Goldstein: Franchise Attorneys

The short answer is yes; definitely, in the current judicial climate. The legal issue in essence is whether the post-term covenant in the franchise agreement will be upheld. A post-term covenant-not-to-compete is included in the franchise agreement and states that upon the expiration or termination of a franchise agreement, the franchisee is not permitted to operate a similar business for a certain period of time, often 2 years, in a certain geographic location. So long as the covenant is “reasonable” in time, scope and geography it will normally be upheld by courts, assuming that the underlying termination were proper and valid.

One of the few ways of attacking a post-term covenant is to argue that the goods and services being sold by the former franchisee following a termination or expiration are not “the same” as the previously sold products or services of the franchisor. So, if a franchise was in the business of selling burgers, for instance, a franchisee might be able to then open an independent shop selling chicken. Although a good franchise lawyer would see this conceptual opportunity, there are always some who appear to miss the boat on this issue. In a recent case regarding a post-term covenant-not-to-compete of a former pizza franchisee, Mellow Mushroom’s Pizzeria, the lawyer should have advised his client to modify his menu following the termination, so that the lawyer could have argued that the products sold after the termination were not “the same” as the previously offered pizza. Instead the lawyer argued that the products were the same, which resulted in a loss for his client. In this regard the Court wrote: At oral argument, the attorney conceded that the menus are similar because “pizza is pizza.” The Court disagrees. Ever since Neapolitan Gennaro Lombardi opened the first American pizzeria in New York’s Little Italy in 1905, this confec-tion of dough, cheese, tomato sauce, spices and assorted toppings has inspired intense local and regional rival-ries. Chicagoans vehemently reject any “Second City” designation when it comes to their succulent “deep dish” pizzas; and, as counsel has acknowledged, Giordanno’s and Gino’s East have their advocates (although the Court prefers Pizzeria Uno and Due). Elsewhere, New Yorkers prefer it thin and by the slice, while San Franciscans dote on their gourmet pizza. Even in the south, barbe-cue has begun to appear atop pizza. Wherever and whenever pizza is sold, there are few quicker ways to set Ameri-cans to bickering then to ask them who makes the best pizza.

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