Rachel Tobin Ramos writes in The Atlanta Journal-Constitution that Sean Lupton-Smith’s continuing legal fight with Atlanta Bread Co. may have already affected the way franchise contracts are written in Georgia.
The state Supreme Court on June 29 ruled that Atlanta Bread Co.’s noncompete clause — a key issue in a lawsuit brought by Lupton-Smith, a former franchisee — was unenforceable.
In light of the ruling, franchisors are concerned for their ability to keep franchisees from opening competing businesses, said Karen Spencer, a franchise consultant and chief executive of Fran-Systems.
“A lot of people are very upset about it,” she said.
The International Franchise Association had filed an amicus brief in favor of Atlanta Bread Co.’s position, saying the “case is important to preserving the franchise model.”
David French, vice president of government relations for the IFA, said the ruling has prompted “a lot of dialogue in Georgia about whether contracts should be rewritten and how to best do it.” He also said state lawmakers even before the ruling were working on a measure to clarify Georgia’s noncompete law.
Atlanta Bread Co. in 2006 terminated Lupton-Smith’s ownership of five franchises, claiming he violated the contract when he opened a PJ’s Coffee and Lounge in Atlantic Station. Lupton-Smith contended PJ’s was more lounge than bakery, as it sold alcohol and had a DJ at night.
Lupton-Smith sued for more than $10 million in damages, which he says represent the amount of lost profit for the duration of his contract. The case is now in Cobb County Superior Court, and could be heard in November.
The Supreme Court, which heard an appeal of a lower court ruling on a motion, said Atlanta Bread Co.’s noncompete restrictions were overly broad and lacked “territorial limitation,” making them “unenforceable.”
Atlanta Bread Co. attorney David Monde called the ruling “an important clarification” for franchising in Georgia. As for its defense against the continuing lawsuit, Monde said there are other issues relating to how Lupton-Smith operated the franchises that his side could bring up at trial.
Atlanta Bread Co.’s top executives, brothers Jerry Couvaras and Basil Couvaras, through a spokesperson, referred comment on the case or Lupton-Smith to Monde.
Like Lupton-Smith they are from South Africa, and they have had previous legal entanglements.
In 2004, both pleaded guilty to a banking violation in South Africa and paid $310,000 in fines. In 2006 the company sued a former chef over trade secrets when he left the company to open his own restaurant.
Lupton-Smith’s lawyer, Randy Edwards, was happy about the Georgia Supreme Court’s ruling, saying he “feels good” about the case.
Lupton-Smith is surprised his case might change contract law. In his native South Africa, he said, the legal system is “chaotic, unfair and the guy with the biggest muscle or gun wins. I’m surprised my case could have changed the laws. Maybe the stars aligned.”
Read more at: The Atlanta Journal-Constitution