Let that sink in: AAMCO sued two former franchisees, a husband and wife couple, for breaching a non-compete agreement. AAMCO was represented in the litigation by a team of lawyers from three law firms. And they lost to two pro se litigants. Let’s take a look:
AAMCO is a franchisor of transmission repair centers based right outside of Philadelphia. Since 1992, Robert and Linda Romano operated an AAMCO franchise in Hollywood, Florida. In February 2013, the Romanos sold their franchise and terminated their relationship with AAMCO. The Franchise Agreement contained a non-compete provision that prevented the Romanos from operating a transmission repair business within a 10-mile radius of their former franchise or any AAMCO location for a period of two years. Approximately five months after terminating their relationship with AAMCO, the Romanos opened up a new transmission repair shop, Treasure Coast Transmissions, more than 90-miles away from their old Hollywood location. But as it turns out Treasure Coast was located just 1.4 miles from another AAMCO location.
In September 2013, AAMCO learned about Treasure Coast and sent the Romanos a cease and desist letter stating they were violating their non-compete and demanding they immediately shut down the business. The Romanos did not comply. On September 20, 2013, AAMCO sued the Romanos in the Eastern District of Pennsylvania seeking a permanent injunction enforcing the non-compete provision of the Franchise Agreement.
In evaluating the existence of a legitimate business interest, the Court held that AAMCO provided its franchisees with various resources, information and training. This constituted a legitimate business interest that could justify a covenant not to compete. But turning to the geographic scope of the restrictions, the Court found the non-compete was overbroad. While working with AAMCO, the Romanos operated one AAMCO franchise located in Hollywood, FL. Treasure Coast was more than 90 miles away from their previous AAMCO location and did not compete with the Hollywood AAMCO franchise in any fashion. There were no allegations that the Romano’s had used AAMCO’s name, mark or goodwill to solicit business for Treasure Coast. Bottom line: The restriction barring the former franchisees from operating a transmission repair shop anywhere in the US or Canada within a 10-mile radius of an AAMCO was unreasonable.
In reaching this conclusion, the Court cited numerous prior cases, many of them involving AAMCO, finding this exact same restriction unreasonable. This prior line of Pennsylvania cases more directly articulate the specific point of law: In a franchise or sale of a business context, the geographic restriction should be no broader than necessary to protect the business sold. Here, that meant the restriction should focus on protecting just the Hollywood AAMCO. Ultimately, the Court modified the non-compete to apply only within (1) a 10-mile radius of the Romano’s old franchise and (2) a 10-mile radius of any AAMCO location in Broward County, Florida.
- Geographic Scope: In most franchise non-compete disputes, a reasonable geographic scope will reflect the market where the specific franchise conducted business.
- Blue Pencil: Pennsylvania courts will blue pencil unreasonable geographic terms in a non-compete agreements. Other jurisdictions will not.
Jonathan Pollard is the principal of Pollard PLLC, a Fort Lauderdale-based litigation boutique focused on competition law. The firm and its attorneys have extensive experience litigating non-compete, trade secret and antitrust matters. They represent clients in Florida and throughout the country. Their office can be reached at 954-332-2380.