Under Florida law, a restrictive covenant is not enforceable “unless it is set forth in a writing signed by the person against whom enforcement is sought.” Fla. Stat. § 542.335(1)(a). By this general rule, injunctions to enforce non-compete provisions are primarily entered against the parties to the contract. However, Florida law allows a court to enter an injunction against competing businesses that are alter-egos of the party who signed the non-compete contract. These alter-egos include businesses that are being operated by spouses, family members, or shell corporations of the signator to the non-compete agreement. This exception applies to these other persons or entities even though they are not parties to the agreement, because they are either under the control of the signer of the non-compete contract or are otherwise being used to aid and abet that person in violating the non-compete clause. Peter Mavrick is a Fort Lauderdale non-compete lawyer who has extensive experience dealing with non-compete agreements and claims for injunctive relief.
For example, in the case of Dad’s Properties, Inc. v. Lucas, et al., 545 So.2d 926 (Fla. 2d DCA 1989), Albert C. Lucas (“Lucas”) and his company Al Lucas Enterprises, Inc. sold “Sugar Daddy’s”, an adult entertainment nightclub to Dad’s Properties, Inc. (“Dad’s”.) At the closing the parties executed a covenant not to compete restricting Lucas and his company from competing with Dad’s within a 50 mile radius for 5 years. One year later, Lucas’ wife opened an adult entertainment nightclub within 50 miles of Sugar Daddy’s. Dad’s filed suit and at the evidentiary hearing on Dad’s motion for preliminary injunction, evidence was presented that Lucas exerted considerable control over the design, and operation of his wife’s club. There was also evidence that he and his wife solicited employees and dancers of Sugar Daddy’s to work for his wife’s club. Without stating the basis for its decision, the trial court denied the motion for preliminary injunction against Lucas, his company, Lucas’s wife and her company from continuing to compete with Dad’s.
Dad’s immediately appealed and the appellate court reversed the trial court’s decision, holding that “…individuals and entities may be enjoined from aiding and abetting a covenantor in violating a covenant not to compete.” Further that “…an injunction not only binds the parties defendant but also those identified with them in interest, in privity with them, represented by them or subject to their control.” It was clear that Mrs. Lucas and her company were aided and abetted by Mr. Lucas and his company in their intentional violation of the covenant. Because of the close relationship to the covenantors, Mrs. Lucas and her company were also subject to an injunction to refrain from competing in violation of the agreement.
In contrast to the above case, in Winmark Corp. v. Brenoby Sports, Inc., 32 F.Supp.3d 1206 (S.D. Fla. July 10, 2014), there was no evidence of aiding and abetting the covenantor. Winmark Corp. (“Winmark”), a Minnesota corporation operating a franchise chain of retail sporting goods stores that operate under the name Play It Again Sports, sued its former franchisees. The Defendants Brenoby Sports, Inc. (“Brenoby”) and Marlin Geimer (“Geimer”) entered the franchise agreement and operated a “Play It Again Sports” store in Hollywood, Florida. The franchise agreement contained two non-compete clauses that prohibited them from competing with the Play It Again Sports store during the term of the franchise agreement and for one year after its termination.
Winmark later terminated the franchise agreement for failure to remit payment to Winmark from the gross sales of the store and for refusal to submit to an audit as required under the franchise agreement. Winmark then filed a lawsuit against Brenoby and Geimer (collectively “Defendants”) and filed a Motion for a Preliminary Injunction against the Defendants, their employees, personal guarantors and all those persons acting in concert or participation with them from engaging in or having any connection with any sporting goods business pursuant to the non-compete covenant in the franchise agreement.
Winmark was seeking to enjoin non-parties to the agreement including family members, associates of the Defendants and their corporations with names like Play or Trade Sport, PO Sport, Inc. and SOS Sport. Winmark’s evidence failed to establish a nexus between the Defendants and the non-parties that would have demonstrated that they were alter-egos of the Defendants or otherwise under their control. Some of the non-parties were merely employees of the competing companies with no ownership interest in those businesses. Some of the non-parties who owned the competing businesses had no close relationship to the Defendants and had purchased business assets from the Defendants in an arm’s length transaction. These non-parties had never been owners or personal guarantors of Defendant Brenoby, so the court determined that they were not bound by the non-compete covenant in Winmark’s franchise agreement. Therefore, no injunction could be issued against these non-parties for aiding and abetting the covenantors. Peter Mavrick is a Fort Lauderdale non-compete attorney who has extensive experience dealing with non-compete agreements and claims for injunctive relief.
This article does not serve as a substitute for legal advice tailored to a particular situation. Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311.