April 13, 2026|Franchise Frontlines
April 13, 2026 | Minnesota Court of Appeals | Unpublished Opinion
Executive Summary
In a nonprecedential decision, the Minnesota Court of Appeals affirmed a district court order granting a temporary injunction in favor of franchisor Ellie Fam LLC, enforcing noncompete provisions against franchisees who attempted to terminate their franchise agreements and continue operating independently. The franchisees argued that Ellie materially breached the agreements and that they were entitled to rescind and operate outside the system. Ellie contended that the franchisees’ unilateral termination and continued operation in the same locations violated the agreements’ restrictive covenants. Applying Minnesota’s Dahlberg factors, the court concluded that Ellie demonstrated a likelihood of success on the merits and that injunctive relief was appropriate to preserve the contractual status quo. The court emphasized that the franchise relationship remained governed by the agreements absent a merits determination and that the franchisees’ independent operations constituted ongoing competitive harm.
Relevant Background
Ellie Fam LLC is a franchisor of mental-health clinics operating across multiple states. The franchisees in this dispute operated clinics in Arizona and Nevada pursuant to franchise agreements with Ellie. Under the system, Ellie provided training, operational support, credentialing, billing services, and access to confidential materials, including an operations manual and client-related systems. The agreements also included noncompete provisions restricting franchisees from operating competing businesses within specified territories.
Over time, the franchisees asserted that Ellie failed to meet its contractual obligations, citing operational issues such as billing errors, scheduling problems, and lack of administrative support. The franchisees provided notices of alleged breach and demanded cure. After negotiations proved unsuccessful, the franchisees issued notices purporting to terminate or rescind their agreements and subsequently continued operating their clinics independently under new branding, but in the same locations, with largely the same personnel and patient base.
Ellie filed suit seeking injunctive relief to enforce the noncompete provisions and prevent continued operation outside the franchise system. The district court granted a temporary injunction, and the franchisees appealed.
Decision
The Minnesota Court of Appeals affirmed the district court’s decision, concluding that the lower court did not abuse its discretion in applying the Dahlberg factors and granting injunctive relief.
With respect to the nature of the parties’ relationship and the status quo, the court agreed that the relevant baseline was the parties’ contractual relationship prior to the dispute, not the franchisees’ subsequent independent operations. The court rejected the argument that several months of breakaway operations constituted the operative status quo, explaining that the last noncontested state of affairs was the franchisees’ operation within the franchise system . This framing supported the use of injunctive relief to restore and preserve that contractual posture pending a final determination on the merits.
On the balance of harms, the court acknowledged that both sides presented evidence of potential harm. The franchisees cited operational challenges and risks to patient care if forced back into the system, while Ellie demonstrated ongoing harm through the franchisees’ use of system-derived goodwill, confidential information, and operational structure to compete directly against the brand. The district court ultimately found that this factor favored the franchisees, but the appellate court emphasized that no single factor is determinative and that the overall analysis remained within the district court’s discretion.
The court focused most heavily on the likelihood of success on the merits, which it described as the key factor. It concluded that Ellie made a strong showing based on the plain terms of the noncompete provisions and the undisputed fact that the franchisees continued to operate the same clinics in the same locations with substantially the same personnel after purporting to terminate the agreements . While the franchisees asserted defenses based on alleged prior breach by Ellie, the court found that those defenses did not preclude injunctive relief at this stage, particularly given the deferential standard and the ability to grant relief based on even a “doubtful showing” of success.
The court also rejected the franchisees’ argument that an arbitration clause barred the district court from granting injunctive relief, noting that the issue had not been properly preserved and that Minnesota courts had not adopted the federal “qualifying language” approach advanced by the franchisees.
Turning to public policy, the court recognized the importance of continuity of care in the mental-health context but found that the district court appropriately accounted for those concerns by structuring the injunction to allow a transition period. The injunction did not require closure of the clinics but rather required compliance with the contractual framework, which the court found consistent with broader public-policy considerations.
Finally, the court found no abuse of discretion in the district court’s conclusion that the administrative burden of enforcing the injunction would be manageable. The injunction was limited to enforcing the noncompete provisions and did not require ongoing supervision of all aspects of the franchise relationship.
Looking Forward
This decision illustrates the continued willingness of courts to enforce noncompete provisions against franchisees who attempt to exit a system through unilateral termination while continuing to operate substantially the same business. Courts remain focused on preserving contractual expectations and preventing franchisees from leveraging system-derived goodwill and operational infrastructure in a manner inconsistent with their agreements.
The case also reinforces that, at the preliminary injunction stage, courts are not resolving the ultimate merits of competing breach allegations. Franchisees’ claims that a franchisor failed to perform will typically be addressed in due course, but those claims do not necessarily entitle a franchisee to disregard restrictive covenants or to engage in self-help remedies that alter the competitive landscape. Where the agreements remain in dispute, courts may treat them as operative for purposes of interim relief.
Equally important, the decision underscores how courts define the “status quo” in franchise disputes. Attempts to recharacterize post-termination operations as the new baseline are unlikely to succeed where those operations arise from contested conduct. Instead, courts are more likely to anchor the analysis in the last uncontested contractual relationship, which often favors enforcement of system protections.
At the same time, the court’s analysis is grounded in the specific record and procedural posture. The outcome reflects a preliminary assessment under a deferential standard and does not resolve the underlying breach claims. Franchisors should view the decision as reinforcing the value of clear noncompete provisions and prompt enforcement, while recognizing that ultimate liability will turn on the full evidentiary record.
This article is based solely on the opinion of the Court in this matter. The author has not conducted any independent investigation into the facts. For the avoidance of doubt, each statement related to the law and facts in this article is drawn from the Court’s opinion in this case.
Thomas O’Connell is a Partner at Buchalter LLP and Chair of the firm’s Franchise Practice Group. For questions about this article or media inquiries, you can contact Tom at toconnell@buchalter.com.
This communication is not intended to create, and does not create, an attorney-client relationship or any other legal relationship. No statement herein constitutes legal advice, nor should it be relied upon or interpreted as such. This communication is for general informational purposes only and is not a substitute for legal counsel. Readers should not act or refrain from acting based on any information provided without seeking appropriate legal advice specific to their situation. For more information, visit www.buchalter.com.
