UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

August Term, 2022

Argued: October 25, 2022 Decided: March 13, 2023

Docket No. 22-1229-cv

JTH TAX, LLC, D/B/A LIBERTY TAX SERVICE,

Plaintiff-Appellant,

— v. —

ALEXIA AGNANT, DEMETRESS CORPORATION,

Defendants-Appellees.

Before:

CABRANES, LYNCH, and ROBINSON, Circuit Judges.

Plaintiff-Appellant, a franchisor of tax preparation services, appeals from an order of the United States District Court for the Eastern District of New York (Pamela K. Chen, J.) denying its motion for preliminary injunctive relief to enforce, among other things, covenants not to compete or solicit former clients against Defendants-Appellees, its former franchisees. On appeal, Appellant argues that the district court erroneously applied a heightened standard for obtaining preliminary injunctive relief, failed to credit an undisputed fact that Appellant had grounds to terminate the franchise agreements because Appellees 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. We conclude that the district court applied the appropriate standard, permissibly credited Appellees’ denials that they violated federal tax laws, and acted well within its discretion in concluding that Appellant would not suffer irreparable harm. We therefore AFFIRM the order denying preliminary relief.

MATTHEW B. NICHOLSON (Amy Mason Saharia, Kimberly Broecker, on the brief), Williams & Connolly LLP, Washington, DC, for Plaintiff-Appellant.

JAAZANIAH ASAHGUII (Alexander T. Coleman, Michael J. Borrelli, on the brief), Borrelli & Associates, P.L.L.C., Garden City, NY, for Defendants-Appellees.

GERARD E. LYNCH, Circuit Judge:

This is a franchise dispute between Plaintiff-Appellant franchisor JTH Tax, LLC, d/b/a/ Liberty Tax Service (“Liberty”) and Defendants-Appellees Alexia Agnant and her wholly owned New York corporation, Demetress Corporation (together, “Agnant”). Agnant is a former Liberty franchisee. In March 2022, Liberty terminated her franchise agreements, claiming that Agnant and her staff

2 had committed material violations of federal tax laws and regulations in providing tax preparation services. In its termination notice, Liberty demanded that Agnant comply with various post-termination obligations, including her non-compete and non-solicitation covenants. Agnant refused, prompting Liberty to sue and move for preliminary injunctive relief in federal district court.

The district court (Pamela K. Chen, J.) granted a temporary restraining order but, after holding an evidentiary hearing, denied a preliminary injunction. At that hearing, Agnant – the only live witness – testified that she and her staff complied with federal law and that Liberty exaggerated her due diligence obligations under federal tax law. The district court credited that testimony over Liberty’s competing declarations. Consequently, the court held that Liberty had failed to show a likelihood of success on the merits because it had not established a contractual basis to terminate the franchise agreements. Additionally, the court held that Liberty failed to show that it would suffer irreparable harm to its goodwill or client relationships in the absence of an injunction because it had presented no evidence of actual or imminent harm.

Finding no abuse of di