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Jackson Hewitt, Inc. v. DJSG Utah Tax Service, LLC

2011 WL 601585 (U.S. Dist. Ct. D. N.J. 2011) (Unpublished)

CONFIDENTIALITY — Where a party is in possession of another party’s confidential information and is poised to use it and disclose such information, there is a likelihood of irreparable harm and the party seeking to prevent disclosure of the confidential information is entitled to injunctive relief as part of its enforcement of the confidentiality agreement between the two parties.

A Virginia corporation with its principal place of business located in New Jersey entered into a franchise agreement with a limited liability corporation with its principal place of business in Arizona, giving that franchisee the right to operate a tax return preparation business in Arizona using the franchisor’s trade names, trademark, service marks, and logos, as well as its proprietary business methods and software. The franchisee’s obligations were guaranteed by an individual who owned a former franchisee in New Jersey. The agreement contained an express provision whereby each party consented to personal jurisdiction in the United States District Court nearest to the franchisor’s principal place of business, which was the District of New Jersey.

The franchisor commenced action against the franchisee and guarantor seeking a preliminary injunction compelling them to adhere to their post-termination obligations pursuant to the franchise agreement. The franchisee claimed that it was not properly served. However, the Court noted that the franchise agreement specifically named the guarantor as the appointed agent of service for the franchisee. By serving the guarantor, the franchisor effectuated service.

The Court noted that a party seeking a preliminary injunction must show a likelihood of success on the merits; that it will suffer irreparable harm if the injunction is denied; that granting preliminary relief will not result in even greater harm to the non-moving party; and that the public interest favors such relief. The Court found that the franchisor had met its burden of demonstrating its likelihood of success on the merits as to its breach of contract claim because the franchisee did not dispute that it failed to return client files to the franchisor in violation of the franchise agreement. Further, the Court found that the franchisor met its burden of demonstrating irreparable harm that would result if restraints were not imposed. Where a party is in possession of another party’s confidential information and is poised to use or disclose such information, there is a likelihood of irreparable harm. Such harm was expressly contemplated by the parties in unequivocal language contained in the franchise agreement. Next, the Court determined that any hardship to the franchisee in requiring it to adhere to the terms of the franchise agreement was de minimis given that such terms were expressly accepted by the franchisee. Finally, in granting the preliminary injunction, the Court found that the public has an interest in upholding freely negotiated and reasonable business contracts.


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