Court Watch

A state appellate court case from North Carolina and a U.S. Court of Appeals case from Minnesota have considered noncompetition clauses in franchise agreements and found them wanting.

Both Outdoor Lighting Perspectives Franchising, Inc. and Novus Franchising, Inc. have been quite active in seeking to enforce the noncompetition provisions of their franchise agreements against former franchisees. Aspects of two of these cases have recently been decided. In Novus Franchising, Inc. v. Dawson, et al, 725 F.3d 885, CCH Bus. Fran. Guide '15,110 (8th Cir. Aug. 5, 2013) the franchisor, Novus, appealed a U.S. District Court's refusal to enforce the covenant against competition contained in the defendant's franchise agreement after the agreement was terminated. The franchisor did not terminate the franchise agreement until a year after the defendant franchisee stopped paying royalties and did not file suit to enforce the post-termination provisions of the agreement until 16 months after the royalties stopped. The franchisor's motion for preliminary injunction seeking, among other things, to enforce the noncompetition covenant was filed over 17 months after royalty payments ceased. The part of the motion seeking enforcement of the noncompetition covenant was denied. Novus appealed that part of the district court's decision to the Eighth Circuit.