JTH Tax d/b/a Liberty Tax Service v. Agnant, No. 22-1229 (2d Cir. 2023)
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Plaintiff, a franchisor of tax preparation services, appeals from the district court’s denying its motion for preliminary injunctive relief to enforce, among other things, covenants not to compete or solicit former clients against Defendants, its former franchisees. On appeal, Plaintiff argues that the district court erroneously applied a heightened standard for obtaining preliminary injunctive relief, failed to credit an undisputed fact that Plaintiff had grounds to terminate the franchise agreements because Defendants were violating federal tax laws, and was compelled as a matter of law to find that it would suffer irreparable harm to its goodwill and client relationships in the absence of an injunction.
The Second Circuit affirmed the order denying preliminary relief. The court concluded that the district court applied the appropriate standard, permissibly credited Defendants’ denials that they violated federal tax laws, and acted well within its discretion in concluding that Plaintiff would not suffer irreparable harm. The court reasoned that nothing in the court’s precedents compels a district court to find irreparable harm to goodwill and client relationships in covenant-not-to-compete or -solicit cases simply because irreparable harm is often found in such cases. Instead, a plaintiff must present the district court with actual evidence. On that record, the court wrote it cannot conclude that the district court’s finding that Plaintiff had failed to make a strong showing of irreparable injury represented a clear error or exceeded the court’s discretion.
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