                                                                                                                           Opinions of the United
2003 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


11-24-2003

Jackson Hewitt Inc v. Madan
Precedential or Non-Precedential: Non-Precedential

Docket No. 02-3635




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"Jackson Hewitt Inc v. Madan" (2003). 2003 Decisions. Paper 97.
http://digitalcommons.law.villanova.edu/thirdcircuit_2003/97


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                                               NOT PRECEDENTIAL

     UNITED STATES COURT OF APPEALS
          FOR THE THIRD CIRCUIT


              Nos. 02-3635 & 02-3804


             JACKSON HEWITT INC.,
               a Virginia Corporation

                          v.

               GOBIND L. MADAN,
                  an individual,
                Appellant in 02-3635


             JACKSON HEWITT INC,
               a Virginia Corporation
                 Appellant in 02-3804

                          v.

               GOBIND L. MADAN,
                  an individual


     Appeal from the United States District Court
             for the District of New Jersey
             (D.C. Civil No. 01-cv-02981)
     District Judge: Honorable William H. Walls


               Argued October 2, 2003

Before: RENDELL, WEIS and GARTH, Circuit Judges.

             (Filed November 24, 2003)
                                                   Jeffrey A. Zucker
                                                   Daniel L. Fiore   [ARGUED]
                                                   FISHER & ZUCKER
                                                   121 South Avenue of the Arts
                                                   Suite 1200
                                                   Philadelphia, PA 19107
                                                     Counsel for Appellant/Cross Appellee
                                                     Gobind L. Madan

                                                   Dennis R. LaFiura [ARGUED]
                                                   PITNEY, HARDIN, KIPP & SZUCH
                                                   P.O. Box 1945
                                                   Morristown, NJ 07962
                                                     Counsel for Appellee/Cross Appellant
                                                     Jackson Hewitt Inc.


                               OPINION OF THE COURT


RENDELL, Circuit Judge.

       Jackson Hewitt, Inc. (“JHI”) is a tax preparation business that provides software,

electronic filing, bank products, equipment, advertising, and promotion services to its

franchisees, who in turn provide tax services to individuals under the JHI trade name.

JHI will not grant franchises to individuals who operate other businesses that offer the

same types of services as are provided by JHI franchises, and its franchise agreements

customarily contain prohibitions in this regard.

       Between September 1997 and January 1999, JHI entered into 16 franchise

agreements with Gobind L. Madan (“Madan”), allowing Madan to operate 15 JHI

franchises in Georgia and one in Alabama. In September 2000, JHI and Madan entered



                                             2
into franchise agreements renewing Madan’s 16 existing franchises and adding two new

franchises in Georgia. Each of these agreements included: (a) a specific representation by

Madan that he did not have an interest in any “Competing Tax Business”1 at the time he

entered into the agreement; (b) a covenant barring Madan from having any direct or

indirect interest in any Competing Tax Business during the term of the agreement (“the

In-Term Covenant”); (b) a covenant barring Madan from preparing individual tax returns

and from developing any interest in any Competing Tax Business within 10 miles of his

franchise territory for a period of 24 months after termination of the agreement (“the Post-

Term Covenant”); (c) a provision stating that JHI could terminate the agreement if Madan

made any “material misrepresentation on ... any written report” or violated the In-Term

Covenant; and (d) an express choice-of-law provision, stating that New Jersey law would

apply in any action arising out of or relating to the franchise agreement.

       In May 2001, JHI terminated the franchise agreement after an audit during which

JHI alleges it discovered that Madan had violated the agreement. Specifically, JHI

alleges: (a) that when M adan entered into the initial franchise agreements in 1997, he did

not disclose his interest in Speedy Tax Refund Loans (“Speedy Tax”), a Competing Tax

Business; (b) that when Madan added two franchises to the existing agreement in 1999,

he represented to JHI that he had sold Speedy Tax to Robert Fendrick and Vijay Slehria,


       1
        The agreements define “Competing Tax Business” as “any business that offers tax
return preparation, electronic filing, bank products or other services offered by Jackson
Hewitt Tax Service Operating System.”

                                              3
but actually maintained an interest in Speedy Tax; and (c) that when the franchise

agreement was renewed in 2000, Madan continued to assert that he had no interest in

Speedy Tax, when he did, in fact, have such an interest.

       Madan continued to operate the franchises, and JHI filed a complaint asserting that

Madan (a) had breached the In-Term Covenant, which was the primary reason the

agreement had been terminated, (b) was breaching the Post-Term Covenant, and (c) was

violating the Lanham Act by using JHI’s trade names and service marks without

authorization. On October 9, 2001, the District Court granted Madan’s motion to dismiss

without prejudice, holding that, despite the choice-of-law provision, Georgia law would

apply to the In-Term Covenant, and the In-Term Covenant was unenforceable under

Georgia law because it did not include any geographic restrictions. The court permitted

JHI to amend its complaint.

       JHI amended its complaint so as to base its claims on Madan’s violation of the

franchise agreement by his material misrepresentations regarding his interest in a

Competing Tax Business, his breaching of the Post-Term Covenant, and his continuing

violation of the Lanham Act. Madan filed a counterclaim for a declaratory judgment that

he did not breach the franchise agreement, claimed breach of contract against JHI, and

sought to dismiss the complaint on the ground that the In-Term Covenant was

unenforceable under Georgia law. Both parties filed applications for preliminary

injunctions.



                                             4
       On November 17, 2001, the District Court denied M adan’s application for a

preliminary injunction, and granted the injunction sought by JHI, finding that it had

established a substantial likelihood of success on the merits based on the

misrepresentations made by Madan. The injunction barred Madan from, inter alia, using

the JHI trade names and service marks, and engaging in any Competing Tax Business

within 10 miles of his former franchise territories.

       Madan appeals the entry of the injunction, contending that there was insufficient

evidence of the alleged misrepresentations and that the District Court erred in enforcing

the Post-Term Covenant because it is controlled by Georgia law. JHI cross-appeals,

arguing that the District Court erred in its dismissal of the In-Term Covenant claim based

on Georgia law.

       We have jurisdiction of Madan’s appeal under 28 U.S.C. § 1292(a)(1) insofar as it

challenges the District Court’s entry of the preliminary injunction on November 17, 2001.

However, because the dismissal of the In-Term Covenant claim by entry of the order of

October 9, 2001 was a non-final order, and it is not inextricably intertwined with the

appealable order, we do not have jurisdiction to rule on this aspect of the case, and thus

JHI’s cross-appeal will be dismissed. See E.I. DuPont de Nemours & Co. v. Rhone

Poulenc Fiber & Resin Intermediaries, S.A.S., 269 F.3d 187, 203 (3d Cir. 2001).2




       2
      Further, in light of JHI’s amendment of its Complaint, we inquired at oral
argument whether any aspect of the original Complaint even survived for our review.

                                              5
       We review a decision to grant or deny a preliminary injunction for abuse of

discretion. See Dam Things from Denmark v. Russ Berrie & Co., 290 F.3d 548, 556 (3d

Cir. 2002). The factual findings underlying the decision are reviewed for clear error, and

the findings of law are reviewed de novo. Id.

       The established four-prong test in order to determine whether to grant a

preliminary injunction is: (1) whether the moving party has shown a reasonable

probability of success on the merits; (2) whether the moving party would be irreparably

injured by a denial of the preliminary relief requested; (3) whether granting the

preliminary relief would result in even greater harm to the non-moving party; and (4)

whether granting the preliminary relief was in the public interest. Dam Things, 290 F.3d

at 556. After considering documentary evidence submitted by JHI and the testimony of

witnesses, the District Court concluded that the evidence demonstrated that Madan had

not divested himself of his interest in Speedy Tax before entering the 2000 franchise

agreements, and that Speedy Tax had prepared individual tax returns after Madan had

entered the agreements. Accordingly, the District Court determined that JHI had

demonstrated a likelihood of success on the misrepresentation claim. Moving on to the

other factors, the court found that the harm that JHI would suffer by having its clientele

continue to be diverted by its supposed franchisee outweighed any harm that would come

to Madan from granting JHI’s application. Furthermore, the court found that granting

JHI’s application would be in the public interest, as it would help the public determine



                                             6
who was preparing tax returns for it.

       Based upon our review, we cannot say that the District Court clearly erred in its

findings regarding the misrepresentation claim. There is ample evidence in the record to

support the finding that Madan maintained an interest in Speedy Tax, an organization that

fits the franchise agreements’ definition of a Competing Tax Business, when he entered

into the agreement, thus committing a material misrepresentation. We also cannot find

fault with the District Court’s conclusions regarding the balancing of the harms and the

public interest. As a result, we will affirm the entry of the injunction.

       Madan also urges that in its November order the District Court improperly

enforced the Post-Termination Covenant since, having found that the In-Term Covenant

was controlled by Georgia law and unenforceable, it should have found the Post-Term

Covenant’s “non-compete” clause similarly problematic. The District Court apparently

had little difficulty enforcing the “non-compete” clause. It did not allude to the “conflict”

issue, and this was clearly not the focal point of the injunction hearing. But we are

content with the District Court’s enforcement of this provision, as these types of clauses,

limited in time and scope, are routinely accepted, and Madan has failed to convince us

that any “conflict” of laws exists that would require us to hold otherwise.

       Accordingly, we will affirm.




                                              7
TO THE CLERK OF COURT:

     Please file the foregoing opinion.


                                          /s/Marjorie O. Rendell
                                           Circuit Judge

Dated: November 24, 2003




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