Hi Mike
Not a direct answer but....
Yes it does happen and sometimes the franchisee is pursued.
As a Franchisor (same applies to employers, contractors etc) you have a few options, two legal ones are...
Seek an injunction in accordance with your contract which should contain a "fair" non competing clause restricting the franchisee from operating for a set period with a set geographical area
Seek damages for loss of earnings
There is obviously an element of time and cost involved in taking either action whether it is worthwhile remains a personal decision.
In order to expand you would need to choose a course of action be it franchising, employment or contracting, regardless of the chosen route you will be faced with the same dilemma, I am not aware of any system that is full proof, you need to make your decision and hang on for a bumpy ride!