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October 2016

Gordon & Rees Multi-Office Team Defeats Antitrust Claim in Iconic Phoenix Restaurant Territorial Dispute

Gordon & Rees Phoenix partner Leon Silver, San Diego senior counsel Christina Vander Werf, and Phoenix associate Mary Curtin, along with help from Raleigh of counsel Robin Vinson successfully defeated the defendant’s antitrust challenge to their application for preliminary injunction, preventing the opening of a restaurant within our clients' designated territory. 

Gordon & Rees's clients own and operate a well-known Mexican restaurant, which has been an institution in south Phoenix for decades. After the founder’s death, the restaurant business was passed down to two of her sons and four of her grand-daughters (all sisters). One grand-daughter (the defendant) then opened a second, separately owned restaurant in north Phoenix. To avoid litigation over ownership and operation of the new restaurant, the sons and grand-daughters entered a Settlement Agreement, which established that three of the grand-daughters (our client) owned the original restaurant outright and designated exclusive territories in which the parties could open and operate restaurants of the same name with the same products.

After living under the agreement for eight years, our clients learned of their sister’s plan to open a restaurant within their territory. Subsequent investigation revealed that not only had she begun the permitting process for the construction of the restaurant, but she had purchased the real estate on which the restaurant would be built. Gordon & Rees asked the court for temporary relief and sought a preliminary and permanent injunction to prevent the violation of the agreement. The court granted temporary relief and extended it through an October 31, 2016 trial date.

The defendant filed a motion claiming the territorial division was a horizontal market allocation (ie., an agreement between competitors not to compete with each other), and was therefore a per se violation of the Sherman Act.  

The Gordon & Rees team made three arguments: first, the creation of the territories was not a type of market allocation – whether vertical or horizontal – traditionally considered a restraint on trade because the agreement did not restrict the parties from opening and operating restaurants generally, did not restrain their advertising in any manner, did not limit who they could serve, and did not restrict catering to a territory; second, the true nature of the market allocation was vertical (ie,. imposed from a third party original owner of the intellectual property), and therefore subject to the rule of reason; and, third, that even if it were a horizontal market allocation, it was ancillary to a legitimate contract; the Settlement Agreement. 

Following extensive briefing and a lengthy oral argument, the court issued a fairly detailed ruling in which it agreed with Gordon & Rees's position, finding that there was no market allocation for anti-trust purposes and that even if there were, it was ancillary to a legitimate agreement.

Robin Vinson