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Former Liberty Tax Franchisee Awarded $2.7 Million in Bench Trial

A federal judge in Norfolk, Virginia issued a decision last Friday in favor of a multi-unit tax franchisee in New York for $2.7 million, finding Liberty Tax breached its franchise agreement. The judge determined that Liberty Tax's breach of contract happened "the moment it accepted an application from someone else to buy the franchisee's eight stores."

U.S. District Judge Henry Coke Morgan, Jr. chastised the franchisor for its conduct during the dispute, saying Liberty Tax never intended to live up to its contract. The franchisor later did not pay some of the rent or utilities or reimburse Aime for his payments, for which the judge uttered, "Which, I find incredible."

Franchisee Gregory Aime had been a successful franchise owner prior to franchisor Liberty Tax deliberately seizing his tax business, according to court records. A news report by The Virginia Pilot states that franchisee Gregory Aime's Liberty Tax franchise business had grown from earning $721,702 in gross revenue in 2012 with five stores to $5.27 million in 2015 with eight stores. It explains, "But after the IRS revoked his ability to file electronic returns in December 2015, normally grounds for terminating a franchise agreement outright, Liberty Tax agreed to buy Aime's stores in January 2016, allowing him the opportunity to buy them back after obtaining IRS clearance by May 8."

In Aime's court response to Liberty Tax's amended complaint, he admitted the IRS revoked his electronic filing ability, giving no explanation.

One segment of the three-day bench trial, where the judge was permitted to issue an immediate ruling, was the issue of whether Liberty Tax CEO John Hewitt promised to extend Aime's franchise agreement from May 8 through the end of 2016. A former Liberty Tax employee, Marie Fletcher, who had dined with Hewitt at Truluck's Seafood Steak and Crab House in Florida in April to discuss a job promotion, had testified at trial that the CEO had told her that night he would extend Aime's franchise agreement. Although Hewitt didn't agree in writing, Fletcher said he "adamantly" stated that he would extend it.

After their company dinner, the employee was then promoted to director of Liberty Tax in Virginia Beach. When Fletcher began pressing Hewitt on Aime's situation, she was fired. A human resources staff member told her it was because of a "conflict with the Greg Aime case." After Liberty Tax took Aime to court, winning a preliminary injunction on the fact that he had breached his agreement and was operating a competing tax business, Aime's electronic filing was reinstated by the IRS in September.

In beginning the trial, the former employee gave testimony regarding Hewitt's promise to extend Aime's franchise contract, but Liberty Tax attorneys did not subpoena him to testify on behalf of the franchisor. They also did not submit Hewitt's deposition. On the second day, his attorneys indicated they would submit Hewitt's statements for evidence. After the judge questioned why the CEO was not present at trial, he answered his own question saying: "He chose, as CEO of his company, to absence himself on the day of the trial."

The Virginia Pilot reported, "When Liberty Tax attorney Peter Siachos (Gordon & Rees) attempted to make a point during his closing argument about the extension of the contract, Judge Morgan said: 'Forget it. You didn't call Mr. Hewitt. There's only one inference the court can draw from that.' Another Liberty counsel later explained in an email, 'Our CEO's focus is on ensuring a successful tax season for our franchisees, company stores and our many employees.'"

Franchisee Gregory Aime's Liberty Tax franchise was represented by Ryan Snow and David Hartnett of Crenshaw Ware & Martin.

Last week at trial, Judge Morgan responded on the third day of trial that he had no reason at all to question the credibility of former-employee Fletcher. Issuing his judgment in Aime's favor the judge also set aside the earlier injunction and said Liberty Tax "offered absolutely no evidence that he was competing with them."

As of today, Judge Morgan had not filed his written decision in the U.S. District Court of Virginia, Eastern division.


Related Article:

Liberty Tax Loses $2.7M Case to Former New York Franchisee (The Virginia Pilot)

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Liberty Tax v Aime Amended Complaint.pdf403.02 KB
Franchisee Aime Answer.pdf188.06 KB
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About Janet Sparks

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Janet Sparks is the former publisher of the Continental Franchise Review, an industry newsletter that covered the franchise community for over 30 years. She has also been a columnist for a leading franchise magazine for the past 13 years. Today she is an independent journalist who engages in investigative reporting, tackling complex issues that impact the franchise industry.

Janet can be reached at jsparks@bluemaumau.org or at 303-799-7398.