In a decision of first impression issued last week, the United States District Court for the Western District of Tennessee held, in Gus's Franchisor, LLC v. Terrapin Restaurant Partners, LLC, that the COVID-19 pandemic did not excuse a terminated franchisee of Gus's World Famous Fried Chicken ("Gus's") from complying with a temporary restraining order (TRO) and permanent injunction prohibiting it from using Gus's trademarks, trade secrets and proprietary business information.
On May 8, 2020, Gus's terminated the defendant's fried chicken restaurant franchise. Two weeks later, Gus's filed suit alleging that the defendant unlawfully continued to use its intellectual property and proprietary information following the termination. The court granted Gus's motion for a TRO and the parties then entered into a permanent injunction on consent that prohibited defendant from operating as a Gus's franchise and using Gus's proprietary information.
The defendant nevertheless—and apparently on the poor advice of counsel—continued to operate as a Gus's restaurant, including using Gus's trade dress and proprietary chicken batter recipe. When Gus's moved for contempt, the defendant attempted to justify its non-compliance by asserting that its counsel had advised that "it was in the best interest of the restaurant and its employees to remain open during the COVID-19 shutdowns." The court rejected this defense, holding that neither advice of counsel nor good-faith conduct excuse a party from civil contempt. The court therefore found defendant in contempt and set the matter down for a hearing to determine the amount of the sanction to be imposed.
While COVID-19 presents challenges for many businesses, it does not permit parties to flout the law and court orders. Parties who do so can expect their chickens to come home to roost.
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