As noted above, a few states have what might be viewed as a statutory ban or prohibition on the enforcement of noncompete agreements, at least in a post-term context. For instance, the relevant statute in California states:
§ 16600. Unauthorized contracts
Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.
Cal. Bus. & Prof. Code 16600
Although the majority of CNC franchise cases rule in favor of enforcing the relevant CNC against the franchisee, there are a minority of decisions that void or set aside the putative CNC. The case below, 3 Natives Franchising, LLC, is an example of a decision in which the court has refused to enforce a CNC based on both insufficient legitimate business interests in the franchisor’s franchise “system,” as well as prior (or pre-termination) wrongdoing of the franchisor. 3 Natives Franchising, LLC v. 3 Natives Stuart, LLC, No. 19-14093-CIV-MAYNARD, 2019 U.S. Dist. LEXIS 136631 (S.D. Fla. Aug. 13, 2019).
As the 3 Natives Franchising, LLC court explained:
The Plaintiff [franchisor] complains that the Defendants’ [franchisees’] operation of the City Beets business [post-termination business] still violates the contract’s non-compete covenant. The Plaintiff complains that the “City Beets” business also infringes on some of its propriety and intellectual property. City Beets operates out of the same physical space, and it uses the same furniture and juice-pressing equipment that the Defendants used for their “3 Natives” cafe. It offers a substantially similar menu, and some of the food that it serves comes from its approved vendors including from one vendor with whom the Plaintiff has an exclusive relationship. The Plaintiff complains that City Beets is based on its proprietary “System” (including training and know-how).
The Defendants also complain that the Defendants used its trademarks and franchise name to market City Beets on the internet. The Defendants deny any wrongful infringement. At page 16 of DE 14-1, Mr. McLaughlin attests that it closed down all of 3 Natives Stuart LLC’s social media accounts within the 30-day post-termination period that the Franchise Agreement permits. Within that permitted time frame, the Defendants posted to some social media accounts a notice that was limited to announcing their “3 Natives” Stuart cafe as now “permanently closed” and to inviting the public to check out City Beets which “has the same great staff, amazing acai bowls, smoothies, and juices.” Mr. McLauglin furthers that the Plaintiff locked the Defendants out of 3 Natives Stuart LLC’s email accounts. As for any results that search engines might give for the now closed 3 Natives Stuart LLC, the Defendants deny having any control over that.
Generally speaking, Florida law enforces a restrictive covenant, such as a non-compete agreement, only if it is reasonable and protects legitimate business interests. The restrictive covenants at issue here in this case, the Defendants argue, fail that test. This is because the Plaintiff identifies no specific intellectual property or other proprietary asset in need of protection. Instead the Plaintiff’s claims of such are all conclusory. Moreover the Defendants deny receiving any proprietary information from the Plaintiff. What the Plaintiff is trying to accomplish here is simply to put the Defendants out of business, the Defendants retort, but Florida law does not enforce restrictive covenants for the purpose of constraining ordinary marketplace competition.
The case of Pirtek USA, LLC v. Wilcox, 2006 U.S. Dist. LEXIS 41569, 2006 WL 1722346 (M.D.Fla. 2006) is directly on point and supports the Defendants’ argument. Pirtek found insufficient legitimate business interests in the plaintiff’s franchise “system” to justify enjoining the defendant-franchisee’s compliance with the franchise agreement’s [*18] non-compete covenant. See also, IDMWORKS, LLC v. Pophaly, 192 F.Supp.3d 1335 (S.D.Fla. 2016) (declining to enjoin the defendant-employee’s compliance with the restrictive covenants of the employment contract after finding insufficient business interests in need of protection) and AutoNation, Inc. v. O’Brien, 347 F.Supp.2d 1299, 1304 (S.D.Fla. 2004) (stating the general rule that “information that is commonly known in the industry and not unique to the allegedly injured party is not confidential and is not entitled to [preliminary injunction] protection.”). See also, Passalacqua v. Naviant, Inc., 844 So.2d 792 (Fla. 4th DCA 2003) and Advantage Digital Sys., Inc. v. Digital Imaging Servs., Inc., 870 So.2d 111 (Fla. 2nd DCA 2004) (likewise declining to enjoin on a preliminary basis the defendants’ compliance with restrictive covenants because the plaintiffs failed to demonstrate sufficient business interests to justify such protection under Florida law).
In any event the Plaintiff waived its right to enforce the non-compete and related restrictive covenants. The creation of the competing “3 Natives” franchise in Palm City not only directly violated the Franchise Agreement, the Defendants complain, but it ran contrary to the need to avoid competition between “3 Natives” franchisees, a need that Mr. Bambino, himself, had conceded. Because the Plaintiff allowed the competing Palm City franchisee to open, it may not now enforce the non-compete covenant against them, [*19] the Defendants reason. In addition to opening the competing Palm City cafe, the Defendants complain of various other ways in which the Plaintiff breached the Franchise Agreement first. If the Plaintiff indeed had breached the Franchise Agreement first, then that raises the question of how its initial breach of the contract affects its ability to compel the Defendants’ compliance.
This Court notes the above countervailing points because to secure its requested preliminary injunction, the Plaintiff not only must demonstrate the likelihood of success on the prima facie elements of its claims for relief, but it also must demonstrate a substantial likelihood of prevailing over the Defendants’ defenses to them. See Lucky Cousins Trucking, Inc. v. QC Energy Resources Texas, LLC, 223 F.Supp.3d 1221 (M.D.Fla. 2016). The Lucky Cousins decision, in which the court declined to enjoin the defendant’s compliance with the restrictive covenants of the parties’ contract, supports the Defendants’ position here. The plaintiff had yet to overcome at the preliminary injunction stage the defendant’s defense that it was the plaintiff who had breached the contract first, who had hindered the defendant’s ability to perform under the contract, and who was seeking the contract’s enforcement with unclean [*20] hands. (Also, the Lucky Cousins court found insufficient business interests to justify enforcement of the restrictive covenants, similar to the finding that this Court reaches above.)