A federal court in Michigan largely denied a franchisor’s motion for preliminary injunction against its former franchisees, accused of breach of contract, trademark infringement, trade secret misappropriation, and civil conspiracy.
Fetch! Pet Care, Inc. (“Fetch”), a franchisor in the pet care services business, alleged its former franchisees violated their franchise agreements by launching competing pet care businesses using Fetch’s trademarks and confidential business information. Fetch cut off the franchisees’ access to its systems after allegedly discovering breaches and attempts to misappropriate customer information.
Fetch filed a motion to enjoin its former franchisees from continuing to operate their competing businesses and using Fetch’s proprietary and confidential information. The parties were concurrently engaged in arbitration when Fetch sought an injunction.
The court held that Fetch failed to demonstrate a likelihood of success on most of its claims. The court first addressed the former franchisees’ allegation of Fetch’s “unclean hands,” which may be employed by a court to deny injunctive relief where the party applying for such relief is guilty of conduct involving fraud, deceit, unconscionability, or bad faith. The court found sufficient evidence of Fetch’s unclean hands in its general conduct in aggressively recruiting franchisees while obscuring from them the true and full nature of the business and expected financial performance.
The court further evaluated the claims under the “first breach” doctrine. The court found sufficient evidence that Fetch committed the first breach when Fetch cut off the former franchisees’ access to the Fetch! system before the franchisees ever began competing against Fetch. The court found that although the franchisees registered a new business name, they did not divert, compete, or own and operate a competing business until after they were cut off. The court concluded that Fetch could not show a likelihood of success on the merits regarding its breach of contract claims.
The court further found that Fetch could not demonstrate clear and convincing evidence of injury because most of the harm had already occurred, and any loss of future goodwill or fair competition was too speculative.
Lastly, the court determined in balancing of harm to others that the equities tipped in the former franchisees’ favor because they were already in arbitration and franchisees’ operations were their livelihood for years. With respect to public interest, the court found this factor neutral. For these reasons, the court denied Fetch’s motion to enjoin its former franchisees from continuing to operate competing businesses but granted the injunction regarding the former franchisees’ use of Fetch’s trademark.
Franchisees should consult franchise counsel before directly competing after the termination or expiration of their franchise agreement. While franchisor misconduct can be a strong defense, franchisees cannot misappropriate their former franchisor’s trademark.
Fetch! Pet Care, Inc. v. Atomic Pawz Inc., No. 25-cv-11568 (E.D. Mich. July 11, 2025)
