Scenic City Fitness 24/7. The franchisee also promoted their competing gym with a new logo featuring the name Scenic City Fitness 24/7 breaking through the Snap Fitness logo.
Snap Fitness filed suit and a motion for preliminary injunction after the franchisee failed to comply with a cease and desist letter.
The court granted the preliminary injunction, finding that Snap Fitness was likely to succeed on the merits of its claim for breach of the in-term and post-term non-compete covenants and confidentiality obligations. The court found the non-compete covenants reasonable in geographic scope, 10 miles, and duration, two years, based on precedent upholding similar restrictions in franchise agreements.
The court also concluded the covenants were necessary to protect Snap Fitness' franchise system and goodwill. The court further found the franchisee’s logo featuring Snap Fitness' marks was likely to cause consumer confusion given the similarity of the marks and that the Scenic City Fitness 24/7 business directly competed with Snap Fitness. Snap Fitness also presented evidence of actual consumer confusion.
The court also determined that if the injunction was denied, there was a threat of irreparable harm to Snap Fitness. The court noted: “if one disgruntled franchisee is allowed to brazenly break away from the franchisor, it would send irreparably damaging signals to other franchisees. Some might see it as a chance to reap the benefits of a franchise system, then jump ship, with no consequences.”
The court further found that the balance of harms favored Snap Fitness because the franchisee’s harm was self-inflicted – they improperly attempted to terminate the franchise agreement and moved ahead with a competing gym. Finally, the court found that the public interest weighed in favor of granting the injunction.
Franchisees should consult with counsel before rebranding and operating a competing business to determine the impact and enforceability of non-compete covenants in their franchise agreement.
Snap Fitness, Inc. v. Scenic City Fitness, Inc., No. 24-CV-2803 (NEB/DTS), 2024 U.S. Dist. LEXIS 189651 (D. Minn. Oct. 18, 2024)
