The Franchise Memorandum

A federal court in New Jersey recently granted a preliminary injunction against a former franchisee, as well as associates that were nonsignatories to the franchise agreement. HouseMaster SPV LLC v. Burke, 2022 WL 2373874 (D.N.J. June 30, 2022). HouseMaster SPV LLC is a home inspection franchisor. HouseMaster franchisee John Burke began to take home inspection jobs outside of his franchised business, within and outside of the franchised territory. He continued this work after HouseMaster terminated the franchise agreement, and HouseMaster sued him and moved for a preliminary injunction against him and his nonsignatory associates to enforce the agreement’s noncompete provision. Burke argued that the noncompete provision was overly broad and did not apply to his associates.

The court granted the preliminary injunction against all of the defendants, finding that it has the authority to enforce the noncompete against nonsignatories. The court reasoned that, absent the ability to enforce the noncompete against Burke’s associates, the contractual restrictions would be rendered toothless as Burke could direct others to operate a competing business on his behalf. The court determined that Burke’s associates played a substantial role in Burke’s HouseMaster business both before and after the termination of the franchise agreement. On this basis, the court ordered Burke and his associates to cease operating any competing business within 25 miles of Burke’s former territory and to cease soliciting any of HouseMaster’s customers for a period of 18 months, as required by the franchise agreement.