PHILADELPHIA – A federal judge has decided a Florida couple and former franchisee of AAMCO Transmissions did not violate a non-compete agreement, when they left the company franchise and opened their own transmission repair business.
Plaintiff AAMCO brought suit against its former franchisee, defendant Robert Romano and his wife, defendant Linda Romano. In August 1992, the Romanos entered into a franchise agreement with AAMCO and operated an AAMCO franchise in Hollywood, Fla. for 21 years. In February 2013, the Romanos sold their AAMCO franchise and amicably terminated their franchisee relationship with AAMCO.
In July 2013, the Romanos opened an automotive and transmission repair business, Treasure Coast Transmissions, in Stuart, Fla. – more than 90 miles from their prior AAMCO franchise location, but in close proximity to another current AAMCO franchise. That other franchise is owned and operated by John Santagata, and is located approximately 1.4 miles from Treasure Coast Transmissions.
AAMCO sought a permanent injunction to enforce the non-compete agreement it claims the Romanos violated, as well as costs and attorneys’ fees, while the Romanos counter-claimed against AAMCO for a declaratory judgment that they did not violate the non-compete agreement, and that the covenant is unenforceable against them.
As AAMCO is based in Horsham, their suit was filed in the U.S. District Court for the Eastern District of Pennsylvania. The parties appeared before Judge Anita B. Brody for a bench trial on Feb. 8, and Brody heard testimony from both sides.
“Mr. Romano testified that when the Romanos decided to open Treasure Coast, they did not intend to violate the non-compete provision and were not aware of the non-compete provision when they were looking at possible locations for their new business or when they settled on the Stuart, Fla. location,” Brody said.
Brody said it became necessary to examine the non-compete agreement to see if it was “reasonably necessary to protect the employer’s legitimate business interests” and the “reasonableness” of its restrictions.
“AAMCO has established that it has a protectable business interest in the franchise itself. The testimony and the documentary evidence presented at trial demonstrate that AAMCO invests time and resources to develop proprietary business methods and procedures for its share of the transmission repair industry,” Brody said.
“AAMCO gives its franchisees access to these resources as well as intensive training in its approach to customer retention, business development, marketing and advertising, and technological procedures. AAMCO franchisees also obtain the use of AAMCO’s name and trademark to operate their businesses. Therefore, AAMCO has a legitimate interest in its franchise brand that can be validly protected by a covenant not-to-compete,” Brody added.
It was on the subject of the agreement’s geographic restrictions where Brody’s opinion differed from that of the plaintiff.
“Even though AAMCO has established that it has a legitimate business interest that can be protected by a non-compete, the non-compete provision must be reasonably limited in…duration and geographic extent…to be enforceable,” Brody said.
According to the original non-compete agreement, the Romanos were prevented from “directly or indirectly engaging in transmission repairs within a radius of 10 miles of the former center or any other AAMCO center”, for a two-year period.
The Romanos characterized the original non-compete agreement's terms as effectively preventing them from operating anywhere along the Florida coast, and Brody concurred.
Brody termed the agreement “unduly burdensome and overly broad”, since the Romanos relocated their business 90 miles away, did not take any of their clientele with them, and there was no evidence to suggest they used “AAMCO’s name, mark, or goodwill to solicit business.”
“The non-compete provision is also overly broad because it is not reasonably tailored to protect AAMCO’s interest in the franchise itself,” Brody said.
Brody ruled the non-compete agreement is only enforceable through a modification of its terms, which would prohibit the Romanos from engaging in the transmission repair business within a 10-mile radius from their former AAMCO franchise location or any other AAMCO franchise in Broward County, Fla., only, for two years.
Broward County is the county where the Romanos’ former franchise was located.
“I find that the non-compete covenant is enforceable as modified. The Romanos, by conducting their transmission repair business solely at Treasure Coast in Stuart, Fla., [which is outside Broward County] have not breached the covenant,” Brody said.
As Brody did not find the non-compete agreement enforceable under its original terms, she did not issue a permanent injunction on the matter and further dismissed the Romanos’ counter-claim for a declaratory judgment that the non-compete agreement is unenforceable as moot.
The plaintiff is represented by James C. Rubinger of Plave Koch in Reston, Va. and James A. Goniea of Einbinder Dunn & Goniea, in New York, N.Y.
U.S. District Court for the Eastern District of Pennsylvania case 2:13-cv-05747
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at firstname.lastname@example.org