Ind US Business Journal reports that a Dunkin' Donuts case pending in an appeals court in Massachusetts may substantially affect a franchisor's rights to enforce post-term covenants not to compete. The case involves a former Dunkin' franchisee who sold his Dunkin' shops in Syracuse, NY and wanted to open an independent shop 300 miles away. Because the Dunkin' franchise agreements restricted the franchisee for two years from operating a doughnut shop within 5 miles of his former shops or any existing Dunkin' shops, the franchisee's proposed operation would violate his franchise agreement obligations. When the franchisee sought Dunkin's waiver of the restrictive covenant, Dunkin' refused. The franchisee then filed a declaratory judgment action seeking a ruling that the covenant was unenforceable. The trial court entered judgment in Dunin's favor, but the Massachusetts Supreme Judicial Court allowed the franchisee's appeal. In its appeal, the franchisee claims that "until now no Massachusetts court has ruled on the reasonableness of a geographic restriction, which extends beyond the surrounding area of a former business in the franchise context." The franchisee argued that because Dunkin' has almost 1,000 units in Massachusetts and New Hampshire, the covenant virtually forecloses a former franchisee from operating a competing business in those states. Dunkin' argues that the franchisee signed the covenant as part of his purchase of the business to acquire Dunkin' proprietary and confidential information. The necessary protection of this information justifies the use of restrictive covenants in franchise agreements. Both IFA and the AAFD submitted amicus curiae briefs in the appeal. A copy of the IFA brief can be found here.
Posted by franchiselawblog at June 1, 2004 10:58 AM