A federal court recently enjoined a franchisor from terminating a franchise agreement or interfering with a franchisee's operations pending the resolution of the franchisor's motion to transfer venue.
In S&G Elite LLC v. ST National Franchising LLC, S&G operated the Tucson, Arizona, location of "The Mail Center," a packing and shipping franchise. On January 24, 2025, ST National tried to terminate the franchise agreement when it sent S&G a letter alleging breaches of the franchise agreement. On January 27, 2025, S&G sued ST National in the U.S. District Court for the District of Arizona for fraudulently inducing S&G into entering the franchise agreement and acting in bad faith. S&G alleged that ST National withdrew money from S&G's account and entered the franchise location to terminate S&G's access to its business operations. ST National moved to transfer venue to the U.S. District Court for the Western District of Missouri.
S&G sought a TRO to prohibit ST National from terminating the franchise agreement or interfering with S&G's franchise operations. ST National argued that the franchise agreement allowed ST National to terminate the agreement and prevent S&G from operating. It also argued the agreement's integration clause barred S&G's claims.
The Court Granted the TRO
On February 5, 2025, the court granted the TRO pending resolution of the motion to transfer, and prohibited ST National from (1) terminating the franchise agreement, (2) withdrawing funds from S&G's account, or (3) interfering with S&G's operation of its franchise. The court based its ruling on the following:
- If the franchise agreement's integration clause could bar S&G's claims, ST National would be effectively immune from any fraudulent inducement or bad faith claim brought by S&G.
- While the franchise agreement gave ST National the right to terminate the agreement with S&G for cause, S&G was entitled to preservation of the status quo pending a ruling on the motion to transfer.
Subsequently, the court granted ST National's motion to transfer and dissolved the TRO but allowed for S&G to apply for further injunctive relief in the transferee court in Missouri.
Key Takeaways:
- A franchisor may not be able to restrict a franchisee's ability to bring a fraudulent inducement or bad faith claim against the franchisor by enforcing the franchise agreement's merger clause.
- Courts have an interest in maintaining the status quo of a franchise relationship to avoid irreparable harm and may temporarily enjoin a franchisor's right under the franchise agreement to terminate the agreement.
Special thanks to Brooke Conklin, a summer associate in Foley's Dallas office, for her contributions to this article.
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