JTH Tax D/B/A Liberty Tax Service v. Agnant
62f4th658
| 2d Cir. | 2023Background
- Liberty Tax (franchisor) terminated Alexia Agnant’s franchise agreements after audits and repeated "notices to cure," alleging material violations of federal tax law (Schedule C/EITC issues) and relying on a 2019 consent decree with the United States.
- Liberty required remediation (training, second-preparer reviews, Compliance review) and later issued a notice of default and terminated under §8(b)(iii) (material violation of law).
- Liberty demanded post-termination obligations including non-compete (2 years, 25 miles) and non-solicitation (12 months); Agnant refused to comply, rebranded and continued operating.
- Liberty sought a TRO (granted) and a preliminary injunction (denied after an evidentiary hearing where Agnant testified and was the only live witness).
- District court credited Agnant’s testimony over Liberty’s Compliance VP declarations, found Liberty failed to show a clear likelihood of success on the merits or a strong showing of irreparable harm, and denied the preliminary injunction; the Second Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Proper standard for preliminary injunction | District court erred by applying a heightened standard | Heightened standard applies because the injunction would give Liberty substantially all relief and could not be undone | Court: heightened standard was correctly applied and affirmed |
| Whether Liberty showed likelihood of success (valid termination under §8(b)(iii)) | Liberty: audits and Dulaney declarations show Agnant prepared unlawful returns and justified termination | Agnant: she complied with law; Liberty's notices were nonspecific and evidence is conclusory; district court should credit her testimony | Court: gave deference to district court credibility finding; Liberty failed to show clear/substantial likelihood of success |
| Whether Liberty showed irreparable harm from covenant breaches | Liberty: non-compete/non-solicit breaches presumptively cause irreparable harm that monetary damages cannot cure | Agnant: stopped using Liberty marks/proprietary info; Liberty produced no concrete evidence of imminent, non-speculative harm | Court: no automatic rule; plaintiff must offer evidence; Liberty did not make the required strong showing |
| Appellate standard of review on credibility | Liberty: district court misapplied law/credibility | Agnant: credibility determinations entitled to special deference | Court: reviewed for abuse of discretion; gave special deference to district court credibility assessments and found no clear error |
Key Cases Cited
- Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7 (2008) (standard for preliminary injunction)
- Tom Doherty Assocs., Inc. v. Saban Ent., Inc., 60 F.3d 27 (2d Cir. 1995) (heightened standard when injunction grants substantially all relief or is mandatory)
- New York ex rel. Schneiderman v. Actavis PLC, 787 F.3d 638 (2d Cir. 2015) (application of heightened preliminary-injunction standard)
- Semmes Motors, Inc. v. Ford Motor Co., 429 F.2d 1197 (2d Cir. 1970) (business termination can cause irreparable harm)
- Roso-Lino Beverage Distribs., Inc. v. Coca-Cola Bottling Co., 749 F.2d 124 (2d Cir. 1984) (loss of ongoing family business may be irreparable)
- Baker’s Aid v. Hussmann Foodservice Co., 830 F.2d 13 (2d Cir. 1987) (no automatic presumption of irreparable harm; fact-specific inquiry)
- Ticor Title Ins. Co. v. Cohen, 173 F.3d 63 (2d Cir. 1999) (loss of client relationships can be non-quantifiable and support irreparable injury)
- Zervos v. Verizon New York, Inc., 252 F.3d 163 (2d Cir. 2001) (denial of preliminary injunction reviewed for abuse of discretion)