Turf Wars A landmark court ruling could have new implications in franchise relationships.

For years (though it seems like forever) encroachment has reigned as franchisees' single most important concern. And yet a recent court ruling may have finally prompted the industry to come up with a definitive solution and at last put an end to the scuffles.

The ruling by the 9th U.S. Circuit Court of Appeals found that Mexican-restaurant chain Naugles Inc. breached the good faith and fair dealing clause in its franchise agreement when it opened a restaurant 1.4 miles away from a Long Beach, California, location owned by franchisee Vylene Enterprises Inc., which eventually went out of business.

Besides awarding Vylene damages of $2.2 million, the court handed franchisees considerable ammunition for future encroachment suits against franchisors. The Vylene case is "probably one of the most significant cases in franchising in the past 25 years," says Erik Wulff, a partner with Washington, DC, law firm Hogan & Hartson, who points out the case will likely set a persuasive precedent even for states outside the 9th Circuit's Western region jurisdiction.