Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—E.D. La.: Amendment of franchise agreement non-compete provision allowed franchisee to operate a competing business, (Feb 5, 2026)

By Justin Marcus Smith, J.D.

The franchisor did not perfect a claim for breach of the franchisee-owner’s personal guaranty where a non-compete amendment allowed her to operate a real estate brokerage; however, the owner was still potentially liable for material breach of the franchise agreement.

A franchisor of discount real estate brokerages adequately pleaded breach of a franchise agreement for failure to meet minimum performance requirements, as written in the agreement, held the federal district court in New Orleans, Louisiana. The sale of another franchise in the franchise area was not the sole remedy available to the franchisor and had no bearing on whether the franchisor pleaded a facial breach of contract claim. However, an amendment to the franchise agreement allowed the owner-guarantor of the franchisee to operate a real estate brokerage after termination. The court did not speculate whether there was a drafting error. The court accordingly dismissed the franchisor’s breach of guaranty claim with respect to brokerage operation, but it otherwise declined to dismiss the breach of guaranty claim for other, material breaches of the franchise agreement, like franchisee failure to meet minimum performance requirements (Vogel v. 1 Percent Lists Franchises LLC, No. 25-631 (E.D. La. Feb. 3, 2026)).

Background. In 2021, the owner-guarantor of a franchise, and shortly thereafter, her wholly-owned company, One Percent Lists Carolinas, LLC (franchisee), allegedly entered into a franchise agreement with defendant 1 Percent Lists Franchises, LLC (franchisor). The franchise agreement (FA) specified Louisiana choice of law.

In July 2023, the franchisor allegedly sent the owner-guarantor a letter purporting to terminate the FA. The franchisor alleged the franchisee failed to meet minimum performance standards. The franchisor also said the owner-guarantor continued to operate a real estate brokerage in violation of the FA non-compete clause after termination of the FA.

In January 2024, the owner-guarantor sued in state court. The franchisor removed the action to the United States District Court for the Western District of North Carolina, and that court later ordered transfer to the instant Eastern District of Louisiana district court.

After a rearrangement of the parties, the franchisor filed an amended counterclaim and third-party complaint bringing a breach of contract claim against plaintiff/counter-defendant franchisee. It also brought a breach of guaranty claim against the third-party defendant owner-guarantor.

The franchisee and the owner-guarantor filed a Fed. R. Civ. P. 12(b)(6) motion to dismiss the counter-claim against the franchisee and the third-party claim against the owner-guarantor, respectively.

Contract breach. The court denied the franchisor’s motion to dismiss the breach of contract claim because it found the franchisor/counter-claimant sufficiently pleaded the three required elements under Louisiana law.

The court said it confined itself to the contents of the pleadings and attachments thereto. First, it found the franchisor pleaded the existence of a contract with an effective date in 2021. Second, the FA contract facially included minimum performance requirements for the franchisee, and the franchisor alleged a failure to meet those standards. On the third element for breach of contract, the franchisor alleged it suffered damages from the alleged breach.

The franchisee’s motion to dismiss did not contend the franchisor failed to allege the elements for breach of contract. Instead, it asserted the FA provided for a specific remedy: the sale of another franchise in the county. However, the court said that argument had no bearing on whether the franchisor pleaded a facial breach of contract claim. The franchisee also fundamentally misinterpreted the contract in that regard because the cited remedy was not necessarily the sole remedy: the FA facially provided termination as another potential remedy. The court also found the FA made rights or remedies cumulative, not mutually exclusive. The franchisee therefore erred in its reading of the contract. The court accordingly denied dismissal of the breach of contract claim.

Personal guaranty. The court dismissed the franchisor’s claim that the owner-guarantor breached her personal guaranty by continuing to operate a real estate brokerage in violation of the FA non-compete. However, the court declined to dismiss the breach of guaranty claim for other alleged breaches of the FA.

The owner’s personal guaranty was a contract that facially provided for the owner-guarantor to be personally bound by and personally liable for FA breach. The franchisor alleged two material breaches of the guaranty: (1) franchisee material breach of the FA for failure to meet minimum performance requirements; and (2) the owner’s alleged breach of the FA non-compete. The franchisor also alleged it suffered damages, including under the FA liquidated damages provision for breach of the FA non-compete.

The owner-guarantor argued for dismissal because the parties modified the FA to allow for operation of a real estate brokerage. There did appear to be an amendment that permitted post-termination “owning, operating, or working as a licensed broker for a business that offers, sells or advertises real estate brokerage services.” However, the owner-guarantor’s reasoning was only valid as far as it went. It ignored the alleged breach for failure to meet minimum performance standards. The court accordingly held that the franchisor adequately alleged breach of guaranty based on breach of the FA for material breach, i.e., failure to meet minimum performance standards, but the court did dismiss the claim for breach of guaranty based on putative violation of the FA non-compete.

The franchisor urged the court should not dismiss the breach of guaranty claim with respect to the FA non-compete. It urged the court to read the word “and” in an amendment to join a subsection that read “if you terminate” as a condition precedent to being able to operate a real estate brokerage. The owner-guarantor argued that would lead to an absurd result.

The court agreed with the franchisor that the two provisions were joined, but it also agreed with the owner-guarantor that the result was nonsensical. The first subsection provided that non-compete restrictions stated elsewhere in the FA would not apply. But if the non-compete restrictions of that first section were already inapplicable, there would be no need to limit the definition of “Competitive Business.”

The court held the logical and correct reading was that termination under the applicable section did not pertain to the restrictions of the other inapplicable section elsewhere in the FA. The applicable section stated a “Competitive Business” would not include operation of a real estate brokerage. The amended non-compete provision did not prohibit the owner-guarantor from operating a real estate brokerage, so there could be no breach thereof.

The Case is No. 25-631.

Judge: Vance, S.

Attorneys: Michael D. Braunstein (Zarco Einhorn Salkowski, P.A.) for Jessica Wynne Vogel. Roland W. Baggott, III (Baggott Law Offices, PLLC) for 1 Percent Lists Franchises, LLC.

Companies: 1 Percent Lists Franchises, LLC

Cases: FranchisingDistribution LouisianaNews