Assume you own a franchise, and that you're bound by fairly restrictive terms and conditions contained in the governing agreement. One of those terms prevents you from opening a competing franchise location within 10 miles of any other franchised spot for 3 years after your agreement ends.
Now assume that prior to the time your franchise agreement expires, the franchisor opens up a competing location close by. What do you?
Well, if you're the owner of a Victory Lane Quick Oil Change in Howell, Michigan, you change your company name and operate a competing business at the same location in direct competition with the newly-opened franchise store in town. Is this permissible?
Not suprisingly, the franchisor - Victory Lane - threatened and eventually pursued injunctive relief against the defendants, who changed the signage on the franchise location to "Checkered Flag" - which not coincidentally was the name of Victory Lane's widely distributed newsletter.
The defendants argued that Victory Lane had no protectable interest in enforcing the post-termination non-compete clause given that it opened another location in the same area. On legal grounds, the defendants have the edge.
But the rub in this case was the ambiguous franchise right granted to the defendants under the master franchise agreement. Specifically, the agreement stated that "Victory Lane grants to you the exclusive right to own and operate a [Victory Lane franchise] at the following location: Howell." The defendants claim this gave them the exclusive right in the entire city of Howell, while the franchisor simply claimed an exclusive right existed at the location.
Granting someone an exclusive right to operate a business at a single location is redundant and unnecessary. Logically, one would expect any reasonable franchisee to expect some customary geographic exclusivity beyond the exact spot he or she runs the business. Furthermore, any ambiguity probably would be resolved against the franchisor. Because of the ambiguous nature of the exclusivity provision, the court declined to enforce the non-compete term at the preliminary injunction stage.
Court: United States District Court for the Eastern District of Michigan
Opinion Date: 3/20/09
Cite: Victory Lane Quick Oil Change, Inc. v. Hoss, 2009 U.S. Dist. LEXIS 72145 (E.D. Mich. Mar. 20, 2009)