What is the geographic limit of the modifications described in this section of the Chocolate Fish Coffee FDD?
Chocolate_Fish_Coffee Franchise · 2024 FDDAnswer from 2024 FDD Document
erritory of any other Chocolate Fish Coffee business operating on the date of termination or transfer, as applicable. If this Agreement is terminated before the Territory is determined, then the area of non-competition will the Development Area and the territory of any other Chocolate Fish Coffee business operating on the date of termination.
- (c) Interpretation. The parties agree that each of the foregoing covenants is independent of any other covenant or provision of this Agreement. If all or any portion of the covenants in this Section is held to be unenforceable or unreasonable by any arbitrator or court, then the parties intend that the arbitrator or court modify such restriction to the extent reasonably necessary to protect the legitimate business interests of Chocolate Fish Franchising. Franchisee agrees that the existence of any claim it may have against Chocolate Fish Franchising shall not constitute a defense to the enforcement by Chocolate Fish Franchising of the covenants of this Section.
Source: Item 23 — RECEIPTS (FDD pages 41–119)
What This Means (2024 FDD)
According to the 2024 Chocolate Fish Coffee FDD, if any part of the non-compete covenants are deemed unenforceable, the arbitrator or court is expected to modify the restriction to protect Chocolate Fish Coffee's business interests. This modification applies to the geographic scope of the non-compete agreement.
Specifically, if the Franchise Agreement is terminated before the territory is determined, the area of non-competition will be the Development Area and the territory of any other Chocolate Fish Coffee business operating on the date of termination. This means the restrictions on the franchisee's ability to engage with competitors will be limited to the Development Area initially agreed upon and the existing territories of other Chocolate Fish Coffee franchises at the time of termination.
This clause ensures that even if the original terms are too broad, the non-compete will still be enforced to a reasonable extent. This protects Chocolate Fish Coffee from unfair competition by former franchisees while also preventing overly restrictive terms that could hinder a franchisee's ability to earn a living after leaving the system. Prospective franchisees should understand that the non-compete agreement's geographic scope can be modified by a court or arbitrator to be deemed reasonable, but will still likely be enforced within the Development Area or around existing Chocolate Fish Coffee locations.