Third Circuit Court Rules AAMCO Right to Receive Injunction, Ex-Franchisee Plans Rehearing of Case

Order Reprints

The U.S. Court of Appeals for the Third Circuit recently decided a federal court was correct in issuing a permanent injunction to AAMCO Transmission, Inc., against one of its former franchisees.

In a per curiam decision reached April 1, judges D. Michael Fisher, Patty Shwartz and Robert E. Cowen of the Third Circuit ruled the U.S. District Court for the Eastern District of Pennsylvania did not err in handing down the injunction to AAMCO, against appellant James M. Dunlap.

[U.S. Court of Appeals for the Third Circuit]
 U.S. Court of Appeals for the Third Circuit

The instant case is part of a continuing dispute between AAMCO and Dunlap. In 1981, AAMCO and Dunlap entered into a franchise agreement which permitted Dunlap to operate a transmission repair center in Chesapeake, Va. under the AAMCO name. 

The franchise agreement lasted for an initial term of 15 years, with automatic renewal for another fifteen years, if neither party gave written notice of termination. In 1988, the franchise agreement was amended to include other additional provisions, including an enforceable arbitration agreement. 

In 1996, AAMCO permitted the franchise agreement to renew per its terms for an additional 15-year period, expiring in June 2011. After the franchise agreement ended, Dunlap continued to operate his repair center using the AAMCO name. 

As a result, AAMCO filed a lawsuit in the District Court a lawsuit against Dunlap for trademark infringement, along with a motion for a preliminary injunction looking to prohibit Dunlap from representing himself as an AAMCO franchisee or using AAMCO trademarks or signage. 

“However, Dunlap disputed that the franchise agreement had ended in June 2011, arguing that intervening circumstances caused the agreement to end at a later date,” the Third Circuit said.

After discovery and a hearing, the District Court granted AAMCO’s motion for a preliminary injunction. The District Court also required AAMCO to post an injunction bond in the amount of $100,000, and stayed the litigation “because the parties’ dispute was subject to mandatory arbitration.”

An arbitrator ruled in December 2013 that the franchise agreement did end in June 2011, which led AAMCO to file paperwork in March 2015 that sought the preliminary injunction levied against Dunlap to become a permanent injunction – and to be freed from the obligation of the injunction bond.

The District Court granted the conversion of the preliminary injunction to a permanent injunction in July 2015, feeling AAMCO met the criteria needed for such a decision. 

Those factors are: “(1) The moving party has shown actual success on the merits; (2) The moving party will be irreparably injured by the denial of injunctive relief; (3) The granting of the permanent injunction will result in even greater harm to the defendant; and (4) The injunction would be in the public interest.”

“The District Court determined that AAMCO successfully demonstrated that it had already succeeded on the merits of its claim that the franchise agreement ended in June 2011,” the Third Circuit said. “In particular, the Court determined that to the extent that customers might be dissatisfied with Dunlap’s performance at his repair shop, AAMCO might suffer a loss of its business reputation and goodwill if Dunlap failed to cure his deficiencies.”

“Given the arbitrator’s ruling that the franchise agreement ended nearly five years ago, the District Court determined that a permanent injunction would merely prohibit Dunlap from engaging in activity to which he has no legal right,” the appellate court added. “Finally, the District Court determined that a permanent injunction would be in the public interest in that it would prevent confusion and deception among business customers regarding whether Dunlap’s repair shop is, in fact, an approved AAMCO franchise.”

Dunlap appealed the decision to the Third Circuit, based on what the appellant felt was “a distinction between termination and expiration.” But, the Third Circuit determined the District Court did not err or abuse its discretion in converting the preliminary injunction to a permanent one.

“For essentially the reasons given by the District Court, we conclude that it did not abuse its discretion in granting AAMCO’s motion. Dunlap…sets forth a number of challenges, but many of them are facially meritless or irrelevant to the District Court’s grant of the permanent injunction,” the Third Circuit said. 

“That notwithstanding and given our narrow scope of review, we conclude, based on a careful reading of the record and a fair evaluation of the District Court’s analysis, that the Court did not abuse its discretion in balancing the factors and issuing the permanent injunction,” the Third Circuit concluded.

On Monday, Dunlap filed a petition for a rehearing en banc, before the original judiciary panel who decided the case in the Third Circuit.

The appellant represents himself in this action.

The appellee is represents by William B. Jameson of Spadea Lanard & Lignana in Philadelphia, and James A. Goniea of Einbinder Dunn & Goniea, in New York City.

This article originally appeared on Penn Record

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