NY Court Nails Franchisee for Brazen Breach of Non-Compete
This past year, in Golden Crust Patties, Inc. v. Bullock, a Federal court in the Eastern District of New York (which covers Brooklyn, Queens and Long Island) dealt a heavy blow to the franchisee of a Golden Crust chain restaurant, finding that they were barred from operating any kind of Jamaican restaurant not only a at that location (where they had been operating) or anywhere in a 2.5 mile radius.
In reaching this conclusion, the court was markedly unsympathetic to the defendant franchisee’s arguments that such an injunction would do irreparable harm to their livelihood, as their landlord might well refuse to allow them to operate a different kind of restaurant at that location (and, presumably, they were locked into a long-term lease). Essentially, the court told the defendant, "Too bad on you."
While that may seem harsh, a cursory reading of the facts in this particular case leads to the inescapable conclusion that, if anything, the court was unduly lenient.
Consider this: after the court issued a preliminary injunction barring the defendants from selling competitor's products in Golden Krust's packaging in violation of the franchise agreement (which is what led to the lawsuit in the first instance), the plaintiffs obtained proof that the defendants then removed the Golden Krust packaging, but “brazenly” sought to exploit the franchisor’s good will by keeping the same store name, and then advertising in big, bold lettering “Come in. We are Open. Nothing has Changed Only Our Name,” and “Open. Same Great Food. Same Great Service. Thanks for Your Support!!! Come Again.”