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Child Care Franchisee Wins Non-Compete Case by Confusing Everyone

In The Art of War, Sun Tzu states, inter alia, that "The whole secret lies in confusing the enemy, so that he cannot fathom our real intent." Sometimes, but not often, this strategy, if used by a franchisee, works in combatting the enforcement of a post term restrictive covenant following a franchise termination.

As an attorney representing only franchisees and dealers, I've historically been repeatedly accosted by potential franchisee and dealer clients demanding that I provide them with a certifiable blueprint for how to 'get around' the post term restrictive covenants in their franchise and dealership agreements. These provisions in essence prevent a terminated franchisee from operating an ongoing or future business similar to that of the former franchise business for a period of time after the termination of the franchise, thereby, in some cases, preventing the terminated franchisee from earning a living.

I usually tell them that, although in the old days it was possible to devise a 'work around' to this legal road block, today it is exceedingly difficult to do so. Very simply, most franchise and dealer agreements nowadays do not contain many of the old-style loopholes (e.g., sales to wife, child, brother, mother-in-law, close friends, etc.) Further, in today's legal system, courts have become much more adept at factually piercing the corporate veils and trails associated with secret transfers and sales.

Accordingly, after reading a recent decision from the Supreme Court in New York regarding a post-term covenant I started laughing out loud. In this case, Daekyo Am., Inc. v Gunsberger, 2015 N.Y. Misc. LEXIS 4572, 2015 NY Slip Op 32372 (December 2015), the former franchisee's two locations had been terminated. Accordingly, the post term covenants in the franchise agreements would normally have prevented him from operating or participating in the operation or ownership of any child care center after the terminations.

However, in the face of prolific murky business transfers by the terminated franchisee, before and after the franchise terminations, the Court, in the context of the emergency motion, appeared flummoxed. The Court's inability to quickly and easily pierce the franchisee's complicated transactions resulted in a loss for the franchisor. In refusing to enforce the post term restrictive covenants in the franchise agreements, the Court allowed the new 'owners' at the former Daekyo locations to continue to operate child care centers in direct competition with Daekyo.

Read the Court's ruling, here.

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About Jeffrey M. Goldstein

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Jeffrey M. Goldstein represents clients in commercial complex litigation matters across the country. Mr. Goldstein is recognized as one of the top franchise litigators in the country. Mr. Goldstein has extensive experience in representing clients in state and federal courts in cases involving fraud, RICO, antitrust, encroachment, and wrongful termination. Mr. Goldstein also has an active practice in state and federal appeals cases. Mr. Goldstein practices as a franchise lawyer in complex litigation cases representing only franchisees and dealers. Although Mr. Goldstein appears in courts in a pro hac vice capacity depending on the state, he also has direct access to New York, Pennsylvania, Massachusetts, and the District of Columbia (DC), Washington, where holds Bars for those states. 

In addition to his litigation practice, Mr. Goldstein counsels and advises clients in franchise and distribution matters. Mr. Goldstein has represented clients across the United States in almost every leading franchise system. Mr. Goldstein also is retained to counsel many national independent franchisee associations. Mr. Goldstein has also served as an expert witness in several federal court franchise cases.

Mr. Goldstein graduated magna cum laude from Bucknell University with dual degrees in Philosophy and Economics in 1979. In 1983, he obtained his Juris Doctorate from Boston University School of Law, where he also simultaneously received his Masters Degree in Economics.

You can reach Jeffrey M. Goldstein at (202) 293-3947 or email jgoldstein@goldlawgroup.com. His firm's website is www.goldlawgroup.com. 

The Goldstein Law Firm is one of a handful of law firms in the country that represents only franchisees & Dealers. Not every franchise lawyer is a franchisee lawyer. Almost all law firms specializing in franchise law represent either solely franchisors or both franchisors and franchisees, but not solely franchisees & dealers. The philosophy of The Goldstein Law Firm is that all of our franchise attorneys' effort should be focused on advocating for the rights of franchisees, not on cutting new law for franchisors who are very ably represented by the largest law firms in the world. The Goldstein Law Firm offers its franchisee and dealer clients a consistent and unclouded commitment to the cause of franchisees. On a national basis there are merely a handful of franchise lawyers who truly represent only franchisees & dealers. As a franchisee lawyer, Jeff Goldstein is one of these rare franchise lawyers who does not also represent manufacturers and franchisors. 

GLF specializes in: 

General Franchise and Distribution Antitrust violations
Franchise Price-Fixing claims
Wrongful franchise terminations
Franchise Encroachment claims
Franchise Territorial violations
Franchise Dual Distribution competition
Franchise Menu Pricing disputes
Unfair Franchisor competition
Franchise and Distribution Trademark violations
Franchise and Distribution Post-term covenant not to compete restrictions
Wrongful franchise default cases
Franchise Supplier overcharging claims
Franchisor tying arrangements
Franchisor Fraud and Misrepresentation Claims
Franchise Disclosure Document Defects

(202) 293-3947

www.goldlawgroup.com

jgoldstein@goldlawgroup.com

In those cases in which Jeff is retained to litigate franchise law questions, he appears in courts around the country either in a Pro Hac capacity, or through his direct membership in the Bars of New York, Massachusetts, District of Columbia, Washington, and Pennsylvania.

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Franchise Consultant