Federal Jury finds that Wrongfully Terminated Franchisee

…the laws of the overwhelming majority of states are exceedingly biased in favor of franchisors. “Franchise agreements have evolved to a point where they are so oppressive that most franchisor executives and employees believe that they can act with impunity in dealing with their franchisees.

The Goldstein Law Group
February 16, 2005

Federal Jury finds that Wrongfully Terminated Franchisee
Jeffrey M. Goldstein

For Immediate Release: Contact: Jeffrey M. Goldstein

For the first time ever, a Federal Court Jury in Arizona last week rendered a Verdict against H&R Block, the largest tax preparation franchisor in the world, finding that it had wrongfully terminated one of its franchisees. The former franchisee, Margaret Miller, had worked for twenty years as a Block franchisee before she was wrongfully terminated by Block. At the time of Block’s wrongful termination Miller owned three Block tax preparation offices in Arizona.

Jeffrey M. Goldstein, the founding partner of The Goldstein Law Group, and lead counsel for Miller’s trial team, stated, “we are all very happy with the Jury’s Verdict. Many people told Ms. Miller that she didn’t stand a chance at trial on her case against Block; the Jury, however, disagreed.”

The Jury’s Verdict was a major loss for Block, which had sought to collect from Miller approximately $800,000 – including $200,000 in alleged lost royalties and an estimated $600,000 of attorney’s fees incurred by Block over the three years of litigation. In addition to losing its bid to collect damages and fees of almost $800,000 from Miller, Block also lost its request that the Court enforce Miller’s post-term covenant-not-to-compete, which would have prohibited Miller from operating her independent tax business that she had been operating since the wrongful termination.

Block vigorously prosecuted the Federal Court litigation and had five lawyers at its counsel table throughout the Trial. Block argued to the Jury that Miller was properly and necessarily terminated because she allegedly refused to remove unapproved Block signage and trademarks. Miller countered that the signage issue was a pretext for Block’s desire to take for itself Miller’s three tax preparation offices. Indeed, at trial, Miller presented evidence that Block had repeatedly attempted unsuccessfully to purchase for itself Miller’s tax business.

According to Miller, when Block realized that Miller would not sell her business, it simply took Miller’s business by terminating her. Miller presented evidence that Block’s animosity toward her arose in part from Block’s dissatisfaction with Miller’s longstanding refusal to embrace Block’s proprietary tax preparation software (TPS). Miller also argued that the wrongful termination was provoked by Miller’s having prevailed against Block in an earlier trial in Arizona where the Jury rendered a Verdict against Block regarding Block’s alleged encroachment on Miller’s exclusive territory.

Goldstein indicated that Block’s attempt to force Miller to use its proprietary TPS software was not an isolated instance and that for years the TPS issue had been a hot-button between Block and its franchisees. “Even though another Block franchisee in California, Jerry Franklin, represented by our firm, obtained a favorable Arbitration ruling declaring that Block had no contractual right to force Franklin to use TPS, Block nevertheless continued to pressure its franchisees to adopt Block’s proprietary software.”

Regarding Miller’s previous claim of encroachment on her exclusive territory, Goldstein indicated that such behavior is not unusual for Block or other large franchisors in other industries. Goldstein explained that the age-old problem of franchisor encroachment recently has taken on a new-age twist with franchisors using internet sales to encroach on their franchisees. “In fact, the three Arbitrators in the Franklin litigation found that, to the extent Block’s internet tax preparation service unreasonably harmed his franchise, Block’s internet sales in Franklin’s territory would be a violation of the franchise agreement.”

Goldstein also expressed great satisfaction that Block was unsuccessful in its attempt to shut down Miller’s independent tax business. “The use of covenants-not-to-compete by franchisors is especially egregious in wrongful termination cases like Miller’s where, after a divorce from its franchisor, the franchisee has no way to earn a living other than to continue to work within the industry covered by the franchise.” Goldstein pointed out that courts around the country regularly enforce these restrictive and harmful covenants against franchisees. Goldstein stated, “although the chances of a franchisee prevailing on a covenant-not-to-compete case are not very great, they are not impossible. In fact, two years ago a Block franchisee in Minnesota, represented by The Goldstein Law Group, successfully rebuffed Block’s attempt to enforce a post-term covenant-not-to-compete similar to the one at issue in Miller’s case.”

Goldstein, who represents franchisees and dealers around the country in disputes with their franchisors, pointed out that the laws of the overwhelming majority of states are exceedingly biased in favor of franchisors. “Franchise agreements have evolved to a point where they are so oppressive that most franchisor executives and employees believe that they can act with impunity in dealing with their franchisees. The Jury Verdict in the Miller case, however, should give them pause to believe they are not immune from scrutiny and punishment when their conduct is so oppressive that it offends the conscience of the community.”

For more information, please call Jeffrey M. Goldstein at The Goldstein Law Group
(202)293-3947 (direct) or (202)223-2002 (fax)
moc.puorgwaldlog|nietsdlogj#moc.puorgwaldlog|nietsdlogj (email)

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