The Franchise Memorandum

In Outdoor Lighting Perspective Franchising, Inc. v. Home Amenities, Inc., et al., 2012 U.S. Dist. LEXIS 5406 (W.D.N.C. Jan. 18, 2012), the United States District Court for the Western District of North Carolina granted Outdoor Lighting Perspectives Franchising, Inc.’s (OLP’s) motion for a preliminary injunction, enjoining a former franchisee from continuing to operate a competing business within its former territory or that of another franchisee for a period of two years. Gray Plant Mooty represented OLP.

The court concluded that a “franchisor’s goodwill and reputation would be damaged if a terminated franchisee continued to operate a directly-competitive business in the same location (or market) under a different name.” It specifically held that the two-year term of the covenant was reasonable. As for geography, OLP requested that the court blue pencil the covenant so as to delete a 100-mile buffer and enforce the noncompete agreement within the former franchisee’s territory or any other franchisee’s territory. The court agreed to blue pencil the clause and also ruled that the former franchisees could not skirt the noncompete by operating their new business under a different corporate name. In so holding, it noted that the former franchisees had agreed to be personally bound by the franchise agreement, and also that Rule 65 of the Federal Rules of Civil Procedure specifies that the scope of every injunction includes the parties, their officers, agents, servants, employees, and attorneys, and other persons who are in active concert or participation with them. The court issued the injunction for two years from the date of the order with no requirement that OLP post a bond.