Non-compete in Franchise Agreement Enforced Against Franchisee
In a brief, direct decision, Judge Miller, a federal district judge in Colorado, recently granted a franchisor’s motion for preliminary injunction in Dry Cleaning To Your Door, Inc. v. Waltham Ltd. Defendants had signed a franchise license agreement with a non-compete which prohibited them from being engaged in a residential dry cleaning pick-up and delivery business for two years after the expiration of the franchise agreement. Defendants declined to renew the franchise but continued to operate a residential dry clearing pick-up and delivery business. Franchisor responded and sought an injunction precluding defendants from operating the business.
With little apparent hesitation, Judge Miller issued the injunction. He found that, in the franchise industry, non-competition provisions and “territorial integrity” are critical factors to protect the value of the “franchise systems”.
Importantly, Judge Miller elected to apply Florida law to evaluate the enforceability of the non-compete. He reasoned that Florida had ample contacts with the transaction and that applying Florida law is not contrary to the public policy of Colorado.
Applying Florida law, Judge Miller concluded that the geographic scope of the non-compete was unreasonably broad. The non-compete barred competition within the defendants’ territory or the territory of another franchise, together with a 25 mile radius around such territories. Judge Miller ruled that the non-compete should be to an area five miles around defendant’s territory.
