Georgia Supreme Court to Review Appellate Decision in Atlanta Bread
At the trial level, the court applied a very strict standard to in-term covenants and ruled that the Atlanta Bread non-compete was unenforceable. The Georgia Court of Appeals affirmed the trial court’s ruling. The IFA believed that the lower court was mistaken in evaluating the in-term restrictions under standards more appropriately applied to post-term limits. After it filed its first "friend-of-the-court" brief, the Georgia Appeals Court ruled to strike it on technical issues, saying IFA's central argument was based on the brief's attached documents, which were not part of the record. And secondly, that the remaining arguments rehash existing arguments, and circumvent the court's limitations on the number of pages, burdening the court and parties with a redundant brief.
But last July IFA filed another amicus brief requesting that the Supreme Court consider a review of Georgia's appellate court ruling that the non-compete restriction in the franchise agreement didn't align with Georgia law because it was too broad. In an interview, French said that the court "erred in crafting a novel interpretation of the reasonableness standard for in-term covenants not to compete.” But because the restriction did not have a territorial limit, the judge stated that the franchisee would have been in violation regardless of the location of his competing unit. She added, "Nor did it restrict what the franchisee could do for the competition, so he could not have been so much as a janitor with a competing coffee shop."
Randy Edwards, Kilpatrick Stockton, representing Lupton-Smith, opposed Atlanta Bread's petition to the higher court, saying, "Atlanta Bread is, literally, the author of its own misfortune. Rather than even attempting to comply with Georgia Law, Atlanta Bread drafted and now seeks to take advantage of a restrictive covenant that has no territorial limit and that contains an overly broad and vague scope of restricted activity." Without a territorial limit, Edwards said the restriction is void and unenforceable under any level of scrutiny.
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Related reading:
- Appeals Court strikes IFA's amicus brief on non-compete clause (Franchise Times)
- Atlanta Bread Legal Fight Heats up (Franchise Times)
- Franchise Community Awaits Amicus Decisions on Appeal
- IFA Files Amicus Curiae in Georgia Court of Appeals
In between naps in my first year Contracts class, I recall Prof. Gegan saying a covenant "must be reasonable in temporal and geographic scope".
My classmate next to me snored loudly thru Prof. Gegan's class, and I always wondered what happened to him; now I see that he ended up drafting contracts for Atlanta Bread Co.
Paul Steinberg
Franchisee Attorney, New York City, Ph: 212-529-5400
Paul Steinberg, Franchisee Attorney, New York City, Ph: 212-529-5400
franchise agreement in America has a no limits in-term restrictive covenant. It is only when they get to the post-term restrictive covenant that most draftsmen start thinking of temporal scope.
It is franchise gospel that in-term restrictive covenants can be much broader than post term covenants because, since the franchisee gets what he bargained for - the ability to conduct the business of the franchise - he is not deprived of his livelihood (It works the same way if you change he to she and him to her). --
Atlanta bread has had some rocky moments, but its ownership consists of some of the more colorful Greeks you will ever meet. Last time I looked at their FDD, it actually said that they send their money offshore, and that was a litigation discouraging artifice. They have deep roots in Greece and in South Africa where one of the brothers was convicted of criminal investment shenanigans and - as I last read about it - had been sentenced to the hoosecow. I don't know whether he ever actually served time or whether the conviction was appealed and possibly reversed or modified, but there was rather wide coverage of it on the Internet. If you are doing a search on it, the family name is Kouveras/Couveras/Couvaras/Kouvaras [sp].
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
I would like to read about the criminal conviction to the hoosegow and the investment shenanigans.
Since you brought it up, do you have any links?
That is why this is likely to be a flash-in-the-pan.The logic of an in-term being broader than a post-term is self-evident, but the drafter of the contract still must be explicit on both in-term and post-term restrictions in order for there to be a meeting of the minds on this issue.
Much like the recent Domino's Pizza POS case or Scheck, this is a case where a franchisor getting smacked will result in more explicit disclosure in the future.
Future documents will be more accurate, and who can argue with better-quality drafting?
Paul Steinberg
Franchisee Attorney, New York City, Ph: 212-529-5400
Paul Steinberg, Franchisee Attorney, New York City, Ph: 212-529-5400
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