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TSK Franchise Systems, Inc. v. Tamburrino

BER-C-124-08 (N.J. Super. Ch. Div. 2008) (Unpublished)

NON-COMPETITION; INJUNCTIONS — Restrictive covenants, such as in non-compete agreements, are not looked at favorably and if the party seeking an injunction cannot establish a proprietary interest it therefore cannot establish irreparable harm which is a necessary requisite to obtaining an injunction.

A martial arts instructor, who formerly taught self-defense and martial arts techniques for the federal government, enrolled his son for lessons at a karate studio and eventually joined as a student himself. The karate school was a franchise that was part of a chain of karate schools that operated nationwide. After talking to the owner of the studio about the owner’s business, the instructor contacted the franchisor. He never took a franchise, but instead opened up his own martial arts studio in a nearby municipality. The karate chain sued the instructor, seeking to enjoin from operating his own martial arts studio. According to the karate chain, the instructor had entered into an agreement with the karate chain to run a franchise. As a result, the franchisor alleged that the instructor violated a non-compete clause that barred the instructor from opening a competing martial arts school within thirty miles of the chosen location for a two-year period following the termination of their relationship. The karate chain also asserted that the original studio’s owner personally taught the instructor the karate chain’s training techniques and about its business operations. The karate chain further claimed that it helped the instructor find a suitable location for the martial arts studio under the belief that the instructor was going to open a franchise there. It asserted that the instructor, instead, informed it that he would not go through with their agreement due to leasing problems that prevented him from opening a franchise, but opened one anyway.

On the other hand, the martial arts instructor claimed that he was approached by the studio’s owner and that he ultimately considered opening up a franchise as a career change because his then-current job required frequent travel. He also claimed that he signed an agreement with the franchisor and gave it a check for $25,000, but he was not informed that he had a right to have an attorney review the contract. The instructor disputed the karate chain’s claim that the franchise owner gave him any special, individualized training other than classes with other prospective franchised sutido owners. He also contended that he did not need any such training due to his martial arts background and position as an instructor for the federal government. The instructor also disputed the karate chain’s claim that he received any specialized management training. He further disputed the karate chain’s argument that he obtained or disseminated any proprietary or confidential information. The instructor also argued that he obtained knowledge of his martial arts studio’s location prior to discussing it with the original studio’s owner and that the lease he ending up signing was materially different from the lease he would have entered under the franchise agreement.

The Court pointed out that in order for a party to obtain an injunction, the party seeking relief is required to show irreparable harm; the law regarding the matter must be well settled; that there is no significant factual dispute; and that a balance of hardships favors the party seeking such relief. Here, the Court found that the karate chain did not establish how one newly opened martial arts studio would have irreparably harmed the karate chain which had numerous franchises and claimed to be the most successful national martial arts chain. The Court pointed out that restrictive covenants, such as non-compete agreements, were not looked at favorably and that the karate chain had not established a proprietary interest, a necessary requisite to establish irreparable harm. It also found that there was no evidence that the karate chain even showed that it would have succeeded on the merits of its claims of trademark infringement or dissemination of the karate chain’s proprietary information. The Court further found that a balancing of hardships heavily favored the instructor due to the loan he took out on his house and pointed out that the karate chain’s assertion that it was the most successful martial arts chain conflicted with its claim that it faced a greater hardship than did the instructor. Thus, the karate chain’s request for an injunction against the instructor to prevent him from opening his martial arts studio was rejected.

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