January 27, 2026|Franchise Frontlines
January 27, 2026 | United States District Court for the District of Colorado | Recommendation of United States Magistrate Judge
Executive Summary
In a post-judgment decision, Magistrate Judge Varholak of the District of Colorado recommended granting a franchisor’s motion for attorneys’ fees and costs incurred in enforcing an injunction against a former franchisee who continued operating in violation of the Franchise Agreements. The franchisor, JTH Tax, LLC (Liberty Tax Service), had previously obtained default judgment and injunctive relief based on the former franchisee’s continued competition, misuse of confidential information, and violation of non-compete obligations. After the franchisee failed to comply, the court found the defendants in contempt and held that the franchisor was entitled to recover its reasonable fees and costs incurred in securing compliance. The court recommended awarding over $36,000 in fees and costs related to the contempt proceedings.
Relevant Background
The dispute arose from the termination of multiple Liberty Tax franchise agreements following the franchisee’s alleged breaches, including misuse of referral programs, failure to pay amounts owed, and violations of post-termination obligations. The agreements required the franchisee to cease operating competing tax preparation services within a defined geographic area and to return confidential information, including customer data and operational materials.
Following termination, the franchisee continued operating a competing business at a former franchise location, using similar branding elements, customer relationships, and contact information. The franchisor filed suit asserting claims for breach of contract, trade secret violations, and related causes of action. After the defendants failed to respond, the court entered default judgment and issued injunctive relief prohibiting continued competition and requiring compliance with post-termination obligations.
Despite the injunction, the defendants continued operating in violation of the court’s order. The franchisor then pursued contempt relief, ultimately obtaining a finding of contempt and an order permitting recovery of fees and costs associated with enforcement efforts.
Decision
The court recommended awarding attorneys’ fees and costs incurred in connection with the contempt proceedings, finding that such an award was appropriate both under the Franchise Agreements and as a remedy for the defendants’ noncompliance with court orders.
The court emphasized that the franchisor was forced to incur additional legal expenses to enforce the injunction and obtain compliance. It noted that the defendants’ continued operation in violation of the court’s order—including ongoing use of confidential information and continued competition—necessitated further litigation, including investigative efforts and an evidentiary hearing.
Applying the lodestar method, the court found the requested fees reasonable in both hours expended and hourly rates. The court credited the franchisor’s efforts to reduce duplicative or unnecessary billing and found that the work performed—including preparing the contempt motion, investigating violations, and participating in hearings—was appropriate under the circumstances. The court also approved recovery of costs associated with private investigative services used to document ongoing violations.
The court further noted that the franchisor achieved substantial success in enforcing its rights, which supported the full fee award. It rejected any need to reduce the award and concluded that the requested fees and costs were reasonable and warranted.
Looking Forward
This decision reinforces a practical but important point for franchisors: obtaining injunctive relief is often only the first step in enforcing post-termination obligations. Where a former franchisee continues to operate in violation of contractual restrictions or court orders, additional enforcement efforts may be required—and courts are willing to shift those costs to the noncompliant party.
The case highlights the value of well-drafted fee-shifting provisions in franchise agreements. Courts will enforce these provisions where franchisors are required to take legal action to enforce contractual rights, including post-judgment enforcement and contempt proceedings. This provides a meaningful mechanism for franchisors to recover the costs associated with protecting their system and brand.
The decision also underscores the importance of building a clear evidentiary record when pursuing enforcement. Here, the franchisor’s use of investigative services and detailed documentation of ongoing violations supported both the contempt finding and the fee award. This reflects a broader principle: courts are more likely to grant full relief where violations are well-documented and demonstrably ongoing.
At the same time, the case serves as a reminder that continued noncompliance can significantly increase exposure for former franchisees. What begins as a breach of contract or non-compete violation can evolve into contempt proceedings with additional monetary consequences.
In sum, JTH Tax v. Merit illustrates that franchise enforcement does not end with an injunction. Courts will support franchisors in securing compliance and, where appropriate, will require noncompliant parties to bear the costs of that enforcement.
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.
