Virginia Lawyers Weekly VA Lawyers Weekly
Where a former franchisee for a tax preparation company breached franchise agreements and promissory notes, failed to return company property after her franchise agreements were terminated and competed with the company using its property, the company was awarded damages, attorneys’ fees and an injunction.
Background
Liberty Tax Service filed suit against a former Liberty franchisee, Jasmine White. In its complaint, the plaintiff alleges (1) that the defendant breached contract obligations to Liberty under three franchise agreements and two promissory notes; (2) that the defendant failed to return property to Liberty and (3) that the defendant interfered with Liberty’s business after the franchise agreements were terminated. Liberty has now moved for default judgment.
Jurisdiction and venue
There is complete diversity between the parties and the amount in controversy exceeds $75,000. The defendant consented to suit when she signed franchise agreements that contain a forum selection clause naming this as the proper court.
Breach of contract
The court finds that the defendant breached her franchise agreements with Liberty in at least six ways, and that she failed to pay the two promissory notes as she was obligated to do. The court further finds the affidavit of Heather Joyner-Reed supports a finding that the defendant owed $87,926.93 in principal and interest under the franchise agreements and promissory notes, as of Sept. 22, 2022. Accordingly, the motion for default judgment is granted as to Count One, and the plaintiff is awarded $87,926.93, plus post-judgment interest.
Conversion
After Liberty terminated the defendant’s franchise agreements, the defendant failed to return client lists, tax return files and the operation manual to Liberty. The defendant also solicited former Liberty customers by saying, in a video posted on Facebook, that she still had all their files and that “everything [would be] still the same,” even though she was “not working with Liberty.”
The court finds that, in the two-year period before her franchises were terminated, the defendant charged an average of $585 per tax return she filed on behalf of a customer. After her franchises were terminated, the defendant used Liberty’s electronic filing identification number to file 193 tax returns. Based on those figures, the court finds that the defendant likely earned $112,905 in net fees for filing the 193 tax returns.
The affidavit indicates that, pursuant to the franchise agreements, Liberty would have charged the defendant 14 percent of that total in royalty fees and five percent in marketing fees, for a total of $21,451.95. The court finds that the defendant converted $21,451.95 from the plaintiff.
Tortious interference
Soliciting former Liberty customers on Facebook and continuing to file tax returns after Liberty terminated the franchise agreements certainly amounts to interference. As discussed earlier, the defendant’s interference harmed the plaintiff to the tune of $21,451.95. The motion for default judgment is granted as to Count Three and plaintiff is awarded $1.00.
Attorneys’ fees
Six different lawyers and one legal assistant worked on the case for Liberty. Liberty asked only for an apportionment of fees equal to one sixth of the total, to represent the appointment between work related to the franchise agreements and work related only to the promissory notes. The court finds that apportionment reasonable and awards $4,987.24 in attorney’s fees.
Injunction
The complaint seeks an injunction requiring the defendant to comply
with the post-termination obligations under the franchise agreements. Because the defendant sought to draw customers away from Liberty, and she actually operated a business that competed with Liberty, the court finds that the harm the defendant caused by soliciting Liberty customers is irreparable. The court finds that legal remedies cannot fully compensate the plaintiff for the harm of losing unknown future customers due to the defendant’s operation of a competing tax preparation business.
The injunction the plaintiff seeks in this case amounts to nothing more than the enforcement of the defendant’s contractual obligations. It would not require the defendant to restructure her business and would not dramatically affect customers, who—once the defendant complied with an injunction and returned their files to Liberty—could likely just as easily have their taxes prepared by a legitimate franchisee.
Plaintiff’s motion for default judgment granted.
JTH Tax LLC v. White, Case No. 2:22-cv-272, May 9, 2023. EDVA at Norfolk (Walker). VLW 023-3-249. 22 pp.
