Page 1 JAY BHARAT DEVELOPERS, INC., et al., Plaintiffs and Appellants, v. JIM MINIDIS et al., Defendants and Respondents. B199294 COURT OF APPEAL OF CALIFORNIA, SECOND APPELLATE DISTRICT, DIVISION TWO 167 Cal. App. 4th 437; 84 Cal. Rptr. 3d 267; 2008 Cal. App. LEXIS 1572 September 11, 2008, Filed SUBSEQUENT HISTORY: [***1] injunctive relief was sought. In the motion for a The Publication Status of this Document has been preliminary injunction, the franchisors asserted that the Changed by the Court from Unpublished to Published franchise relationship was properly terminated and that October 8, 2008. the injunction was warranted to prevent further economic Review denied by Jay Bharat Developers, Inc. v. Minidis harm. The court held that the trial court properly granted (Jim), 2008 Cal. LEXIS 15053 (Cal., Dec. 23, 2008) the injunction. The franchisors established the likelihood of prevailing on the merits by presenting evidence that PRIOR HISTORY: APPEAL from an order of the the franchisees had failed to make royalty payments and Superior Court of Los Angeles County, No. BC336287, to pay advertising fees. The trial court could presume Joseph R. Kalin, Judge. irreparable injury under the circumstances, and after weighing the balance of harms, an injunction prohibiting DISPOSITION: Affirmed. use of the franchisors' trademark was appropriate. The unclean hands doctrine did not preclude injunctive relief CASE SUMMARY: because the alleged misconduct did not affect the equitable relations between the parties. Interim injunctive relief under Code Civ. Proc., § 1281.8, was an PROCEDURAL POSTURE: Appellant franchisees appropriate provisional remedy in connection with sought review of an order from the Superior Court of Los arbitration. Angeles County (California), which, in a dispute concerning the termination of the parties' franchise OUTCOME: The court affirmed the trial court's order. agreement, granted respondent franchisors' motion for a preliminary injunction to prohibit the franchisees from LexisNexis(R) Headnotes continuing to represent themselves as franchisees and from using franchise trademarks. OVERVIEW: The franchisees alleged that they were fraudulently induced to enter into the agreement. The Civil Procedure > Remedies > Injunctions > franchisors contended that the franchisees breached the Preliminary & Temporary Injunctions agreement. The franchise agreement contained an [HN1] The ultimate goal of any test to be used in arbitration provision that excluded disputes in which deciding whether a preliminary injunction should issue is Page 2 167 Cal. App. 4th 437, *; 84 Cal. Rptr. 3d 267, **; 2008 Cal. App. LEXIS 1572, ***1 to minimize the harm which an erroneous interim with unclean hands to recover in an action creates doubts decision may cause. As a general matter, the question as to the justice provided by the judicial system. Thus, whether a preliminary injunction should be granted precluding recovery to the unclean plaintiff protects the involves two interrelated factors: (1) the likelihood that court's, rather than the opposing party's, interests. The the plaintiff will prevail on the merits, and (2) the relative doctrine promotes justice by making a plaintiff answer balance of harms that is likely to result from the granting for his own misconduct in the action. It prevents a or denial of interim injunctive relief. wrongdoer from enjoying the fruits of his transgression. The misconduct that brings the unclean hands doctrine into play must relate directly to the cause at issue. The Civil Procedure > Remedies > Injunctions > misconduct must prejudicially affect the rights of the Preliminary & Temporary Injunctions person against whom the relief is sought so that it would Civil Procedure > Appeals > Standards of Review > be inequitable to grant such relief. Abuse of Discretion [HN2] A party challenging an order granting or denying a preliminary injunction has the burden of making a clear Civil Procedure > Equity > Maxims > Clean Hands showing of an abuse of discretion. An abuse of discretion Principle will be found only where the trial court's decision [HN5] Courts have gleaned a three-pronged test to exceeds the bounds of reason or contravenes the determine the effect to be given to a plaintiff's unclean uncontradicted evidence. Where the evidence with hands conduct. Whether the particular misconduct is a respect to the right to a preliminary injunction is bar to the alleged claim for relief depends on (1) conflicting, the reviewing court must interpret the facts in analogous case law, (2) the nature of the misconduct, and the light most favorable to the prevailing party and (3) the relationship of the misconduct to the claimed indulge in all reasonable inferences in support of the trial injuries. court's order. When the matter raised on appeal is solely a question of law, the standard of review is not abuse of discretion but whether statutory or constitutional law was Business & Corporate Law > Distributorships & correctly interpreted and applied by the trial court. Franchises > Remedies > Injunctive Relief Trademark Law > Infringement Actions > Remedies > Equitable Relief > Preliminary Injunctions Contracts Law > Breach > General Overview [HN6] Injunctive relief is appropriate where a terminated [HN3] Under basic contract principles, when one party to franchisee continues to use a franchisor's trademark. a contract feels that the other contracting party has breached its agreement, the non-breaching party may either stop performance and assume the contract is Civil Procedure > Alternative Dispute Resolution > avoided or continue its performance and sue for damages. Arbitrations > General Overview Under no circumstances may the non-breaching party Civil Procedure > Remedies > Injunctions > stop performance and continue to take advantage of the Preliminary & Temporary Injunctions contract's benefits. [HN7] See Code Civ. Proc., § 1281.8, subd. (b). Civil Procedure > Equity > Maxims > Clean Hands Civil Procedure > Alternative Dispute Resolution > Principle Arbitrations > General Overview [HN4] The venerable doctrine of unclean hands arises Civil Procedure > Remedies > Injunctions > from the maxim that one who comes to court seeking Preliminary & Temporary Injunctions equity must come with clean hands. The doctrine [HN8] In deciding whether to issue an injunction demands that a plaintiff act fairly in the matter for which pursuant to Code Civ. Proc., § 1281.8, a trial court must he seeks a remedy. He must come into court with clean weigh the same factors it considers in proceeding under hands, and keep them clean, or he will be denied relief, Code Civ. Proc., § 526: (1) likelihood of success on the regardless of the merits of his claim. The unclean hands merits, and (2) whether the moving party will suffer doctrine protects judicial integrity and promotes justice. It irreparable harm in the interim if the injunction is not protects judicial integrity because allowing a plaintiff issued. Interim injunctive relief under § 1281.8, therefore, Page 3 167 Cal. App. 4th 437, *; 84 Cal. Rptr. 3d 267, **; 2008 Cal. App. LEXIS 1572, ***1 is appropriate only if the applicant has no adequate (1) Injunctions § 15--Preliminary Injunctions--When alternative remedy, and will suffer irreparable harm if the Appropriate.--The ultimate goal of any test to be used in injunction is denied. deciding whether a [*438] preliminary injunction should issue is to minimize the harm which an erroneous interim SUMMARY: decision may cause. As a general matter, the question whether a preliminary injunction should be granted CALIFORNIA OFFICIAL REPORTS SUMMARY involves two interrelated factors: (1) the likelihood that the plaintiff will prevail on the merits, and (2) the relative In a dispute concerning the termination of a franchise balance of harms that is likely to result from the granting agreement, the trial court granted the franchisors' motion or denial of interim injunctive relief. for a preliminary injunction to prohibit the franchisees from continuing to represent themselves as franchisees (2) Contracts § 44--Performance--Breach--Options of and from using franchise trademarks. The franchisees Nonbreaching Party.--Under basic contract principles, alleged that they were fraudulently induced to enter into when one party to a contract feels that the other the agreement. The franchisors contended that the contracting party has breached its agreement, the franchisees breached the agreement. The franchise nonbreaching party may either stop performance and agreement contained an arbitration provision that assume the contract is avoided, or continue its excluded disputes in which injunctive relief was sought. performance and sue for damages. Under no In the motion for a preliminary injunction, the franchisors circumstances may the nonbreaching party stop asserted that the franchise relationship was properly performance and continue to take advantage of the terminated and that the injunction was warranted to contract's benefits. prevent further economic harm. (Superior Court of Los Angeles County, No. BC336287, Joseph R. Kalin, (3) Equity § 6.2--Principles and Maxims--Clean and Judge.*) Unclean Hands--Prejudicial Misconduct.--The venerable doctrine of unclean hands arises from the * Retired judge of the Los Angeles Superior maxim that one who comes to court seeking equity must Court, assigned by the Chief Justice pursuant to come with clean hands. The doctrine demands that a article VI, section 6 of the California plaintiff act fairly in the matter for