Source: https://www.icemiller.com/ice-on-fire-insights/publications/specific-performance-a-maverick-remedy-post-ebay-a/
Timestamp: 2018-07-21 20:50:08
Document Index: 12773819

Matched Legal Cases: ['§ 357', '§ 179', '§ 62', '§ 364', '§ 62', '§ 364', '§ 62', '§ 109', '§ 357']

Christina Laun Fugate, Elizabeth Johnson Timme
Christina Fugate
Specific Performance: A Maverick Remedy Post-Ebay and Winter
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?
Traditionally, a franchisor seeks money damages, injunctive relief, or both. If it chooses to pursue injunctive relief, the franchisor must show that:
(1) it has suffered an irreparable injury; (2) remedies available at law, such as monetary damages, are inadequate to compensate that injury; (3) considering the balance of hardships between the franchisor and its former franchisee, a remedy in equity is warranted; and (4) the public interest would not be disserved by an injunction.1
Furthermore, a party seeking preliminary (as opposed to permanent) injunctive relief must also establish a likelihood of success on the merits of its claims.2
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.
I. Raising the Injunctive Relief Bar: The Supreme Court Tightens the Standard for Obtaining an Injunction
Historically, in determining whether to order the equitable remedy of injunctive relief, courts applied the standard test outlined above to determine whether entry of an injunction would be appropriate.5 However, in the context of various intellectual property claims, including trademark and patent infringement, the federal circuits had developed a general rule that if a party seeking injunctive relief to enforce its intellectual property rights could establish a likelihood of success on the merits of its infringement claim, it would be entitled to an automatic presumption that it would also be irreparably harmed absent issuance of an injunction.6
*201 In 2006, the Supreme Court called this presumption into question. In eBay, the Supreme Court held that the Federal Circuit erred by applying the ““general rule” in patent cases that permanent injunctions should be issued once the validity of the patent and infringement had been determined.7 MercExchange, which owned a business method patent for an electronic market that facilitated the sale of goods and services between private individuals, sought to enter a licensing agreement with eBay and Half.com.8 After negotiations failed, MercExchange sued eBay and Half.com for infringement.9 The district court held that eBay and Half.com willfully infringed on MercExchange’s patent, but found that a damages award was appropriate and, therefore, denied MercExchange’s request for an injunction.10 The Federal Circuit reversed this decision “finding that as a general rule, courts should issue permanent injunctions for patent infringement absent exceptional circumstances.”11 In turn, the Supreme Court reversed the appellate court’s decision.12 The Court held that while the trial court has the discretion to grant or deny injunctive relief, the traditional four-factor test for determining whether a permanent injunction is warranted must be applied in each case.13 The Court, therefore, remanded the case back to the district court to apply the four-factor test.14
Then, in 2008, the Supreme Court narrowed the general definition of what constitutes a showing of “irreparable harm,” even outside the context of intellectual property cases. In Winter, the Supreme Court held that a party seeking an injunction in any context must show that irreparable harm is likely, and not merely possible.15 The Supreme Court reversed a decision by the Ninth Circuit and vacated in part a preliminary injunction that restricted sonar training operations by the U.S. Navy.16 These training operations were alleged to damage marine life, which violated the National Environmental Policy Act of 1969.17 The district court found that plaintiffs had established at least a “possibility” of irreparable harm to the environment, and that, based on scientific studies, declarations from experts, and other evidence in the record, there was in fact a “near certainty” of irreparable injury to the environment which outweighed any possible harm to the Navy.18 The Ninth Circuit agreed, concluding that the “mere possibility of irreparable injury” was sufficient for an injunction to be issued.19
*202 The Supreme Court reversed and vacated the injunction, holding that an injunction based solely on the mere “possibility” of irreparable harm is “too lenient” a standard.20 Rather, a plaintiff seeking injunctive relief must demonstrate that “irreparable injury is likely in the absence of an injunction.”21 Winter has a broader application than eBay, presumably requiring all litigants seeking preliminary injunctive relief (not only those attempting to enforce intellectual property rights) to satisfy a higher burden to show that they will suffer irreparable harm.22
Since eBay and Winter, several courts have held that the presumption of irreparable harm is no longer available in certain cases. For example, in Herb Reed Enterprises, LLC v. Florida Entertainment Management, the Ninth Circuit recently made clear that trademark owners no longer enjoy a presumption of irreparable harm when seeking either preliminary or permanent injunctive relief.23 The underlying dispute in that case concerned trademark rights to the name “The Platters,” a successful 1950s musical group.24 After the plaintiff, Herb Reed Enterprises, obtained an injunction barring the use of the name in connection with any vocal group, the defendant appealed.25
The Ninth Circuit affirmed the district court’s holding that the plaintiff had shown a likelihood of success on the merits, but found that the district court had erred by effectively applying a presumption of irreparable harm after finding a likelihood of success on the merits.26 The court stated “[w]e now join other circuits in holding that the eBay principle--that a plaintiff must establish irreparable harm--applies to a preliminary injunction in a trademark infringement case.”27 The court found that although the district court had identified the correct legal principle, i.e., that harm is no longer presumed, it had nonetheless erred in relying on the plaintiff’s unsupported and conclusory statements regarding the harm that the plaintiff claimed it might suffer.28
Herb Reed is not alone. In Salinger v. Colting, the Second Circuit vacated and remanded a preliminary injunction, finding that the district court erred by applying a presumption of irreparable harm.29 The Second Circuit extended the “no presumption of irreparable harm” standard to copyright cases, specifically holding that this new standard applied with equal force *203 for injunctions in any context.30 The court stated “eBay strongly indicates that the traditional principles of equity it employed are the presumptive standard for injunctions in any context.”31 Similarly, in Voice of the Arab World, Inc. v. MDTV Medical News Now, the First Circuit vacated and remanded a preliminary injunction order in a trademark infringement case, finding that the district court abused its discretion in presuming irreparable harm.32 Like the Second Circuit, the court specifically found that the eBay standard applies in any type of case seeking injunctive relief.33 Several other circuit courts and district courts have also followed suit.34
This new trend of eliminating the presumption of irreparable harm in intellectual property cases where infringement has already been established and of requiring a more concrete showing of irreparable harm generally, raises the evidentiary hurdles for plaintiffs seeking injunctive relief. For example, in Active Sports Lifestyle USA, LLC, Active Sports sued Old Navy claiming that Old Navy had infringed on its trademark for the word “active” by using it in Old Navy’s clothing line labeled “Active by Old Navy.”35 The district court agreed, but declined to award monetary damages. In response, Active Sports moved for a permanent injunction.36 Relying on Herb Reed, the district court denied the motion.37 The court declined to apply the presumption of irreparable harm and found that Active Sports had failed to present evidence necessary to satisfy the irreparable harm element.38 It reasoned that Active Sports did not present any evidence beyond speculation that it would face a loss of goodwill in the future or that its inability to fully control the use of marks substantially similar to its own would result in harm.39
*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?
The relationship between a franchisor and a franchisee is commonly governed by one or more written contracts that set forth the specific legal rights and obligations of each party.41 As such, general legal principles governing breaches of contractual relationships may apply where a party to a franchise agreement is accused of violating the terms of the contract.42
Accordingly, when a franchise agreement is breached (or may be breached), specific performance is an alternative remedy to an award of damages.43 In order to obtain specific performance, a party must typically demonstrate that: (1) a valid and enforceable contract exists; (2) the contract was breached by the opposing party’s actual (or, in rare cases, threatened) nonperformance; (3) the party seeking performance has substantially performed its own contractual obligations; and (4) the moving party is able and willing to take any additional steps required by the contract.44 Additionally, the party seeking specific performance must establish that it lacks an adequate remedy at law.45
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.
At first glance, these two remedies appear to be very similar. Courts frequently refer to injunctions and specific performance interchangeably and have noted the similarities between the remedies when considering the appropriateness of such requested equitable relief. For example, in Malo, Inc. v. Alta Mere Industries, Inc., the U.S. District Court for the District of Nevada, issuing a mandatory preliminary injunction, repeatedly referred to the request for a preliminary injunction as a request for specific performance.49
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.
III. Specific Performance--Specific Problems in Franchise Relationships
Some unique concerns arise when seeking specific performance of a franchise agreement. First, as may be recalled from the distant days of a 1-L *206 Contracts course, courts generally refuse to order specific performance of personal services contracts.50 So if you hire the Rolling Stones to perform at your birthday party and Mick Jagger unexpectedly cancels, a court may award monetary damages, but it will probably not grant your birthday wish and order Mick to show up. While the “services” aspect of the contract in the prior example is obvious, some courts have held, perhaps less intuitively, that franchise agreements also constitute services contracts. For example, in Burger King Corp. v. Weaver, a franchisee requested that the court grant it injunctive relief to prevent its franchisor from terminating the franchise agreement.51 Finding that the request for an injunction was really a request for specific performance, the court denied the request because Florida does not recognize the remedy of specific performance for a franchise agreement.52 In the court’s view, a franchise agreement is a personal services contract that is not subject to specific performance.53 As such, specific performance is not an available alternative to injunctive relief in those jurisdictions that refuse to order specific performance as a means of enforcing a franchise agreement, or where the terms of the particular franchise agreement suggest that the contract contemplates primarily the performance of personal services.54
Moreover, a court may refuse to order specific performance where the underlying agreement is the product of overreaching.55 In other words, if the “exchange is grossly inadequate or the terms of the contract are otherwise unfair,” specific performance may be unavailable, even if the terms of the contract itself are otherwise valid and enforceable.56 Thus, a court may refuse to order specific performance even when there is no allegation of fraud between the parties; instead, specific performance “may be denied *207 upon the ground that a contract is harsh, unjust, or oppressive regardless of any actual fraud and the fact that the contract is valid.”57 Specific performance may even be denied “because of the defendant’s ignorance or inexperience, particularly if he or she was induced to act without the benefit of advisors.”58 This may be of particular concern for franchisors, who are often accused of being in a superior bargaining position to individual franchisees by virtue of their experience in frequently negotiating the same type of contract, utilization of form contracts favoring the franchisor, and the increased likelihood that the prospective franchisee is comparatively unsophisticated and was not advised by counsel in executing the agreement.59
Finally, even if your jurisdiction does not consider a franchise agreement to be a “services contract” and your court does not find that the contract at issue was the unfair product of a franchisee’s naiveté, a court may still decline to impose specific performance, even where all other elements justifying such a decree are present, if the court concludes that it would simply be too difficult to oversee and ensure that the performance ordered and contemplated by the contract is actually being carried out.60 For instance, in Ambassador *208 Foods Corp. v. Montgomery Ward & Co.,61 the court refused to award specific performance of a contract for the operation of a concession stand that required “the performance of varied and continuous acts,” such as approval of advertising; hiring of personnel; operation of the business “in an orderly, businesslike manner” at “competitive prices” without creating “objectionable odors;” and making weekly accountings. The Illinois Court of Appeals found that requiring this level of “protracted supervision” from the court rendered specific performance inappropriate.62
For all of these reasons, practitioners attempting to use specific performance to avoid the potentially newly heightened standards for injunctive relief should keep in mind that requests for specific performance come with their own set of problems.63
IV. Specific Performance Pre- and Post-eBay and Winter
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.
For example, some courts have held that the test for specific performance should be used in place of the test for injunctive relief when a request is made to maintain the franchise agreement’s status quo,64 in other words, to stay termination of the franchise agreement or require enforcement of certain aspects of the agreement pending a decision by the court on the underlying claims. In Nemer Jeep-Eagle, Inc. v. Jeep-Eagle Sales Corp., the franchise agreement *209 gave the plaintiff, Nemer Jeep-Eagle, Inc., the nonexclusive right to operate an automobile dealership.65 The franchisor, Jeep-Eagle Sales Corp., approved four new dealerships in the market area, which plaintiff claimed placed its business in peril.66 The parties agreed to arbitrate the legality of awarding the new franchises, but plaintiff moved for an injunction to prevent the implementation of the new franchises and maintain the status quo until arbitration was complete.67 In declining to issue an injunction, the U.S. District Court for the Northern District of New York applied the four-factor test that governs whether a preliminary injunction should be ordered.68
The Second Circuit, however, noted that the arbitration clause in the franchise agreement required that the status quo be maintained pending arbitration.69 The arbitration clause stated that
if the arbitration provision is invoked when the dispute between the parties is ... the legality of ... adding a new [Jeep-Eagle] dealer of the same line-make ... [Eagle Sales] will stay the implementation of the decision to ... add such new [Jeep-Eagle] dealer ... until the decision of the arbitrator has been announced.70
Given that the basis for the injunction being sought was contractual, the court concluded “where a party’s request for a status quo injunction pending arbitration is grounded in the words of a contract, specific performance analysis is required.”71
Another scenario in which specific performance was used in place of an injunction was to enforce a restrictive covenant. In the 2013 case Redner’s Markets, Inc. v. Joppatowne G.P. Limited Partnership, the relationship between the plaintiff, a grocery store, and the defendant was governed by a written lease.72 The lease contained a covenant that precluded defendant from leasing property within a five-mile radius of the shopping center to be used as a “food supermarket, butcher shop, seafood shop, or grocery store.”73 When *210 defendant permitted competing vendors to operate on the leased premises, plaintiff sued for breach of the restrictive covenant.74 Plaintiff moved for a permanent injunction, seeking to enjoin defendant from continuing to violate the restrictive use covenant.75
The U.S. District Court for the District of Maryland, applying Maryland law, stated that “a permanent injunction to enforce a restrictive covenant is much like a request for specific performance.”76 “Accordingly, to obtain a permanent injunction to enforce a restrictive covenant, a plaintiff need only make the showing ‘required to obtain specific performance.”’77 The court did not require a showing of irreparable harm, but granted plaintiff’s motion for injunctive relief finding that the lease was valid and enforceable, that defendant had breached the restrictive covenant, and that the equities favored plaintiff.78
At least one court, however, has held that a party requesting specific performance must satisfy the requirements of eBay.79 In Apple, Inc. v. Motorola Mobility, Inc., Apple requested an order “requiring “Motorola to specifically perform its contractual commitment to license its essential patents on F/RAND terms.”80 The U.S. District Court for the Western District of Wisconsin found that “specific performance is a request for equitable relief in the form of a ‘positive injunction.”’81 Therefore, it reasoned that “a party requesting specific performance must satisfy the four-factor test set forth in [eBay].”82 The court clarified that the eBay four-factor test “applies to requests for injunctive relief in federal court, regardless whether the underlying claim is premised on patent law, federal statutory law or state law.”83
V. Specific Performance: A World of Possibilities?
The remedy of specific performance is infrequently sought and potentially underutilized in the franchise arena. With eBay’s erosion of the presumption of irreparable harm in intellectual property cases and Winter’s broader requirement that all litigants prove that irreparable harm is likely (and not merely possible), the fact that the remedy of specific performance does not explicitly require any showing of irreparable harm makes it appear to be a creative way to avoid these more exacting standards entirely. In addition *211 to providing franchisors with a creative way to essentially obtain injunctive relief while avoiding the newly heightened standards defined by the Supreme Court, specific performance may also offer other alternative remedies for both franchisors and franchisees under certain circumstances, including:
enforcing renewal provisions in franchise agreements;
enforcing post-termination obligations, such as returning operating manuals and customer lists and surrendering telephone numbers;
enforcing covenants not to compete;
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.
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.
8 Id. at 390.
10 Id. at 391.
11 Id. at 391, 393-94.
12 Id. at 394.
13 Id. at 393-94.
14 Id. at 394.
15 Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 21-22 (2008) (emphasis added).
16 Id. at 32.
19 Id. at 19-20.
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).
24 Id. at 1242-45.
25 Id. at 1245.
26 Id. at 1249-51.
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)).
28 Id. at 1250.
29 Salinger v. Colting, 607 F.3d 68, 77-78 (2nd Cir. 2010).
30 Id. at 78.
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.
37 Id. at *2.
38 Id. at *2-3.
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.
68 Id. at 432.
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).
73 Id. at *2-3.
74 Id. at *3-4.
75 Id. at *5.
76 Id. at *15.
77 Id. (quoting Chestnut Real Estate P’ship v. Huber, 811 A.2d 389, 401 (Md. Ct. Spec. App. 2002)).
78 Id. at *16.
79 Apple, Inc. v. Motorola Mobility, Inc., No. 11-cv-178-bbc, 2012 WL 5416931, at *2 (W.D. Wis. Nov. 2, 2012).
80 Id. at *1.
81 Id. at *16.
82 Id. at *16 (citing Chi. United Indus., Ltd. v. City of Chi., 445 F.2d 940, 945 (7th Cir. 2006)).
84 Id. at *2.
Christina Laun Fugate
Elizabeth Johnson Timme