FLORIDA NON-COMPETE AGREEMENTS: FRANCHISORS MAY HAVE A LEGITIMATE BUSINESS INTEREST IN RE-ENTERING MARKET SERVED BY TERMINATED FORMER FRANCHISEE

Franchisors will often include non-compete provisions in their Franchise Agreements to protect their ability to sell new franchises in a geographic region that was formerly served by a terminated franchisee. A party seeking to enforce a non-compete agreement must plead and prove the existence of one or more legitimate business interests justifying the non-compete covenant and that the restriction is reasonably necessary to protect those legitimate business interests. Fla. Stat. § 542335(1)(b) and (c). Legitimate business interests under section 542.335(1)(b) include, among other things, client goodwill associated with a specific geographic location or specific marketing or trade area. Peter Mavrick is a Miami business litigation lawyer who has substantial experience with non-compete litigation, including injunction proceedings.

An example of this circumstance is the case of Peterbrooke Franchising of America, LLC v. Miami Chocolates, LLC, et al, 312 F.Supp.3d 1325 (S.D. Fla. 2018), where Peterbrooke Franchising of America, LLC (hereinafter “PFA”) was assigned a franchise agreement with Miami Chocolates, LLC (“Miami Chocolates”) and its owners (the “Franchise Agreement”). The Franchise Agreement contained a non-compete provision that prohibits a former franchisee from operating a competing business within twenty-five miles of its former location or at other franchise locations for two years. During the term of the Franchise Agreement, Miami Chocolates refused PFA’s requirement to change its point-of-sale system (used to record all sales). PFA terminated the Franchise Agreement. Miami Chocolates continued operating after the termination. The parties disputed whether Miami Chocolates took sufficient measures to disassociate itself from PFA and its trademarks. It was undisputed, however, that Miami Chocolates operated a competing business at the former franchise location after termination of the Franchise Agreement.

PFA filed a lawsuit against Miami Chocolates and its owners (the “former franchisees”). PFA moved for summary judgment, in part, based on its contention that the former franchisees breached the non-compete provision. Section 542.335(1)(c) states that “[i]f a person seeking enforcement of the restrictive covenant establishes prima facie that the restraint is reasonably necessary, the person opposing enforcement has the burden of establishing that the contractually specified restraint is overbroad, overlong, or otherwise not reasonably necessary to protect the established legitimate business interest or interests.”

The former franchisees did not dispute that the non-compete provision was reasonable as to time, geographic limitation, or line of business. The former franchisees contended that the non-compete provision was unenforceable because PFA lacked any evidence demonstrating that it had a legitimate business interest in protecting the goodwill associated with its trademark and the franchise system as a whole.

Florida courts have held that non-compete agreements are reasonably necessary to protect a franchisor’s legitimate business interest in the market formerly serviced by its franchisee. Absent a non-compete agreement, a franchisor would effectively be unable to re-enter the market held by its former franchisee. R.J. Gators Franchise Sys., Inc. v. MBC Restaurants, Inc., 2005 WL 4655379 (M.D. Fla. 2005).

The former franchisees requested that the district court consider that the magistrate judge declined to enforce the non-compete provision at the preliminary injunction stage. The district court, however, held that a preliminary ruling on a partial record is not dispositive as to any factual issue. “The standard for granting a Motion for Preliminary Injunction is entirely different (‘substantial likelihood of success on the merits’) [rather] than the standard for granting summary judgment (a lack of any ‘genuine issue of material fact’).”

The district court found that there were no genuine issues of material fact in dispute that PFA’s interest in re-entering the market and its efforts to promote the goodwill associated with the Peterbrooke brand in the Miami area were sufficient to establish its legitimate business interest in the non-compete provision. The district court granted PFA’s motion for summary judgment on its breach of contract claim with regard to enforcement of the non-compete provision.

Peter Mavrick is a Miami business litigation attorney. This article does not serve as a substitute for legal advice tailored to a particular situation.