The Franchise Memorandum

A recent decision illustrates the importance of carefully describing the bounds of a protected territory in a franchise agreement. In Ingraham v. Planet Beach Franchising Corp., 2009 WL 909567 (E.D. La. Apr. 1, 2009), the franchisee opened a Planet Beach tanning salon in a suburb of Philadelphia. The franchise agreement prohibited Planet Beach from establishing another franchise within the protected territory, defined as “Philadelphia, PA 30,000 in Population.”  When Planet Beach established another franchise within five miles of the plaintiffs’ location, the plaintiffs sued claiming that Planet Beach had infringed on their protected territory. Planet Beach moved for summary judgment, arguing that the franchise agreement did not prohibit the establishment of the new franchise because the franchise agreement only guaranteed a “geographic buffer” between franchises, such that franchises could permissibly have overlapping territories so long as a new franchise was not physically located in the protected territory of another franchisee. The court rejected that argument.

Planet Beach also argued that the court must interpret the territorial restriction in the franchise agreement in connection with the provisions of the UFOC, which more clearly explained the concept of overlapping territories. The court disagreed, finding that Planet Beach had not expressly incorporated the terms of the UFOC into its franchise agreement. The court also denied Planet Beach’s motion for summary judgment on the plaintiffs’ claim that Planet Beach had orally modified their territory. Planet Beach argued that any such oral modifications would be barred by the franchise agreement’s integration clause. The court disagreed, holding that such evidence would be admissible due to the ambiguous nature of the territory restriction at issue. It denied Planet Beach’s motion for summary judgment.