The case of Bray v. QFA Royalties LLC, 486 F.Supp.2d 1237 (D.Colo. 2007) attracted national attention because it involved the suicide of a former Quiznos' franchisee who shot himself in the bathroom of one of the company's stores.  In our view, however, Bray is noteworthy in that it is merely the most recent example of a long line of cases in which a franchisor has unsuccessfully attempted to retaliate against leaders of its franchisee association.

At issue in Bray was Quiznos' attempted termination of eight franchisees after the Quiznos franchisee association (the Toasted Subs Franchise Association or "TSFA") posted on its website the suicide note of the former franchisee; the note blamed his death on Quiznos and his protracted litigation with the company.  Each of the Bray plaintiffs was an officer or member of the TSFA, which had an acrimonious history with the franchisor.

It was not disputed that the terminations were purely punitive and were in direct response to the TSFA's actions in posting the suicide note.  Immediately upon learning of the posting, Quiznos' in-house counsel decided that the company would have no relationship with anyone affiliated with the TSFA board. In the company's view, the posting was a direct attack which purported to connect Quiznos with the suicide.  Quiznos further considered the posting to be the "last straw" for the thorn-in-the-side that the TSFA had become.

The day after the website posting, without engaging in any investigation or analysis, Quiznos sent letters terminating the franchise rights of all of the TSFA board members and prohibiting Quiznos' approved and exclusive suppliers from providing any products to those franchisees.  None of the letters identified any specific misconduct or mentioned the suicide note. Some letters referenced an opportunity to cure but failed to identify either the violation or what would be necessary to cure it.

The U.S. District Court for the District of Colorado granted a preliminary injunction blocking Quiznos' terminations of the Bray plaintiffs.  Recognizing that irreparable harm may result from the threatened loss of a franchise business before the lawfulness of the termination can be determined, the court reasoned that if it ultimately determined that some or all of the Quiznos terminations were unlawful, the franchisees would likely have lost or so compromised their businesses that the availability of meaningful relief would be illusory.  The court observed that the plaintiffs' stores represented a livelihood and not merely a job, and it found that closing the stores before trial would result in a loss of customer base and community goodwill beyond simple economic loss.  In the court's view, allowing Quiznos to proceed with its terminations thus presented a significant risk of "getting it wrong".

The court disagreed with Quiznos' assertions that the mere posting of the suicide note on the TSFA website "harmed" the goodwill associated with the Quiznos mark, and that a continued relationship with the plaintiffs risked further "harm" to that mark. The court noted that news of the suicide and the suicide note were in the public domain and available to potential consumers before and independently of the TSFA posting, and that there was no evidence that any consumer who saw the posting declined to purchase Quiznos' products as a result.  The court further noted that TSFA members would have little incentive to disparage the Quiznos mark to the purchasing public, as to do so would hurt their own earnings and revenue streams.

The franchise agreements provided Quiznos with a right of termination without cure where the franchisee has engaged in conduct that "in the sole judgment of Franchisor, materially impairs the goodwill associated with the Marks".  Under the circumstances presented, however, the court found that Quiznos' impulsive and retaliatory reaction to the website posting, made without any investigation as to the impact of the posting upon the Quiznos' Mark and which included one franchisee who was out of the country at the time of the posting, did not constitute the exercise of "judgment".

The court accordingly concluded that the plaintiffs would suffer irreparable injury unless they were permitted to continue operating as Quiznos franchisees until a trial on the merits of their wrongful termination claims could take place.

Bray is the latest example of a court finding a way to thwart or punish a franchisor's retaliatory conduct against the leaders of its franchisee association.  Yet this is not the only lesson to be gleaned from that case.  Rather than reacting to the website posting in an emotional and ill-conceived manner, Quiznos would have been far better served by cultivating its relationship with the franchise community and improving franchisee satisfaction, something that research has shown is directly linked to both system and franchisor success.  Instead of attempting to make examples of franchise association leaders, franchisors should work with those leaders to facilitate positive system change.