October 29, 2025|Franchise Frontlines
October 29, 2025 | U.S. District Court for the Northern District of Illinois, Eastern Division | Unpublished Opinion
Executive Summary
In an unpublished opinion, Judge Mary Rowland granted in substantial part BrightStar Franchising, LLC’s motion for a preliminary injunction. The Court explained that BrightStar alleged multiple post-termination breaches of four Franchise Agreements and related collateral lease documents, including alleged continued competition within the protected territory, alleged use of confidential information, alleged retention of BrightStar-related telephone numbers, and alleged ongoing identification with the BrightStar brand after expiration of the Agreements. Defendants disputed those allegations and asserted that California’s Business and Professions Code § 16600 rendered the covenants unenforceable and that BrightStar failed to comply with a pre-dispute process. Applying the Agreements’ Illinois choice-of-law clause, the Court interpreted California’s Ixchel decision as applying a rule-of-reason standard to commercial contracts such as franchise agreements and found that BrightStar showed a strong likelihood of success on most alleged breaches. The Court denied only the relief tied to one office where BrightStar sought possession, concluding on this preliminary record that the lease structure involved an entity contracting with itself.
Relevant Background
The Court explained that BrightStar alleged it operates a nationwide home-care franchise system built on proprietary methods, confidential information, and brand standards developed since 2005. Beginning in 2014, BrightStar alleged it entered into four Franchise Agreements with an operator who later assigned the Agreements to Foreside Management Company. According to the opinion, the Agreements contained territorial rights, confidentiality obligations, and a series of post-termination covenants addressing competition, solicitation, confidential information, return of property, and removal of BrightStar indicia. BrightStar further alleged that the operator’s spouse signed a spousal consent binding her to certain post-termination provisions.
The Court stated that BrightStar alleged defendants operated BrightStar agencies from two Southern California offices. BrightStar alleged that for each office, the parties executed a Collateral Assignment of Lease that granted BrightStar the right to assume the premises upon expiration or termination of the Agreements. One office was leased from a third-party landlord, and BrightStar alleged the other office was owned by an entity associated with defendants.
The opinion described BrightStar’s allegation that defendants notified the company they did not intend to renew the Franchise Agreements. When the Agreements expired in July 2025, BrightStar alleged that defendants continued operating a home-care business from the same offices, continued serving customers they had previously serviced as BrightStar franchisees, retained BrightStar-related telephone numbers, and maintained certain BrightStar-associated indicia. Two days later, BrightStar filed this action seeking to enforce the post-termination covenants and the collateral lease assignments. Defendants denied several of BrightStar’s allegations and asserted that California’s noncompete statute and the Agreements’ dispute-resolution clause barred the requested relief.
Decision
The Court first addressed the governing law. The Court explained that defendants bore the burden of showing a conflict between Illinois law (chosen in the Agreements) and California law, and noted that defendants argued California’s § 16600 barred enforcement of the covenants. The Court reviewed the California Supreme Court’s decision in Ixchel Pharma, LLC v. Biogen, Inc. and stated that Ixchel limits § 16600’s per se rule to employment restrictions. The Court stated that Ixchel treats franchise agreements as commercial arrangements subject to a rule-of-reason analysis and cited federal decisions applying Ixchel to post-termination commercial covenants. Because defendants did not show how California’s rule-of-reason framework differed materially from Illinois’ own reasonableness standard, the Court enforced the Illinois choice-of-law clause and proceeded under Illinois law.
Turning to enforceability, the Court stated that BrightStar alleged protectable interests in its goodwill, confidential information, and territorial structure, and found that BrightStar made a preliminary showing that the covenants were reasonably tailored to those interests. The Court referenced BrightStar’s allegations concerning the importance of its proprietary system and its evidence regarding service radii and protected territories. The Court explained that the eighteen-month duration and geographic scope appeared reasonable for purposes of this preliminary analysis, and similarly treated obligations relating to confidential information, return of property, telephone numbers, and brand disassociation as reasonable methods of protecting franchise system integrity.
Regarding the collateral lease assignments, the Court distinguished the two offices. For the Newport Beach location, the Court stated that BrightStar had shown a likelihood of success because the assignment was tied to a third-party lease. For the Mission Viejo office, the Court explained that defendants asserted the lease was void because defendants were effectively both landlord and tenant. The Court stated that under Illinois law, an entity cannot contract with itself and, on this preliminary record, found that BrightStar had not shown a likelihood of success in obtaining possession of that location. The Court emphasized that its conclusion was based on the specific preliminary record.
The Court then evaluated alleged breaches of the Franchise Agreements. The Court described BrightStar’s allegations that defendants continued operating from the same offices, continued serving former customers, used BrightStar-related telephone numbers, retained certain indicia associated with the BrightStar brand, and continued using aspects of BrightStar’s program and confidential information. Defendants disputed several allegations, including any improper use of confidential information. The Court explained that at this preliminary stage, it found BrightStar’s evidence sufficient to show a strong likelihood of success on its allegations that defendants breached the non-competition, non-solicitation, confidentiality, program-use, brand-disassociation, and phone-number transfer provisions. The Court noted that defendants had surrendered the Newport Beach office, curing that specific issue. The Court emphasized that its findings were limited to this early stage and the evidentiary record before it.
The Court addressed defendants’ argument that BrightStar had materially breached the Agreements by not complying with the pre-dispute resolution process. The Court explained that the Agreements expressly excluded actions for injunctive relief from those procedures and therefore found that BrightStar had shown substantial performance.
On irreparable harm, the Court explained that BrightStar alleged that defendants’ conduct threatened its goodwill, confidential information, customer relationships, and the integrity of its franchise system. The Court stated that BrightStar supported those allegations with evidence, including assertions that former customers were being serviced in the same geographic area and statements indicating that operations would remain the same after expiration. The Court further explained that BrightStar alleged that other franchisees were monitoring the situation, and the Court viewed those allegations as supporting a finding of potential system-wide harm. The Court acknowledged defendants’ assertions regarding disruption to their operations and employees but stated that such consequences flowed from defendants’ decision not to renew the Agreements while continuing to operate in a manner BrightStar alleged to be inconsistent with contractual post-termination obligations.
The Court concluded that BrightStar met the requirements for injunctive relief on its primary contract claim. The Court declined to order possession of the Mission Viejo office based on the specific record but granted the remaining requested relief and scheduled further proceedings to address implementation.
Looking Forward
The Court’s analysis offers several observations for franchisors while remaining tied to its specific facts and procedural posture. The Court’s enforcement of the Illinois choice-of-law clause shows the value of clear contractual drafting in multi-state franchise systems. Although outcomes may differ under other facts or in other jurisdictions, this opinion illustrates how a choice-of-law clause can influence a court’s approach to post-termination covenants when a former franchisee asserts that California’s § 16600 bars enforcement.
The Court’s interpretation of Ixchel demonstrates how courts may continue treating franchise agreements as commercial rather than employment relationships. Under different circumstances, a court could frame this analysis differently, but the opinion provides franchisors with a useful example of how courts may apply a rule-of-reason standard to post-termination franchise restraints.
The Court’s treatment of the Mission Viejo lease issue reflects the fact-specific nature of disputes involving self-landlord arrangements. The Court limited its conclusion to the particular preliminary record and applicable Illinois authorities, leaving room for different outcomes under different facts or different lease structures.
Finally, the Court’s discussion of system-wide effects underscores the importance for franchisors of documenting how non-compliance by a single operator may influence broader network behavior. Here, BrightStar alleged that other franchisees were watching the dispute, and the Court viewed that allegation as supporting irreparable harm. Other courts may assess similar allegations differently, but the opinion highlights how franchisors may frame system-integrity concerns when seeking injunctive relief.
This article is based solely on the opinion of the Court in this matter. The author has not conducted any independent investigation into the facts. For the avoidance of doubt, each statement related to the law and facts in this article is drawn from the Court’s opinion in this case.
Thomas O’Connell is a Shareholder at Buchalter APC and Chair of the firm’s Franchise Practice Group. For questions about this article or media inquiries, you can contact Tom at toconnell@buchalter.com.
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