Zabaneh Franchises, LLC v. Walker
972 N.E.2d 344
Ill. App. Ct.2012Background
- Plaintiff Zabaneh Franchises, LLC, is an Illinois business that bought a Springfield H&R Block franchise in July 2010, including employee agreements; Defendant Terri Walker signed an H&R Block employment agreement in November 2009 with two-year post-termination restrictions and nonsolicitation; Plaintiff alleged Walker started a competing tax-preparation business and hired former H&R Block staff after leaving in April 2010; Plaintiff sought injunctive relief and a TRO; the circuit court denied the TRO and later dismissed the case with prejudice; on appeal, the appeals were consolidated and remanded for further proceedings; the contract includes an assignability clause allowing H&R Block to assign without Walker’s consent; the appellate court ultimately reversed and remanded based on the enforceability of the covenants under modern Illinois law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are the restrictive covenants enforceable under the three-dimensional rule of reason? | Covenants are reasonable to protect business interests. | Covenants are overbroad and impose undue hardship. | Covenants are reasonable and enforceable; remand for further proceedings. |
| Is the contract a contract of adhesion that undermines enforceability? | Contract is adhesion but does not affect enforceability. | Adhesion contracts are invalid or problematic. | Adhesion status does not render covenants unenforceable; court reverses and remands. |
| Was Missouri law applicable or was Illinois law controlling due to waiver? | Choice-of-law provision supports Missouri law. | Illinois law governs; waiver of choice of law occurred. | Illinois law governs; plaintiff abandons Missouri authority. |
| Did the circuit court err in dismissing with prejudice or in denying injunctive relief? | Covenants are enforceable and would likely allow relief. | Cannot prove likelihood of success on merits at this stage. | Dismissal reversed and remanded for further proceedings. |
Key Cases Cited
- Reliable Fire Equipment Co. v. Arrendondo, 2011 IL 111871 (Illinois Supreme Court (2011)) (three-dimensional rule of reason governs enforceability of covenants; limits of LBI test; totality of circumstances)
- Prairie Eye Center v. Butler, 305 Ill. App. 3d 442 (Ill. App. 2009) (preliminary injunction framework and required showing)
- Sunbelt Rentals, Inc. v. Ehlers, 394 Ill. App. 3d 421 (Ill. App. 2009) (previous approach focused on time/territory; overruled by Reliable Fire)
- Townsend v. Sears, Roebuck & Co., 227 Ill. 2d 147 (Illinois Supreme Court (2007)) (choice-of-law analysis in contract)
- Air Safety, Inc. v. Teachers Realty Corp., 185 Ill. 2d 457 (Illinois Supreme Court (1999)) (contract interpretation guiding three-dimensional analysis)