The Franchise Memorandum

Continuing our yearlong series of articles looking back at the ten cases we identified as the most significant franchise decisions summarized in the first 100 issues of The GPMemorandum, we now cPnsider the evolution of encroachment claims since the Eleventh Circuit's decision in Burger King v. Weaver (1999), in which the court found the Scheck decision to be "logically unsound." We reported in our ten-year anniversary issue in 2007 that "once-routine encroachment claims based on a duty of good faith and fair dealing have been few and far between" since the court's decision in the Weaver case. That trend has continued. Since we published Issue 101, only a handful of cases have considered encroachment, with most courts rejecting such claims. Those courts have made clear that the implied covenant of good faith and fair dealing cannot be used to create a protected territory not granted by contract.

That is not to say that an encroachment claim cannot be successful under the right circumstances. In May 2010 (Issue 130), we reported on a decision issued by a federal bankruptcy court in Black Angus Holdings, LLC v. Back Yard Burgers, Inc. In that decision, the court declined to dismiss a franchisee's breach of contract claim that arose from alleged encroachment on its exclusive territory.

While the new franchised location was located just outside that exclusive territory, the court held that the area from which the new location would draw customers overlapped with the franchisee's own area. That was enough to permit the franchisee's claim to survive a motion to dismiss. While encroachment claims continue to be few and far between, courts appear willing to allow them under some fact patterns.