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FORT LAUDERDALE - When a franchisor of veterinary clinics tried to get an injunction to immediately close down a franchisee’s practice on allegations of sexual harassment, a federal court said no.

The judge emphasized that the case centers on whether Charter Practices International, the franchising arm of Medical Management Inc., properly terminated the franchisee’s agreement. If the termination was wrongful, the franchise owner still has the rights to operate his business using the franchisor’s trademarks and system and the non-compete cannot be enforced.

Franchisee lead counsel Robert Zarco of Zarco Einhorn Salkowski & Brito said this is a major decision in franchising. “This case sets forth our arguments that non-competition clauses are ‘dependent’ covenants, not ‘independent.’ He refers to the judge’s statement that Charter has not shown substantial likelihood that the non-compete is enforceable. “That means if a franchisor wrongfully breaches the contract, wrongfully terminates, then the franchisee will not have to honor the non-compete,” Zarco declares.

Forty-year veterinarian Barry A. Goldberg accuses Charter Practices of fabricating the allegations of sexual harassment because they had an ulterior motive. He alleges the franchisor really wanted to “steal” his four successful Banfield Pet Hospitals, located in PetSmart stores.

Charter Practices argues that past and present employees were witnesses to the sexual harassment allegations, starting in March 2011. A doctor who had worked for Dr. Goldberg had complained to the company that he had made inappropriate comments of a sexual nature about his wife. Charter promptly sent Goldberg the first warning letter, cautioning that further misbehavior would place him at risk of being a franchisee.

Other accusations surfaced in August 2012. This time a PetSmart employee said Goldberg asked her how a Charter Practice field director and other employees “were in bed,”  a metaphoric of sleeping with them, in order to get a job at one of the corporate-owned veterinary hospitals. Yet another came from a medical director of parent Medical Management International. She reported that the doctor seemed to take pleasure in making associates feel uncomfortable by making inappropriate comments, one being a sexual remark to a gay coworker. The franchisor then conducted a second investigation and uncovered more reports of inappropriate comments, sexual in nature.

Charter Practices issued Dr. Goldberg a termination notice on November 7, 2012, without the opportunity to cure. The letter claimed that his conduct constituted both sexual harassment and conduct that could damage the goodwill associated with the Banfield Pet Hospital marks.  

Crude remarks ease tensions but do they constitute sexual harassment?

In a court hearing prior to the judge’s decision (pdf), Zarco explained that one crucial element in identifying sexual harassment is the environment of the workplace. He explained that you can’t compare working at a veterinarian hospital with working in a law firm or accounting office. “There’s a tremendous number of anal/rectal examinations [in that industry]. There’s a lot of . . . expressing of anal glands. There’s a lot of inserting of index fingers in a dog’s . . . cat’s buttocks to test whether the prostate is infected, expanded, overgrown or not.” Not wanting to leave anything to the judge’s imagination, he added, “It is not uncommon for that horribly smelling fluid to be squirted in your face. It’s disgusting!”

Zarco said in order to bring levity to that kind of environment, there is no choice but to make a joke out of it, suggesting that is what happened to Dr. Goldberg and others in the office.

"Now, Your Honor, let’s talk about ‘anal bleaching’”

The Miami attorney then turned to a “scandalous procedure” known as “anal bleaching,” saying he understood why veterinarians were using it. “It also exists in body waxing franchises so women can wear highfalutin bathing suits.” He knows because he is the attorney for one of them. “No, I don’t go and observe, but I am told by the documents as to what . . .they do,” Zarco exclaimed.

Referring to another affidavit submitted in the lawsuit, the counsel explained that during an interview with a male doctor applying for a position, Dr. Goldberg didn’t understand what he was referring to when he brought up the “shocking” procedure normally used by porn stars. When he turned to the Internet to research the process, the “porn star” model was right there. Zarco emphasized that it did not show the body of the woman in any way. It did not show a naked woman. But that is what put Dr. Goldberg in a precarious position, and he found it offensive that a doctor interviewing for a job would even bring it up.

One female doctor stated in her declaration against Dr. Goldberg that he had asked her if she had undertaken the procedure. In his defense, Goldberg said after he mentioned the unusual procedure in the office, it became a topic of conversation and soon became an inside joke among the staff.

Zarco presented the judge a company letter regarding the termination. It stated, “Dr. Goldberg asked whether [a female employee] was f***ing these other guys” in order to be promoted. Zarco insisted the affidavit of this employee does not use the “F” word anywhere in it.

As another example, he showed witness testimony revealing that as an employee his affidavit had been “exaggerated” in Charter’s termination documents. Another, a current employee of Charter, said “I do what I am told,” saying he was “simply following directions of the company.” The judge said those comments could be interpreted in the franchisor’s favor, because the company forced him to tell the truth. Or it could mean he was making up the story.

Zarco reminded the court that when many of these employee comments were supposedly being made from 2009 to 2010, Charter Practices did not issue complaints. In 2011, the franchisor allowed Dr. Goldberg to renew his hospital contracts, and in August 2012 he was honored at an industry conference. At that meeting Dr. Goldberg was also approached by corporate to sell his hospitals at an unreasonable price. “Why?” Zarco asked. “Because in 2010 . . . this company had already made a decision that it was going to stop its franchise program.”

Driving his point home, Zarco said Charter was attempting to put pressure on his client by appointing a “super snooper 007 investigator” from its human resources department to go on a witch hunt to help set Dr. Goldberg up.  He asked the judge, wouldn’t you think the interviews and history of comments this investigator made against the doctor would be in an affidavit and part of the court record? “No. There’s not one affidavit from the lady who conducted the interviews.” 

Sexual harassment not defined clearly to justify termination

As another defense, Zarco explained, “Because there is no definition of sexual harassment in the franchise agreement, the only way we could determine whether the agreement was breached was to find out what the definition of ‘sexual harassment’ was. We found it under Civil Rights Code Title VII. “Basically, it says if there is behavior that the franchisor wants to establish that causes a breach of contract, it must define that conduct in its agreement. Otherwise, it cannot be enforced.” Zarco added, “That’s an important ruling in franchising.” He reiterated that the contract should give specific behavior as to what the company considers “sexual harassment.”

Judge William Dimitrouleas agreed with attorney Zarco in his order, saying a preliminary injunction is an “extraordinary and drastic remedy,” that should not be granted unless the four elements are proven:

• Substantial likelihood of success on the merits;
• Substantial threat of irreparable injury if injunction is not granted;
• Balancing of harms, meaning the threatened injury outweighs whatever damage the injunction may cause the opposing party;
• The injunction is not adverse to public interest.

The judge cited in great length the Eleventh Circuit’s opinion in McDonald’s v Robertson, the standard used in franchise judicial updates in past years. He then said this case was in contrast to McDonald’s where the franchisee admitted violations. To determine whether Goldberg breached his contract by sexual harassment, the judge said all he had at this time was he-said, she-said testimony.

Judge Dimitrouleas said Charter Practice’s contract terms on sexual harassment are not as black-and-white as those in the McDonald’s case on food safety, again agreeing with Zarco’s argument. In the end, Charter Practices failed to prove that Goldberg actually engaged in inappropriate conduct and as a result, failed to show that the company properly terminated his franchise agreement.

Because Charter Practices did not establish a success on the merits of its case, the judge said he did not need to decide the irreparable harm issues.

In conclusion, the judge ruled (pdf) that an injunction, ordering the franchisee to shut down, is against public interest. He explained, “If the injunction was issued, 100 employees of the defendants would be in jeopardy of losing their jobs. This is a significant, definite harm to the public in a case plaintiffs only possibly may win, and in which plaintiffs are complaining about conduct that has had nowhere near so concrete an effect as the loss of 100 jobs.”

Robert Zarco commented, “That’s what happens in most every injunction, but judges usually ignore it. This is a federal court opinion and the judge did recognize it.”

Attorney Christian C. Burden of Quarles & Brady did not respond to a phone call requesting an interview regarding the case. His firm represents Charter Practices International, LLC and Medical Management Inc.