Meineke Franchisee Jailed for Not Paying Royalties
After terminated Meineke franchisees ignored a court default judgment that directed them to "cease and refrain" from operating their auto shop in Nevada, after bragging to customers that corporate "can't do anything about it," the district judge determined that contempt sanctions of imprisonment and fines of $1,000 a day were necessary.
The March 2016 ruling was the result of a lawsuit filed two years earlier by Meineke Car Care Centers, LLC against Ralph Ahmad and Ashvinder Asmad in North Carolina federal court. The company alleged the franchisees had breached their 2009 franchise agreement by failing to submit weekly business reports showing their auto center's revenues and required franchise fees and advertising contribution payments.
Meineke had sent the franchise owners a notice of default in January 2013, stating they would be terminated if the payments were not received by corporate within a 30-day period. When the franchisees did not cure the default, Meineke sent a notice of termination informing them that their franchise agreement would be terminated effective March 29, 2013.
The Ahmads did not answer Meineke's legal complaint and continued to run their auto center under the Meineke name. The court then entered a default judgment directing them, among other things, to "cease and refrain" from operating their business or any competing franchise in the area. Meineke sought and obtained an order to show cause why the former franchisees should not be held in contempt, but the Ahmads ignored the order and failed to appear for the court hearing.
Because the franchisees acknowledged their violations to customers and continued to "willfully violate" the directives of both the court and the franchisor, the judge decided that the "utter disregard" showed that contempt sanctions of imprisonment and fines were necessary in order to coerce the franchisees to comply with the default judgment order. In addition to paying $1000 a day until they complied with the court's judgment, they also were required to produce their business records showing all revenues made since August 2014. The court order also awarded Meineke attorney fees and costs in the amount to be determined.
In the March 2016 default judgment order, the court authorized the U.S. Marshal to arrest Ralph Ahmad, officer and shareholder of ASAR Incorporated, and place him into custody, allowing the officer to enter the auto shop in Carson City, Nevada property, and to use reasonable force in the arrest if necessary. The officer was authorized to seize or impound any property on the premises identified by Meineke as personal property belonging to the franchisees. The U.S. Marshal was also directed to sell the items seized by public auction at a time and place designated by the officer.
Court documents show that the franchisees were prohibited from competing directly or indirectly with Meineke for a period of one year from the date of compliance with the default and court order. In closing, U.S. District Judge Robert J. Conrad, Jr. added, "This order may be executed nationwide pursuant to Federal Rule of Civil Procedure 4.1(b) which provides that "an order committing a person for civil contempt of a decree or injunction issued to enforce federal law may be served and enforced in any district."
The Revised Order Finding Contempt, filed March 10, 2016, states that The U.S. Marshal was allowed to directly incarcerate Ralph Ahmad in a facility chosen by the U.S. Marshal. Meineke was ordered to pay the Marshal a deposit for anticipated expenses in connection with "the apprehension and custody of defendant Ralph Ahmad"; the transportation cost to the facility and other costs associated with the finding of contempt. Ralph Ahmad was ordered to reimburse Meineke for the expenses incurred in his arrest and incarceration.
The Legal Intelligencer reported on the case, Meineke Car Care Centers LLC v. Asar, last Friday, authored by Craig R. Tractenberg of Nixon Peabody. He states that when the one franchisee was taken into custody, the court observed that the incarceration had "caused the franchisees to make substantial strides" toward compliance. The report states, "The franchisee was released from custody, and the court awarded the franchisor $26,000 to the judgment, which included actual damages, costs and attorney fees."
Franchisor Meineke Car Care Centers, LLC was represented by Robert L. Zisk and Stephen Vaughan of Gray Plant Mooty in Washington, D.C.
No attorney is listed for franchisees Ralph Ahmad and Ashvinder Ahmad and their company ASAR Incorporated.
This article originally appeared on Blue Maumau.