We recently successfully prosecuted an action on behalf of a multi-unit pet services franchisee to enforce the terms of a settlement agreement against a franchisor that was not a party to the settlement agreement.
By the conclusion of the litigation, the multi-unit franchisee received substantially more than what was required under the terms of Settlement Agreement and reimbursement for all attorneys’ fees. In this case, prior to making the payments due under the Settlement Agreement, the original franchisor went out of business and allowed a new franchisor to assume the rights and obligations of the pet service franchise system. The new franchisor did not assume any other obligations or liabilities. We argued before Judge Zagel in the United States District Court for the Northern District of Illinois that the transaction was an improper sale of company assets and the new franchisor should be required to place royalty payments it was receiving in a constructive trust for the benefit of our client. The new franchisor allowed a default judgment to be entered. Later, it asserted that the Illinois court did not have jurisdiction. The Court disagreed and noted that because a default judgment was entered, the new franchisor and not the franchisee had the burden of proof to establish a lack of jurisdiction and this burden was not satisfied. The Court also held the new franchisor in contempt of court until all the required payments were made.