Franchise 101: A Taxing Move; and Trade Secrets That Tip the Scale
Franchisor 101: A Taxing Move
A federal court in Missouri granted franchisor H&R Block’s motion for summary judgment, finding H&R Block could immediately terminate a franchisee’s franchise agreements without an opportunity to cure, after the franchisee shared confidential client information with an outside company.
The franchisee, Colorado Tax Specialists Co., operated several H&R Block tax offices under two franchise agreements. Those agreements barred the franchisee from sharing H&R Block’s confidential information (which included client data) with third parties unless the recipients first signed confidentiality agreements and H&R Block gave written consent.
To cut costs, the franchisee began routing its bookkeeping work to an outside firm, Synergy, and gave several Synergy employees access to client data. None of the Synergy employees had signed confidentiality agreements, and H&R Block never gave written consent. H&R Block terminated both franchise agreements immediately, pointing to the confidentiality violation.
The franchisee filed suit, claiming, among other things, that H&R Block wrongfully terminated the franchise agreements for retaliatory and manufactured reasons, and that H&R Block did not provide the franchisee with an opportunity to cure the alleged defaults.
The court rejected the franchisee’s arguments and granted summary judgment to H&R Block. The court held that the agreements plainly required signed confidentiality agreements and written consent before any disclosure, and it was undisputed that neither occurred.
Because the franchise agreements expressly allowed immediate termination for confidentiality violations, the court held there was no breach by H&R Block — and that a party cannot act in “bad faith” simply by enforcing rights the contract clearly grants, even if a retaliatory motive is alleged.
Clearly and specifically drafted termination and confidentiality provisions in franchise agreements can help protect franchisors from claims that a termination or non-renewal was retaliatory.
H&R Block prevailed largely because its franchise agreements spelled out, in unambiguous terms, that disclosing confidential information without signed confidentiality agreements and prior written consent was a violation permitting immediate termination with no opportunity to cure. Franchisees likewise should review such provisions in their franchise agreements before sharing customer or client data with third-party vendors.
Colorado Tax Specialists Co. v. H&R Block Tax Services, LLC, No. 4:25-cv-00047-RK (W.D. Mo. Apr. 10, 2026)
Franchisee 101: Trade Secrets That Tip the Scale
A federal court in New York denied a former franchisee’s motion to dismiss a lawsuit relating to the franchisee’s failure to return proprietary materials related to the franchisor’s system.
Sadkhin Franchising Company LLC (“Sadkhin”) is the franchisor of weight-loss centers. Franchisees receive access to Sadkhin’s confidential “Sadkhin System,” which includes its operations manual, training materials, databases, and client lists upon signing Sadkhin’s franchise agreement. Former franchisee Stephanie Zamora and her entity, SAZ Management, LLC, entered into a franchise agreement with Sadkhin in 2020. Sadkhin and the franchisee agreed to terminate the franchise relationship in August 2024.
After termination, Sadkhin sued, claiming the franchisee secretly printed and kept a copy of its client list, held onto the operations manual and practitioner diplomas, and owed about $13,000 in unpaid royalties, in breach of the confidentiality and post-termination obligations that survived termination of the franchise agreement. Sadkhin brought six claims, including theft of “trade secrets,” breach of contract, and conversion.
The court found sufficient allegations that Sadkhin possessed protectable trade secrets, took reasonable measures to maintain secrecy, and that the franchisee misappropriated and retained those materials without authorization. The court ruled that an operations manual and client list can qualify as protected trade secrets, even if part of the method was patented or had never been “scientifically proven.”
The court also stressed that, at this early stage, it had to accept Sadkhin’s allegations as true, so the franchisee’s denials were not enough to grant the motion to dismiss the case. The only claim the court dismissed was “unfair competition,” which it found simply repeated the other claims.
Franchisees should consult franchise counsel before terminating their franchise agreement to determine their post-termination obligations relative to confidentiality, non-compete, and the return of a franchisor’s proprietary materials. Keeping manuals, client lists, or other franchisor materials, even informally, can expose franchisees to serious legal claims.
Sadkhin Franchising Co. LLC v. Zamora, No. 25-cv-1657 (E.D.N.Y. Apr. 29, 2026)