A federal court denied a franchisee’s motion for a temporary restraining order and preliminary injunction in a dispute over renewal of a franchise agreement to provide home care services with HCAF.

The franchise agreement contained a post-termination covenant not to compete. At the end of the initial term, the franchisee exercised its conditional right to renew the agreement. HCAF did not have a then-current standard form of the renewal franchise agreement available, so HCAF provided the franchisee with a demand agreement which included a compulsory sale provision, or purchase right, granting HCAF the discretionary authority to purchase the franchisee’s business at any time. The franchisee refused to sign the demand agreement. HCAF informed the franchisee that the demand agreement must be executed by the franchisee and returned within thirty days; otherwise, the franchise would expire. HCAF and the franchisee entered into nine separate extensions of the existing franchise agreement as they attempted informal resolution.

The franchisee sued HCAF and filed a motion for a temporary restraining order or preliminary injunction to preserve the status quo. The franchisee contended it was stuck in a Catch-22: if the franchisee allowed the franchise agreement to expire, HCAF will invoke the post-term covenant not to compete. Alternatively, if the franchisee signed the demand agreement, HCAF will invoke the purchase right provision.

The court denied the motion. The court held that the franchisee was unlikely to succeed on the merits because the franchisee had not shown likelihood of success on the claim that HCAF had breached the franchise agreement in its renewal conduct. Nothing in the initial franchise agreement prohibited the terms offered by HCAF. The initial franchise agreement provided that renewal was contingent upon the franchisee signing a new agreement that may contain different terms than the initial agreement. Likewise, the franchisee had not shown it was likely to succeed on its claim for declaratory judgment that the covenant not to compete was invalid.

Franchisors often require franchisees to sign new franchise agreements when exercising a renewal option. Franchisees should consult with counsel to review renewal conditions in their current franchise agreements to determine what steps must be taken to continue operations at or after expiration of the agreement’s term.

Terrier, LLC v. HCAFranchise Corp., 2022 WL 4280251 (D. Nev. Sept. 15, 2022)