Franchisee 101: The Small Business on Main Street | Lewitt Hackman

A federal district court denied a motion for preliminary injunction introduced by pizza franchisor, Breadeaux’s Pisa, LLC, seeking to stop a previous franchisee from operating a competing pizza enterprise.

The franchise arrangement had a non-compete covenant prohibiting the franchisee from working or proudly owning an desire in a pizza small business for two decades following termination. Nevertheless the franchisee ongoing to run a pizza cafe at the similar location soon after termination of the franchise agreement, using the identify “Main Road Pizza” and applying the identical cellphone range as the Breadeaux franchise.

The previous franchisee finally improved the cell phone variety and deidentified the cafe to no extended resemble Breadeaux. The franchisor demanded the ex-franchisee halt running Principal Road Pizza. The ex-franchisee continued running. The franchisor sought a preliminary injunction ordering the previous franchisee to prevent functioning Key Avenue Pizza and not operate any other pizza restaurant for two many years.

The court ruled the franchisor unsuccessful to meet up with its load for injunctive relief. For a preliminary injunction, the franchisor need to display: (1) the menace of irreparable hurt (2) the equilibrium concerning this hurt and the injuries that the injunction will inflict on other functions (3) the likelihood the movant will realize success on the deserves and (4) general public curiosity. The courtroom concluded that the franchisor could not exhibit ample menace of, or genuine irreparable hurt if the former franchisee continued to operate Primary Street Pizza.

The franchisor argued the non-compete covenant founded a danger of irreparable harm. The argument was that in the provision the previous franchisee consented to entry of a preliminary injunction if it breached the non-contend covenant, and the previous franchisee was obviously in breach. The court was not persuaded. The court docket uncovered that language of a contract, standing on your own, is not enough to involve entry of injunctive aid, nor does this kind of language, by alone, establish a risk of irreparable damage.

The court identified that levels of competition by the former franchisee would not end result in irreparable hurt to the franchisor. The closest Breadeaux area was 75 miles from Main Road Pizza. It was not likely the Primary Road Pizza procedure robbed the franchisor of Breadeaux buyers. Additional, there was no appreciable threat of harmful Breadeaux’s trademarks or goodwill because the former franchisee stopped making use of the Breadeaux identify, branding, shade plan, and phone selection.

Franchise agreements frequently have non-contend covenants. Franchisees considering working a competing business enterprise soon after leaving a franchise method should talk to with franchise counsel to evaluate energy and enforceability of any non-compete clause in the franchise arrangement. Enforceability of these covenants is often a problem and depends largely on state legislation and language of the covenant.