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District Court Interprets Kentucky Franchise Covenants Not-to-Compete

By Jon Swierzewski

In Papa John's International, Inc. v. Rezko et al., 2006 WL 1697134 (N.D. Ill.), the U.S. District Court for the Northern District of Illinois was called upon to determine whether a post-term covenant not-to-compete was reasonable in scope. The defendant alleged that the covenant would bar him from the restaurant business nearly everywhere in the country. In the limited procedural posture of the case (a motion to dismiss), the court allowed the claim of unreasonableness to go forward.

Rezko, through a number of companies, was a long-time franchisee of Papa John's, with numerous stores in Illinois and Michigan. Rezko personally signed the franchise and owner agreements for each store. Those agreements contained a covenant not-to-compete. The covenant precluded Rezko for a period of 2 years after termination or expiration from engaging in competitive activities within a 10-mile radius of Rezko's particular restaurant or any location where Papa John's or any of its franchisees conduct a Papa John's business. Rezko also signed separate owner's agreements, which contained an identical covenant not-to-compete. The owner's agreement also has a clause stating that the owner agrees that the 'covenants and agreements … are, taken as a whole, reasonable with respect to … geographic scope and duration, and no party shall raise any issue of the reasonableness of the areas, activities or duration of any such covenants in any proceeding to enforce any covenants.'

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