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Lads Trucking Co. v. Sears, Roebuck and Co.
Citation: 666 F. Supp. 1418Docket: CV 87-4384-DWW (JRx)
Court: District Court, C.D. California; August 25, 1987; Federal District Court
Lads Trucking Company, a California corporation, initiated legal action against Sears, Roebuck and Co., a New York corporation, after Sears decided to consolidate its delivery operations and did not renew Lads' contract, which had been in effect for twenty years. The contract allowed either party to terminate with a 60-day notice. In 1987, after being notified that its contract would end on April 1, Lads sought an injunction in Los Angeles Superior Court to prevent the cessation of their relationship, alleging breach of contract. After the state court denied the request, Sears removed the case to federal court, where Lads initially obtained a temporary restraining order to maintain the status quo while the termination notice was questioned. Lads argued that the contract fell under California's Franchise Investment Law, claiming that Sears failed to provide the required 180 days' written notice for non-renewal. The court reviewed the arguments concerning franchising, defining it as a method where independent businesses sell the franchisor’s products or services under the franchisor's trademarks, and identified three categories of franchises: distributorships, business format franchises, and manufacturing franchises. Ultimately, the court denied Lads' motion for a preliminary injunction, concluding that the franchise argument did not warrant the relief sought. California Corporation Code Section 31005 and California Business and Professions Code Section 20001 define a franchise as a contractual relationship where a franchisee is granted the right to operate under a franchisor's prescribed marketing system, associated with the franchisor's branding, and is required to pay a franchise fee. Lads claims its contract with Sears constitutes a franchise based on three arguments: Sears prescribes its operational methods, requires specific branding on its trucks, and charges a fee that Lads labels as a franchise fee. However, this fee is actually a rental charge for parking trucks at Sears' distribution center. The essence of Lads' relationship with Sears is identified as that of an independent contractor providing delivery services, without involvement in the sale's contractual obligations, as customer complaints are directed to Sears. In terms of preliminary injunction standards, the Ninth Circuit mandates evaluating the likelihood of success on the merits against the potential hardship to parties involved. A party seeking an injunction must demonstrate one of two criteria: either a likelihood of irreparable harm coupled with probable success on the merits, or a serious question raised where the balance of hardships favors the moving party. Lads has not established a likelihood of success regarding its franchise claim, leading to the conclusion that the requested injunctive relief should be denied.