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When a franchisor learned that its franchisee was building a competing app and planning to launch a new business in direct competition with it, it sued, seeking an injunction to prevent the launch of the app and business during the litigation. The district court granted the injunction, and the appellate court affirmed in part, with regards to the injunction’s limits on competition. The appellate panel did, however, remand for the district court to consider imposing a higher security bond, given the sweeping nature of the terms of the injunction.

Auto Driveway Franchise Systems, LLC is a franchisor for commercial vehicle transportation services. Jeffrey Corbett was one of Auto Driveway’s franchisees. Through his company, Auto Driveway Richmond, LLC, Corbett ran Auto Driveway franchises in Richmond, Virginia, Nashville, and Cleveland. Corbett’s three businesses were governed by separate, but substantively identical franchise agreements with Auto Driveway. Each agreement included a non-compete clause, a non-disclosure clause, and a five-year term set to expire in 2016. The expiration dates came and went, and both parties continued dealing as though the contracts were still in place.

At some point in 2017, Auto Driveway learned that Corbett had been taking actions in apparent violation of the franchise agreements. Corbett was building an app to complete against the app Auto Driveway had hired Corbett to build for itself, using Auto Driveway’s proprietary work product as a starting point. Corbett was set to launch his new app through a new company, InnovAuto, that also provided auto transportation services in direct competition with Auto Driveway. Auto Driveway sued, seeking an injunction to prevent Corbett from selling or using the app.The district court granted Auto Driveway a preliminary injunction, finding that Corbett was harming consumer goodwill and was taking Auto Driveway customers through his competing business. Corbett then appealed. Continue reading ›

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