DMF Leasing, Inc. v. Budget Rent-A-Car of Maryland, Inc.

DAVIS, J. Appellant, DMF Leasing, Inc. (DMF), sought a preliminary injunction prohibiting appellees, Budget Rent-A-Car of Maryland, Inc. (Maryland Budget) and Budget Rent-A-Car Sys- ⁶⁴³ terns, Inc. (National Budget), from taking action to terminate three of DMF’s Budget Rent-A-Car franchises in Maryland. The Circuit Court for Montgomery County denied DMF’s request for a preliminary injunction, and the court also denied a motion for injunction pending appeal. This Court subsequently granted appellant’s motion for an injunction pending appeal. DMF appeals from the circuit court’s denial of the preliminary injunction, raising three questions, which we have rephrased and consolidated into one: Did the circuit court err in denying DMF’s request for a preliminary injunction?

We hold that the circuit court erred in not granting the injunction, and, accordingly, we shall reverse the judgment. FACTUAL BACKGROUND In 1960, National Budget entered into a master franchise agreement in Maryland, which ultimately was assumed by Maryland Budget. While they share similar names and have a longstanding close relationship, the companies are not affiliates of each other. National Budget was acquired in 2002 by Cendant Car Rental Group, Inc., which is also an appellee here.

Under the parties’ agreement, Maryland Budget was granted the exclusive right to operate Budget Rent-A-Car franchises in the Washington-Baltimore region. Maryland Budget was also granted authority to contract sublicenses 1 for the use of the Budget Rent-A-Car name in Maryland. Under that authority, Maryland Budget entered into sublicense agreements with appellant, permitting appellant to operate Budget Rent-A-Car franchises in Catonsville, Rockville, and Silver Spring, Maryland. Two of Maryland Budget’s sublicense agreements with DMF expressly provided, in paragraph 1.05, that if National ⁶⁴⁴ Budget’s master agreement with Maryland Budget terminated, then DMF’s sublicense with Maryland Budget would terminate as well, unless National Budget exercised its right to continue the sublicense.

Specifically, the paragraph states: This Agreement and all rights appurtenant thereto shall be subject and subordinate to the underlying LICENSE AGREEMENT between LICENSOR [Maryland Budget] and [National Budget]. In the event that LICENSOR’S License Agreement with [.National Budget ] terminates, this Agreement shall forthwith terminate; provided, however, that [.National Budget ] shall have the right, hut not the obligation, to keep this Agreement in full force and effect, bg written notice delivered to Sublicense within seven (7) dags subsequent to the termination of LICENSOR’S said License Agreement. In the event that [National Budget] exercises its said right to continue this Agreement in full force and effect, [National Budget] shall be substituted for LICENSOR hereunder, and [National Budget] shall have the further right and option to assign all of its rights hereunder to any person, and any such assignee shall become LICENSOR hereunder. No assignment or other affirmative action by LICENSOR or SUBLICEN-SEE [i.e., DMF] shall be required to effectuate the provisions of this paragraph.

This language was omitted from the Catonsville sublicense agreement, but National Budget contends that it was implied by law into the Catonsville agreement. Obviously, DMF’s position as a subfranchisee left it vulnerable; if DMF’s licensor’s rights were terminated, then National Budget could contend that DMF’s rights would terminate as well. DMF recognized this risk: John J. Fitzgerald, Jr., a principal of DMF, testified in a March 27, 2003 hearing that, “if they [Maryland Budget] lose their license, of course, we’re an orphan, and we don’t have any relationship with [National Budget].... [T]here’s no protection for us at all.” 2 ⁶⁴⁵ On August 15, 2002, DMF notified Maryland Budget that it did not intend to renew its subfranchise licenses with Maryland Budget. Maryland Budget contested DMF’s claimed right not to renew; Maryland Budget threatened to terminate DMF’s subfranchises on various grounds, and a termination (rather than nonrenewal) would trigger certain post-franchise noncompetition provisions in the parties’ agreements.

Maryland Budget notified DMF that its subfranchises were terminated on November 11, 2002. DMF and Maryland Budget (but not National Budget) began litigating their dispute in the Circuit Court for Montgomery County. DMF and Maryland Budget reached a tentative settlement in May 2003. Although National Budget was not a party to the case, DMF knew that its approval was necessary before Maryland Budget could execute any settlement.

Meanwhile, also in 2003, National Budget was trying to purchase Maryland Budget. A manager with DMF, Glenn Price, was informed by Jeffrey Rellinger, of Maryland Budget, that Maryland Budget was selling itself to National Budget; that communication occurred prior to the final settlement between DMF and Maryland Budget. National Budget stipulated that it would not buy Maryland Budget until it settled its litigation with DMF. National Budget approved of the settlement DMF had drafted for its dispute with Maryland Budget.

That settlement was finally executed between appellant and Maryland Budget on June 4, 2004, and it states that it became effective May 28, 2004, when its material terms were announced in court. The executed agreement is entitled, “REVISIONS TO THE SUBLICENSE AGREEMENTS,” and, among other provisions, the agreement states: Each of the revised Sublicense Agreements has a term of five years and is renewable at DMF’s election for successive ⁶⁴⁶ periods of one year each. The one-year renewals may be terminated upon 90 days written notice by DMF. DMF asserts that, based on this paragraph, it believed that it had eliminated its vulnerability to a termination of Maryland Budget’s license for at least five years.

During the same month that the settlement agreement was executed, DMF filed the instant case in the Circuit Court for Montgomery County, seeking a temporary restraining order (TRO) at the outset to keep National Budget from acquiring Maryland Budget and terminating Maryland Budget’s (and concomitantly, DMF’s) licenses. The court held a hearing and denied the TRO request on June 30, 2004, but appellees agreed not to terminate DMF’s subfranchises at least until after the October 1, 2004 hearing that the court scheduled. At the October 1 hearing, the circuit court denied DMF’s request for a preliminary injunction. Announcing his decision, the trial judge began: [Tjhere are four factors that the Court should look at in deciding whether or not to issue a preliminary injunction and they are the likelihood that the petitioner will succeed on the merits; the balance of convenience determined by whether greater injury would be done to the defendant by granting the injunction than would result from its refusal; and whether the petitioner will suffer irreparable injury unless the injunction is granted.

Although the trial judge correctly identified that there are four salient factors, and identified three of them, he did not address the fourth, i.e., the public interest. As for the three factors analyzed, the trial judge found that DMF had little likelihood of succeeding on the merits of its claims. The judge concluded that, under the agreements prior to DMF’s settlement with Maryland Budget, National Budget retained the right to terminate DMF’s subfranchises by terminating Maryland Budget’s statewide license, and he found that DMF’s settlement with Maryland Budget could not alter that right. The judge also found that, even if DMF’s subfranchises were wrongfully terminated, money damages would compen ⁶⁴⁷ sate DMF for the loss, so its prospective injury would not be irreparable.

Although the judge concluded that the balance of convenience weighed in DMF’s favor, he denied the injunction. On October 8, 2004, National Budget’s counsel notified DMF that, as far as National Budget was concerned, DMF’s sublicenses had terminated after the trial judge denied the preliminary injunction. Also on October 8, DMF moved for an injunction pending appeal, which was denied on October 15. On October 22, 2004, National Budget sued appellant, alleging that National Budget had re-acquired and terminated Maryland Budget’s master license, and therefore appellant was unlawfully operating its Budget franchises.

DMF noted this appeal on October 26, 2004, and, upon DMF’s motion, this Court granted an injunction pending appeal on November 30, 2004, and we expedited this case’s briefing and argument schedule. LEGAL ANALYSIS In deciding whether to grant a request for a preliminary injunction, trial judges must consider the following four factors: 1. the likelihood that the plaintiff will succeed on the merits; 2. the “balance of convenience,” determined by whether greater injury would be done to the defendant by granting the injunction than would result from its refusal; 3. whether plaintiff will suffer irreparable injury unless the injunction is granted; and 4. the public interest. See generally Lerner v. Lerner, 306 Md. 771, 783-85 , 511 A.2d 501 (1986); Antwerpen Dodge, Ltd. v. Herb Gordon Auto World, Inc., 117 Md.App. 290, 303-05 , 699 A.2d 1209 (1997); Teferi v. Dupont Plaza Assocs., 77 Md.App. 566, 578-79 , 551 A.2d 477 (1989); Paul V. Niemeyer & Linda M. Schuett, Maryland Rules Commentary 596-99, 617-19 (3d ed.2003); Paul Mark Sandler & James K. Archibald, Pleading Causes of Action in Maryland § 7.1 (3d ed.2004). ⁶⁴⁸ Despite some suggestion to the contrary, 3 these factors are not like elements of a tort. Lerner, 306 Md. at 776-77 , 511 A.2d 501 .

The four factors are simply that, factors, designed to guide trial judges in deciding whether a preliminary injunction should be issued. If a trial judge correctly identifies and applies these factors, we will not disturb the judge’s decision absent an abuse of discretion. I The trial judge concluded that DMF had little likelihood of succeeding on the merits of its claims. DMF contends that the trial judge erred in applying this factor and that the appropriate question was not whether DMF showed a likelihood of succeeding on the merits, but whether DMF “raised questions going to the merits so serious, substantial, difficult and doubtful, as to make them fair ground for litigation and ⁶⁴⁹ thus for more deliberate investigation.” Lerner, 306 Md. at 784 , 511 A.2d 501 .

Preliminarily, we observe that the separate articulations — “likelihood of success on the merits” and “substantial question going to the merits” — should not be thought of as discrete concepts, but, consistent with the factorial (rather than elemental) nature of the four injunction factors, these articulations should be thought of as related points along a continuum. Pigeonholing the success-on-the-merits factor as either “probability of success on the merits” or “raising a substantial question on the merits” is inconsistent with the flexibility that remains one of the cornerstones of meting out the equitable remedy of an injunction. See Lerner, 306 Md. at 783-85 , 511 A.2d 501 ; see also W. Michael Garner, Franchise & Distrib. Law & Practice § 17:41 (2004)