Source: https://www.icemiller.com/ice-on-fire-insights/publications/specific-performance-a-maverick-remedy-post-ebay-a/
Timestamp: 2019-04-22 20:40:30+00:00

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When a franchise relationship comes to an end, franchisors obviously expect their former franchisee to stop associating their business with that of the franchisor. But as we know, expectations often don’t line up with reality--one of the main reasons why lawyers remain gainfully employed! So, what is a franchisor like McDonald’s to do if an ex-franchisee continues selling knockoff Big Macs under its old golden arches?
For decades, plaintiffs seeking injunctive relief for trademark infringement and other types of intellectual property claims enjoyed a presumption *200 of irreparable harm simply by establishing that they were likely to succeed or already had succeeded on the merits. Franchise cases were no exception.3 But two Supreme Court decisions have altered the landscape regarding the presumption of “irreparable harm” and, in turn, have required plaintiffs to jump over new evidentiary hurdles to establish this element of injunctive relief.4 As a result, franchise practitioners may be wise to explore more creative remedies than traditional injunctive relief to achieve the same results for their clients.
This article addresses whether one remedy in particular, specific performance--an equitable remedy that is not frequently sought--can be used by franchisors in place of injunctive relief to obtain a similar result. First, this article discusses the two recent Supreme Court cases, eBay v. MercExchange, LLC and Winter v. Natural Resources Defense Council, Inc., and their impact on the presumption of irreparable harm. Second, it outlines the elements of specific performance and compares them to those of injunctive relief. Third, it discusses how specific performance has traditionally been used in franchise cases and considers whether specific performance could be used by franchisors as a substitute for injunctive relief. Finally, this article explores other ways in which both franchisors and franchisees may be able to assert claims for the remedy of specific performance other than attempting to use it as a substitute for injunctive relief.
*204 However, the Supreme Court has not clarified the question of whether its holdings in eBay and Winters completely eliminate the presumption of irreparable harm,40 although there is clearly a significant trend to move toward a new standard eliminating the presumption and requiring plaintiffs in IP cases to present actual evidence of irreparable harm. This new standard may make it more difficult for franchisors to seek injunctive relief against former franchisees for intellectual property infringement and even more general claims and begs the question of whether another remedy can provide the same result. One remedy in particular comes to mind: specific performance.
II. Specific Performance versus Injunctive Relief: A Distinction Without A Difference?
Specific performance is an equitable remedy that is only available in the context of enforcing contractual duties.46 The remedy of specific performance is in many ways similar to the more broadly available remedy of injunctive *205 relief: both are equitable remedies premised on the requirement that an award of damages alone would be insufficient to make the wronged party whole.47 However, while “specific performance of a contract duty will be granted in the discretion of the court against a party who has committed or is threatening to commit a breach of the duty,” an injunction against a breach of contract will only be granted “against a party who has committed or is threatening to commit a breach of duty if (a) the duty is one of forbearance, or (b) the duty is one to act and specific performance would be denied only for reasons that are inapplicable to an injunction.”48 However, unlike specific performance, injunctive relief is available in a variety of contexts outside of contractual relationships, such as trademark infringement, trade secret misappropriation, and the prevention of certain statutory violations.
In the context of franchise relationships, however, the differences between specific performance and injunctive relief could potentially impact the strategy that a wronged party decides to pursue in enforcing its legal rights. Although the creative practitioner may attempt to use specific performance as a way to dodge the heightened standards for injunctive relief imposed by the eBay and Winter cases, some key differences must be kept in mind when attempting to obtain specific performance of a franchise agreement provision.
Research revealed no cases in which a franchisor has sought to obtain injunctive relief for trademark infringement through specific performance after eBay and Winter. However, if all the elements of specific performance can be met, specific performance may be a feasible alternative to an injunction. Indeed, specific performance has been used in place of injunctive relief for other types of requests.
V. Specific Performance: A World of Possibilities?
enforcing rights concerning real property.
The remedy of specific performance clearly is a worthwhile addition to franchise practitioners’ toolboxes in zealously asserting all rights to which their clients may be entitled.
But be warned. As the recent Apple case84 makes clear, courts may be catching on to this would be loophole in the attempt to obtain effective injunctive relief without meeting the actual standards to do so. As the law on the interplay between specific performance and injunctive relief continues to develop, franchise practitioners should be aware of the pitfalls a specific performance argument may present and tread carefully in this relatively untested area. Although specific performance may be a creative argument worth trying, maverick lawyers would be wise to also keep the heightened requirements of eBay and Winter in mind when drafting pleadings and presenting arguments to the court and not rest their cases on this relatively uncharted ground.
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.
1 eBay v. MerExchange, L.C.C., 555 U.S. 348, 391 (2006); see also Weinberger v. Romero-Barcelo, 456 U.S. 305, 311-13 (1982).
2 Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 20 (2008). When a court is considering awarding permanent injunctive relief, success on the merits of the underlying claim must already have been established. Plummer v. Am. Inst. of Certified Pub. Accountants, 97 F.3d 220, 229 (7th Cir. 1996).
3 See e.g., El Pollo Loco, Inc. v. Hashim, 316 F.3d 1032, 1038 (9th Cir. 2003); Dunkin’ Donuts Inc. v. Benita Corp., No. 97 C 2934, 1998 WL 67613, at *5 (N.D. Ill. Feb. 10, 1998); Country Inn & Suites By Carlson, Inc. v. Nayan, LLC, No. 1:08-CV-624-SEB-DML, 2008 WL 47535267, at *6 (S.D. Ind. Oct. 28, 2008); Starbucks Corp. v. Lundberg, No. Civ. 02-948-HA, 2005 WL 3183858, at *13 (D. Or. Nov. 29, 2005).
4 eBay, 547 U.S. at 388; Winter, 555 U.S. at 7.
5 eBay, 547 U.S. at 391.
6 See id. at 391; Herb Reed Enters., LLC v. Fla. Entm’t Mgmt., 736 F.3d 1239, 1248-49 (9th Cir. 2013); TGI Friday’s Inc. v. Great Nw. Rests., Inc., 652 F. Supp. 2d 763, 771 (N.D. Tex. 2009) (noting that cases from the First, Second, Third, Sixth, Seventh, Eighth, Ninth, and Eleventh Circuits had applied the presumption of irreparable harm upon a determination of likelihood of success on the merits of a trademark infringement claim).
7 eBay, 547 U.S. at 393-94.
11 Id. at 391, 393-94.
15 Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 21-22 (2008) (emphasis added).
20 Id. at 22, 33.
22 For a discussion of the pre-Herb Reed Enterprises effect of the eBay decision, see Ronald T. Coleman, Jr., Trishanda L. Treadwell, and Elizabeth Lloyd, Applicability of the Presumption of Irreparable Harm After eBay, 32 FRANCHISE L.J. 3 (2012).
23 Herb Reed Enters., LLC v. Fla. Entm’t Mgmt., 736 F.3d 1239, 1251 (9th Cir. 2013).
27 Id. at 1249 (citing N. Am. Med. Corp. v. Axiom Worldwide, Inc., 522 F.3d 1211, 1228-29 (11th Cir. 2008); Audi AG v. D’Amato, 469 F.3d 534, 550 (6th Cir. 2006)).
29 Salinger v. Colting, 607 F.3d 68, 77-78 (2nd Cir. 2010).
32 of the Arab World, Inc. v. MDTV Medial News Now, 645 F.3d 26, 31-32 (1st Cir. 2011).
33 Id. at 33 (“[T]he text and logic of eBay strongly suggest that the traditional principles of equity it discussed should be presumed to apply whenever a court must determine whether to issue an injunction, whether the case is a patent case or any other type of case.”).
34 See e.g., Bethesda Softworks v. Interplay Entm’t, 452 F. App’x 351, 354-55 (4th Cir. 2011) (finding that irreparable harm could not be presumed in deciding a request for preliminary injunction in a copyright infringement case); Voilé Mfg. Corp. v. Dandurand, 551 F. Supp. 2d 1301, 1306 (D. Utah 2008) (“Despite the lack of clear direction from the Federal Circuit, the majority of district courts to directly analyze the issue have held that eBay did away with the presumption of irreparable harm in preliminary injunction cases involving patents .... The court now joins these district courts and holds that eBay eliminated the presumption of irreparable harm in preliminary injunction cases.”); Active Sports Lifestyle USA, LLC v. Old Navy, LLC, No. SACV- 12-572 JVS, 2014 WL 1246497, at *1-2 (C.D. Cal. Mar. 21, 2014) (holding that the presumption of irreparable harm no longer applies in cases seeking permanent injunction); Se. X-ray, Inc. v. Spears, 929 F. Supp. 2d 867, 872 (W.D. Ark. 2013) (making no presumption as to irreparable harm despite the fact that the Eight Circuit has yet to acknowledge eBay’s holding with respect to the preliminary injunction factors).
35 Active Sports Lifestyle, 2014 WL 1246497, at *1.
40 See, e.g., TGI Friday’s Inc. v. Great Nw. Rests., Inc., 652 F. Supp. 2d 763 (N.D. Tex. 2009) (noting that district courts in the Fifth Circuit continue to apply the presumption although the Fifth Circuit itself has ““explicitly avoided” deciding the issue); Buffalo Wild Wings Int’l v. Grand Canyon Equity Partners, 829 F. Supp. 2d 836, 845 (D. Minn. 2011) (noting that the Eighth Circuit has not made a decision whether the presumption still applies); Burger King Corp. v. Cabrera, No. 10-20480-Civ., 2010 WL 5834869, at *9 (S.D. Fla. Dec. 29, 2010).
41 See RUPERT M. BARKOFF & ANDREW C. SELDEN, FUNDAMENTALS OF FRANCHISING 45 (1997).
42 See id. at 159. Many states have also enacted statutory schemes that may supplant common law contractual principles governing a franchise relationship, see id. at 136-37, but the content and application of these varying laws is beyond the scope of this article.
43 RESTATEMENT (SECOND) OF CONTRACTS, Ch. 16 Topic 3 Intro. Note (1981).
44 See Edge Grp. WAICCS, LLC v. Sapir Grp. LLC, 705 F. Supp. 2d 304, 312 (S.D.N.Y. 2010); Wurtzel v. Richmond, 717 F. Supp. 1, 2 (D.D.C. 1989).
45 Edge Grp. WAICCS, 705 F. Supp. 2d at 312.
46 RESTATEMENT (SECOND) OF CONTRACTS, Ch. 16 Topic 3 Intro. Note (1981).
48 RESTATEMENT (SECOND) OF CONTRACTS § 357 (1981).
49 Malo, Inc. v. Alta Mere Indus. Inc., No. 02:06-CV-01449-KJD-GWF, 2007 WL 1703454, at *3 (D. Nev. June 11, 2007); see also Redner’s Markets, Inc. v. Joppatowne G.P. Ltd. P’ship, No. RDB-11-1864, 2013 WL 2903285, at *5 (D. Md. June 13, 2013); Cytogenix, Inc. v. Waldroff, 213 S.W.3d 479, 486 (Tex. App. 2006) (referring to the trial court’s ordered relief as “specific performance via injunctive relief”); Campbell Inns, Inc. v. Banholzer, Turnure & Co., Inc., 527 A.2d 1142, 1144 (1987) (“[A]n order for specific performance is ‘in effect’ a mandatory injunction.”). But see Snyder v. Sullivan, 705 P.2d 510, 513 (Colo. 1985) (explaining that an “injunction is generally a preventive and protective remedy, aimed at future acts,” while specific performance “remedies a past breach of contract by fulfilling the legitimate expectations of the wronged promisee”).
50 71 AM. JUR. 2d Specific Performance § 179.
51 798 F. Supp. 684, 692 (S.D. Fla. 1992).
53 Id. See also Burger King Corp. v. Agad, 911 F. Supp. 1499 (S.D. Fla. 1995); Burger King Corp. v. E-Z Eating 8th Corp., No. 07-20181-CIV, 2008 WL 384554, at *1 (S.D. Fla. Feb. 11, 2008) (stating in dicta that Florida does not recognize the remedy of specific performance for franchise agreements).
54 See, e.g., In re Headquarters Dodge, Inc., 13 F.3d 674, 682-83 (3d Cir. 1993) (observing that whether a franchise agreement constituted a personal services contract in the context of a bankruptcy proceeding “depends upon the nature of the subject of the contract, the circumstances of the case and the intent of the parties to the contract,” as well as on the language of the contract itself, the court concluded that whether the franchise agreement was a personal services contract was a question of fact that precluded entry of summary judgment); N. Am. Fin. Grp., Ltd. v. S.M.R. Enters., Inc., 583 F. Supp. 691, 699 (N.D. Ill. 1984) (“Even were the skeleton of a contract traced, there is absolutely no precedent for granting specific performance of a franchise contract. A franchise agreement of the type contemplated here is at least partially a contract for personal services.”); Goldfarb v. Robb Report, Inc., 655 N.E.2d 211, 219 (Ohio Ct. App. 1995) (where plaintiff sought specific performance of parties’ franchise agreement, court observed that “the parties’ contract in itself is not amenable to specific performance, as specific performance is not available in a contract for services”). But see Husain v. McDonald’s Corp., 205 Cal. App. 4th 860, 871-72 (Cal. Ct. App. 2012) (rejecting contention that franchise agreement was contract for personal services thereby precluding award of specific performance).
55 71 AM. JUR. 2D Specific Performance § 62 (2014).
56 RESTATEMENT (SECOND) OF CONTRACTS § 364 (1981).
57 71 AM. JUR. 2D Specific Performance § 62 (2014); see also RESTATEMENT (SECOND) OF CONTRACTS § 364, cmt. a (1981) (“Courts have traditionally refused equitable relief on grounds of unfairness or mistake in situations where they would not necessarily refuse to award damages. Some of these situations involve elements of mistake ... misrepresentation ... duress ... or undue influence ... that fall short of what is required for avoidance under those doctrines .... Still others involve elements of substantive unfairness in the exchange itself or in its terms that fall short of what is required for unenforceability on grounds of unconscionability ... [T]he discretionary nature of equitable relief permits its denial when a variety of factors combine to make enforcement of a promise unfair, even though no single legal doctrine alone would make the promise unenforceable.”).
58 71 AM. JUR. 2D Specific Performance § 62 (2014); Lang v. Derr, 569 S.E.2d 778, 781 (W. Va. 2002) (citing the RESTATEMENT (SECOND) OF CONTRACTS for the proposition that specific performance may be denied in the case of an unconscionable contract); Shikes v. Gabelnick, 173 N.E. 495, 498 (Mass. 1930) (“But if there is fraud, deceit, a failure to do equity, or inequitable conduct, though not enough to deprive the plaintiff of his right to damages, a sound judicial discretion resting on established principles of equity requires a refusal of specific performance. A court of equity does not lend its aid to parties who themselves resort to unjust and unfair conduct.”).
59 See, e.g., Metro Motors v. Nissan Motor Corp. in U.S.A., 339 F.3d 746, 750 (8th Cir. 2003) (noting that franchisor’s inequitable conduct towards franchisee and superior bargaining position as drafter of the franchise agreement supported lower court’s refusal to order specific performance of contract); Husain v. McDonald’s Corp., 205 Cal. App. 4th 860, 871 (Cal. Ct. App. 2012) (observing that McDonald’s franchise agreements are standardized and “comprehensively dictate the terms of each franchisee’s performance”); Postal Instant Press, Inc. v. Sealy, 43 Cal. App. 4th 1704, 1715-17 (Cal. Ct. App. 1996) (court noted inequality of bargaining power between franchisees, which are typically small businesses, and franchisors, which are typically large corporations, and acknowledged that “[b]efore the [franchise] relationship is established, abuse is threatened by the franchisor’s use of contracts of adhesion presented on a take-it-or-leave-it basis” (internal citations and quotations omitted)); Ungar v. Dunkin’ Donuts of Am., Inc., 531 F.2d 1211, 1222 (3d Cir. 1976) (noting that “disparity in power and sophistication between franchisor and franchisee” had given rise to problems in the franchise legal system such as “arbitrary franchise terminations and fraudulent promotional schemes”).
60 71 AM. JUR. 2D Specific Performance §§ 109-10 (2014); Stanford Hotels Corp. v. Potomac Creek Assocs., L.P., 18 A.3d 725, 738 (D.C. Ct. App. 2011) (acknowledging the general rule that “a promise will not be specifically enforced if the character and magnitude of the performance would impose on the court burdens in enforcement or supervision that are disproportionate to the advantages to be gained from enforcement and to the harm to be suffered [from] its denial” (internal citations and quotations omitted)); D.W. Trowbridge Ford, Inc. v. Galyen, 262 N.W.2d 442, 448 (Neb. 1978) (“Specific enforcement of a contract may be refused if the performance is of such a character as to make effective enforcement unreasonably difficult or to unnecessarily require long-continued supervision by the court.”).
61 Ambassador Foods Corp. v. Montgomery Ward & Co., 192 N.E.2d 572, 576 (Ill. App. Ct. 1963).
62 Of course, this issue may arise in the context of injunctive relief as well (as opposed to solely in the context of specific performance of a contractual obligation). See, e.g., Johnson v. Hermes Assocs., Ltd., 128 P.3d 1151, 1156 (Utah 2005) (noting the requirement under Utah law that a permanent injunction may only be granted if “court enforcement is feasible”). However, because injunctions are often used to prohibit certain conduct, as opposed to compelling affirmative actions (as is more frequently the case with the remedy of specific performance), this concern may be greater in the case of specific performance. See RESTATEMENT (SECOND) OF CONTRACTS § 357 (1981).
63 Some jurisdictions, however, have noted in the context of franchise agreements that because such arrangements are “unique,” damages are usually inadequate and “such contracts are generally eligible for specific performance.” Hometown Folks, LLC v. S&B Wilson, Inc., No. 1:06-cv-81, 2008 WL 918519, at *1 (E.D. Tenn. Apr. 3, 2008).
64 See Nemer Jeep-Eagle, Inc. v. Jeep-Eagle Sales, Corp., 992 F.2d 430 (2d Cir. 1993); Guinness-Harp, Corp. v. Jos. Schlitz Brewing Co., 613 F.2d 468 (2d Cir. 1980).
65 Nemer Jeep-Eagle, 992 F.2d at 429.
71 Id. at 432 (citing Conn. Res. Recovery Auth. v. Occidental Petro. Corp., 705 F.2d 31, 35 (2d Cir. 1983); Erving v. Va. Squires Basketball Club, 468 F.2d 1064, 1066-67 (2d Cir. 1972)). The court distinguished the situation where the underlying contract does not contain a status quo provision. To make this point, the court cited Roso-Lino Beverage Distributors, Inc. v. Coca-Cola Bottling Co. of New York, Inc., 749 F.2d 124, 125 (2d Cir. 1984), which applied the preliminary injunction analysis in deciding whether to issue an injunction pending arbitration when the underlying contract did not contain a status quo injunction provision. Id. The term ““status quo injunction” refers to an injunction to preserve the status quo pending a future action. See, e.g., Guinness-Harp Corp. v. Jos. Schlitz Brewing Co., 613 F.2d 468, 472 (2d Cir. 1980) (analyzing a provision in a contract for distribution whereby Guinness agreed that arbitration was to take place before the status quo between the parties had been altered).
72 Redner’s Markets, Inc. v. Joppatowne G.P. L.P., No. RDB-11-1864, 2013 U.S. Dist. LEXIS 83075, at *1 (D. Md. June 13, 2013).
77 Id. (quoting Chestnut Real Estate P’ship v. Huber, 811 A.2d 389, 401 (Md. Ct. Spec. App. 2002)).
79 Apple, Inc. v. Motorola Mobility, Inc., No. 11-cv-178-bbc, 2012 WL 5416931, at *2 (W.D. Wis. Nov. 2, 2012).
82 Id. at *16 (citing Chi. United Indus., Ltd. v. City of Chi., 445 F.2d 940, 945 (7th Cir. 2006)).

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