Antitrust Law Daily Hospice franchisee enjoined from post-termination infringement
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Thursday, June 11, 2020

Hospice franchisee enjoined from post-termination infringement

By Robert B. Barnett Jr., J.D.

The Louisiana franchisee was subject to Florida jurisdiction because it was the successor in interest to a franchise agreement with a Florida choice of law and forum provision.

A Florida-based home hospice care franchisor’s breach of franchise agreement and trademark infringement suit against a Louisiana franchisee survived a motion to dismiss because the Florida federal court had both subject matter jurisdiction over the claims and personal jurisdiction over the franchisee, the federal district court in Miami has ruled. Personal jurisdiction arose from the franchisee’s assumption of a franchisee agreement containing a provision agreeing to litigate disputes in Florida. In addition, the court granted the franchisor a preliminary injunction both to stop the ongoing trademark infringement and to permit the franchisor to exercise its post-termination step-in rights (Interim Healthcare Inc. v. Interim Healthcare of Southeast Louisiana, Inc., June 10, 2020, Bloom, B.).

Background. Interim Healthcare, Inc., a franchisor of home hospice care and related non-medical home care, terminated its franchise agreement with Interim Healthcare of Southeast Louisiana, Inc. on August 20, 2019. At the time of termination, the franchisor contended that the franchisee owed it $412,112.43 in unpaid fees. The franchise agreement, called the Livingston Franchise Agreement, had been signed by the franchisee’s predecessor in interest. The franchisor sued the franchisee and its sole shareholder on September 27, 2019, in Miami federal court, asserting four separate breach of contract claims and one trademark infringement claim arising out of the franchisee’s continued use of the franchisor’s mark after the contract was terminated. The franchisor also moved for injunctive relief. On November 22, 2019, however, the franchisor declared bankruptcy, which stayed the proceedings.

On November 26, 2019, the franchisor filed a new suit against the franchisee and the sole shareholder, which was consolidated with the original case and precipitated a flurry of motions. The franchisee filed a motion to dismiss. The franchisor filed a motion for a preliminary injunction. And the franchisee then filed a motion to stay all proceedings until the motion to dismiss was ruled on because of the pending bankruptcy.

Motion to dismiss. The franchisee made three arguments in support of its motion to dismiss: lack of subject matter jurisdiction, lack of personal jurisdiction, and improper venue.

Subject matter jurisdiction. The lack-of-subject-matter-jurisdiction argument was fairly easy for the court to reject because subject matter jurisdiction existed both through diversity and federal question. Diversity existed because the plaintiff was a Florida corporation with its principal place of business in Florida, while the franchisee was a Louisiana corporation with its principal place of business in Louisiana and the owner was an individual who was a Louisiana citizen. Thus, complete diversity existed. In addition, because the franchisor alleged that the franchisee owed more than $425,000, the $75,000 amount in controversy requirement was satisfied. As for federal question jurisdiction, the complaint asserted a claim for trademark infringement under the Lanham Act, thus giving the court federal question subject matter jurisdiction.

Personal jurisdiction. The question of whether the Florida court had personal jurisdiction over the Louisiana defendants was a bit more complicated. The complicating factor was the franchisee’s contention that it was not subject to the forum selection and choice of law clause in the franchise agreement because it never signed the agreement. The court first determined that the franchisee was bound by the Livingston Franchise Agreement as the successor in interest. While the franchisee contended that it was not bound by the agreement, it never supported that contention with anything other than the conclusory statement. The franchisor, on the other hand, alleged that the franchisee operated its franchise under the agreement’s terms, and in every way it conducted its business as the successor in interest. It used the franchisor’s mark, with the same office, staff, and files as the previous franchisee. As a result, the court said, the franchisee was bound by the agreement’s choice-of-law provision.

Second, the court concluded that applying the agreement’s forum-selection provision comported with Florida law, which provides that a contract must have five characteristics before a Florida court can exercise jurisdiction over a foreign defendant pursuant to §§ 685.101-.102, which allow parties to confer jurisdiction on the courts of Florida by contract alone if certain requirements are met: (1) include a choice-of-law provision designating Florida as the governing law, (2) include a provision where a non-resident agrees to submit to Florida jurisdiction, (3) involve consideration of not less than $250,000, (4) not violate the U.S. Constitution, and (5) have a substantial relation to Florida or have one of the parties be a Florida resident. The court concluded that this franchise agreement met all five requirements. Exercising jurisdiction under these facts also satisfied the Florida long-arm statute and did not violate the Due Process Clause. As a result, the Florida court had specific personal jurisdiction over the franchisee under the mandatory forum-selection and choice-of-law clause in the Livingston Franchise Agreement.

Improper venue. Under federal law, venue is proper in a judicial district where a substantial part of the events occurred (28 U.S.C. §139(b)(2)). The Livingston Franchise Agreement contained a provision in which the parties agreed that a substantial portion of the events occurred in Florida. Furthermore, the injuries that the franchisor sustained from the franchisee’s failure to make the required payments occurred in Florida. As a result, the court concluded that venue was proper in Florida.

Preliminary injunction. The franchisor sought a preliminary injunction related to trademark infringement and to enforce two breach-related claims: (1) the noncompete provision and (2) the franchisee’s post-termination obligations, including the franchisor’s step-in rights.

Trademark infringement. The court concluded that the franchisor was entitled to a preliminary injunction to stop the franchisee’s continuing use of its trademark. All four conditions were present: (1) likelihood of success on the merits, (2) a need to prevent irreparable injury, (3) a balance of harms in favor of the party asking for the preliminary injunction, and (4) public interest in issuing the injunction.

Noncompete. The court, however, refused to issue a preliminary injunction to enforce the noncompete provision. The request was denied because of the lack of likelihood of success on the merits given that the franchisee never signed the agreement. Such a provision cannot be enforced against a party that never signed it.

Step-in rights. The court granted the request for a preliminary injunction on the post-termination step-in rights because, once again, all four conditions existed. The court then ordered the franchisor to post a $150,000 bond as security.

Motion to stay. The court denied the franchisee’s motion to stay until the motion to dismiss was ruled on as moot because it ruled on the motion to dismiss.

The court, therefore, (1) denied the motion to dismiss, (2) granted the motion for preliminary injunction in part and denied it in part, and (3) denied the motion for a stay. The court also ordered that the case remain stayed as it applied to the franchisee and the sole shareholder until the bankruptcy case’s automatic stay ends.

This case is No. 0:19-cv-62412-BB.

Attorneys: Christina Graziano (Fisher Zucker LLC) for Interim Healthcare Inc. Michael L. Cotzen (Michael L. Cotzen, PA) for Interim Healthcare of Southeast Louisiana, Inc.

Companies: Interim Healthcare Inc.; Interim Healthcare of Southeast Louisiana, Inc.

MainStory: TopStory FranchisingDistribution FloridaNews

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