Enforcement of In-Term Noncompete


Mulcahy LLP Secures Preliminary Injunction Enforcing In-Term Noncompete Provision In Franchise Agreement

By Mulcahy LLP on May 20, 2016

Mulcahy LLP obtained the entry of a court ordered preliminary injunction on behalf of franchisor Yojié Franchise, LLC enjoining a Yojié franchisee from converting his franchised restaurant into a competing business during the duration of the parties’ pending arbitration.

Yojié is the franchisor of a unique Japanese style restaurant and bar featuring Japanese fondues known as “shabu-shabu” and “sukiyaki.” The franchisee, Lamson Nguyen, agreed to open and operate the first Yojié restaurant in Orange County. After the franchise agreement was signed, Yojié devoted significant time and resources training the franchisee in all aspects of developing, opening, and operating Yojié’s unique style of restaurant. Yojié also worked assiduously with the franchisee to locate the space for the restaurant, negotiate the lease for that space with the landlord, and then work with contractors and vendors to buildout the space consistent with Yojié’s restaurant specifications and design.

With Yojié’s guidance and support, the franchisee’s restaurant – located in a revitalized area of Santa Ana, California – was on the cusp of opening in early spring 2016. Nevertheless, at the eleventh hour, and without any prior notice or warning to Yojié, the franchisee notified Yojié that he had elected to repudiate the franchise agreement and convert the restaurant into a competing Japanese fondue restaurant.

The franchisee’s conduct precipitated Yojié pursuit of two simultaneous actions: (1) an arbitration to resolve the franchisee’s numerous breaches of the franchise agreement, and (2) a separate court action for preliminary injunctive relief to enjoin the franchisee from opening the restaurant as a competing business in violation of the in-term noncompete provision in the franchise agreement during the pendency of the arbitration.

By order dated May 20, 2016, the court granted Yojié’s request for injunctive relief and enjoined the franchisee from opening and operating the restaurant “as anything other than a Yojié Japanese Fondue Restaurant, consistent with the rights and obligations set forth in the governing Yojié Franchise Agreement.” The preliminary injunction was ordered to remain in place during the duration of the arbitration proceeding unless otherwise directed by the court.

“Obtaining the injunctive relief for the remainder of the arbitration is a significant victory for the client,” said Kevin Adams, lead counsel for Yojie. “This result allows Yojié to maintain its investment in the Orange County market while the underlying contractual dispute is hashed out in arbitration.”

The preliminary injunction order is also significant because it shows that in-term noncompete provisions continue to be enforceable in California notwithstanding the near-absolute bar on post-term noncompete provisions by California Business and Professions Code § 16600.

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