The Franchise Memorandum

A state trial court in Minnesota granted Renters Warehouse USA, LLC’s motion for a temporary injunction, and enjoined Life Property Managers, LLC (LPM) from violating its post-termination obligations and a covenant not to compete. Renters Warehouse USA, LLC v. Life Property Managers, LLC, No. 27-CV-24-5837 (Minn. Dist. Ct. June 12, 2024). Renters Warehouse, a national property management company, and LPM executed a franchise agreement that granted LPM the right to operate a Renters Warehouse® franchise in the Nashville, Tennessee area. Renters Warehouse alleged that LPM terminated the franchise agreement and began operating a competing business in the same location as its formerly franchised business. Renters Warehouse demonstrated that LPM was violating its post-termination obligations by using Renters Warehouse’s trademarks and an associated phone number, using Renters Warehouse’s confidential information, and continuing to associate LPM with Renters Warehouse online, among other violations. Due to these ongoing violations, Renters Warehouse sought a temporary injunction to protect its legitimate business interests and goodwill and to prevent LPM from unfairly competing with Renters Warehouse and its franchisees.

The court found that the merits of Renters Warehouse’s claims were strong. Although LPM also contested the scope of the covenant not to compete, the court held that the only reasonable reading of the provision was to restrict LPM from providing competing services within a 20-mile radius of its former franchised location or other Renters Warehouse locations. Additionally, the court found that LPM failed to comply with its post-termination obligations for months and that there was no harm to LPM in complying with its bargained for agreement. In support of its determination to issue an injunction, the court found that public policy favored “orderly and predictable enforcement of bargained for contracts” and that the covenant not to compete is narrowly tailored in its duration and geographic scope to protect Renters Warehouse’s legitimate business interests. Finally, the court found there were no administrative burdens in granting the requested temporary injunction. Accordingly, the court concluded that Renters Warehouse was entitled to a temporary injunction to preserve the status quo and ordered LPM to comply with most of its post-termination obligations. The court did order additional briefing on the disputed issue of which party owned the customer contracts. Renters Warehouse was also entitled to its reasonable attorneys’ fees and costs. Lathrop GPM represented Renter’s Warehouse in this action.

*Asad Imam is a Summer Associate for Lathrop GPM who contributed to the writing of this post.