El Pollo Loco Verdict Makes ‘New Law,’ Attorney Says
Author: Beth Ewen
Publication: Franchise Times
Posted on Blog April 21, 2015
A preliminary injunction may be imposed after the closure of a franchised business. In Bans Pasta, LLC v. Mirko Franchising, LLC, No. 7:13-cv-00360-JCT, 2014 WL 2158128 (W.D. Va. May 23, 2014). Restaurant franchisee Bans Pasta sought rescission of a franchise agreement on the ground that it was negligently and fraudulently induced into entering into the agreement by franchisor Mirko’s financial viability representations. This alleged “constructive termination” occurred five months after the restaurant opened. However, Bans continued to operate the business as a Mirko restaurant for five months following the alleged termination, displaying proprietary signage and using proprietary food recipes. Bans then began operating a different Italian restaurant at the same location and ultimately closed the business altogether. The court stated that whether or not rescission was ultimately found to have occurred on the date of the alleged constructive termination, Mirko’s counterclaims could be read as alleging that subsequent use of proprietary marks was a breach of contract. Bans could be in continued breach of the franchise agreement, thereby causing Mirko irreparable harm, as a result of its failure to return an operating manual and other confidential materials. Therefore, Bans’ motion to dismiss Mirko’s counterclaims for breach of contract was denied and Mirko was granted injunctive relief.
Gabriel E. Estadella