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Maryland District Court Equitably Tolls Noncompetition Period for Franchisor
Posted in Arbitration

In Frye v. Wild Bird Centers of America, Inc., 2017 WL 605285 (D. Md. Feb. 14, 2017), the district court upheld an arbitration award that equitably tolled the start of a posttermination noncompetition period until the date of actual compliance. Gray Plant Mooty represented the franchisor in the case. The franchisees, Frye, had allowed their franchise agreement to expire, but they nevertheless continued to use the Wild Bird Centers of America’s (“WBCA’s”) marks and to operate a WBCA store at their Colorado location without paying any fees to WBCA, without WBCA’s permission, and in disregard of the terms of the franchise agreement. As a result, WBCA commenced arbitration. The arbitrator held in favor of WBCA and ordered the franchisees to comply with their noncompetition obligations for two years beginning on the date on which they first complied.

Frye filed a petition in the federal court in Maryland to vacate the award, arguing that the arbitrator displayed a manifest disregard of the law and that the award failed to draw its essence from the parties’ franchise agreement. The crux of the franchisees’ argument was that the arbitrator extended the noncompetition period for two years from the date of first compliance, rather than from the date on which the franchise agreement expired. WBCA successfully argued that the parties’ bargained-for expectation was that the covenant would be in effect for two full years and that Maryland law recognizes equitable tolling of noncompetition periods. The district court affirmed the award and held that the noncompetition period would begin to run on the date of Frye’s first compliance with their post-termination obligations.

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The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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