The Franchise Memorandum

In Sylvan Learning, Inc. v. Gulf Coast Educ., Inc., 2010 U.S. Dist. LEXIS 107160 (M.D. Ala. Oct. 6, 2010), the franchisor of Sylvan Learning Centers brought a preliminary injunction motion against a recently terminated franchisee for continuing to operate a learning center in violation of the license agreement’s noncompete provision. At issue was whether Sylvan had a substantial likelihood of success in enforcing its two-year, 20-mile noncompete provision, and whether the court should apply Alabama or Maryland law. As an initial matter, the Alabama federal court applied Maryland law, since the parties agreed to it in the license agreement and the application of Maryland law did not contradict Alabama’s public policy. 

The court found the two-year, 20-mile radius restriction to be reasonable, and that success on the merits was likely. In particular, the court found that the Sylvan brand would likely be harmed if the franchisee was able to compete against Sylvan in contravention of the terms of the noncompete, because the franchisee had 18 years of access to Sylvan’s confidential operations manuals and the goodwill of the Sylvan brand. The court also opined that the noncompete still allowed the franchisee to operate a learning center outside of the 20-mile radius or work as an instructor in another learning center.