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The Franchise Memorandum

Posts from January 2008 - Issues 103 + 102.
Posted in Arbitration

In Kayne v. Thomas Kinkade Company, 2007 WL 4287364 (N.D. Cal. Dec. 5, 2007), the court issued another ruling in the long-standing battle between former dealer David Kayne against the Thomas Kinkade Company (“Thomas Kinkade”). Prior to the present action, Thomas Kinkade obtained an arbitration award against Kayne’s Georgia corporation in excess of $631,000. Thomas Kinkade initiated a new action to collect the outstanding balance against Kayne individually under the terms of an Application for Credit and Personal Guaranty he signed. In response, Kayne filed a lawsuit in ...

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Posted in Class Actions

In Quadrel v. GNC Franchising, LLC., 2007 WL 4241839 (W.D. Pa. Nov. 29, 2007), the court considered a motion by current and former GNC franchisees to certify a class action against their franchisor. The plaintiffs alleged that GNC had violated the provisions of a settlement agreement to resolve a previous class action brought in 2001. Under the prior settlement, the franchisor had agreed to take reasonable measures to avoid setting the ultimate discounted retail price on certain sale items below the franchisees’ then-current wholesale price, to not accept royalty on such items ...

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Posted in Procedure

In Super 8 Motels, Inc. v. Deer Lodge Super 8, Inc., 2007 WL 4246454 (D.S.D. Nov. 29, 2007), the franchisor’s default judgment against its franchisee was set aside conditioned upon the franchisee paying the franchisor $15,000 in return for the right to participate in a hearing on whether damages should be awarded to the franchisor. The court also left in place the injunctive portion of the default judgment, ruling that the franchisee can no longer use the franchisor’s trademarks.

Based on the totality of the circumstances and in balancing the policies of prompt and efficient ...

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Posted in Procedure

A federal district court in Louisiana overturned a default judgment in a case that serves as a warning to franchisors who are named in lawsuits that should have been brought (if at all) only against a franchisee. Matthews v. International House of Pancakes, Inc., 2007 WL 4591232 (E.D. La. Dec. 28, 2007), was an employment-law action in which both the franchisee and franchisor were named as defendants. The franchisor failed to file an answer or other response, and the court entered a default judgment against it.

In moving to set aside the judgment, the franchisor argued that it did not ...

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In Schreyer v. Bandag, Inc., No. 05-CV-1235 (D. Minn. Dec. 5, 2007), the employee, Schreyer, was injured while working for the franchisee, Tire Associates, when a tire being retreaded on a piece of equipment exploded because the equipment was not functioning properly. Schreyer, prevented by Minnesota worker’s compensation law from suing the franchisee-employer, brought a claim of negligence against Bandag, the franchisor. Bandag, in turn, brought a third-party complaint for contribution or indemnity against franchisee Tire Associates, the employer. The federal district ...

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Posted in Arbitration

In the Spinks v. Krystal Co., 2007 WL 4568992 (D.S.C. Dec. 20, 2007), a federal court in South Carolina granted franchisor Krystal Company’s motion to compel arbitration. The case highlights the importance of carefully crafting guaranty agreements.

In the spring of 2004, Spinks Investment, Inc. and franchisor Krystal Company entered into franchise agreements for two shops located in South Carolina. Two years later, Spinks Investment closed and abandoned both franchises. Krystal notified Spinks Investment that it had terminated the franchises and that it would submit the ...

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In Loyle v. Hertz Corp., 2007 WL 4555201 (Pa. Super. Ct. Dec. 28, 2007), the plaintiffs rented a vehicle from a Hertz facility located at the international airport in Toronto, Canada after making the reservation by telephone in the United States. Shortly after the plaintiffs returned the vehicle to the Toronto airport, they were detained by police officers for four hours and subjected to a strip and cavity search after Hertz personnel found a loaded handgun in the vehicle. Plaintiffs asserted that the gun did not belong to them and contended that it most likely had been left in the rental ...

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In December 2007, the Sixth Circuit Court of Appeals held that a Michigan district court had improperly denied a franchisor’s request for a preliminary injunction prohibiting its franchisees from competing against the franchisor’s business for a period of two years based upon the franchise agreement’s non-compete clause. Certified Restoration Dry Cleaning Network, L.L.C. v. Tenke Corp., 2007 WL 4372888 (6th Cir. Dec. 17, 2007). The franchisees, citizens of Ohio, had been terminated for failure to pay fees. The franchise agreement contained a post-termination ...

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The United States Bankruptcy Court for the Southern District of Texas recently found the franchisor of Diedrich coffeehouses in breach of the implied covenant of good faith and fair dealing for failing to exercise an option in its master lease that would have allowed plaintiff Magna Cum Latte, a Diedrich franchisee, to continue to sublease from Diedrich the premises of one of Magna’s franchised coffeehouses. Magna Cum Latte, Inc. v. Diedrich Coffee, Inc., et al., 2007 WL 4412143 (Bankr. S.D. Tex Dec. 13, 2007).

Diedrich sold three existing coffeehouses in Houston, Texas to Magna ...

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Posted in Procedure

The United States District Court for the Eastern District of Virginia this month upheld franchise agreement provisions waiving the franchisee’s right to a jury trial and punitive damages claims. Dunkin’ Franchised Restaurants, Inc., et al. v. Manassas Donut, Inc., et al., 2008 WL 110474 (E.D. Va. Jan. 8, 2008). (This was a case handled for the franchisor by Gray Plant Mooty.)

In considering the validity of a jury waiver, the court considered: (1) the parties’ negotiations concerning the waiver provisions; (2) the conspicuousness of the provision in the contract; (3) the ...

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In B & E Juices, Inc. v. Energy Brands, Inc., Bus. Fran. Guide ¶13,748 (D. Conn. Oct. 26, 2007), a federal district court in Connecticut found that a beverage distributor was not a “franchisee” for purposes of the Connecticut Franchise Act. The plaintiff beverage distributor sought a preliminary injunction restraining the defendant manufacturer from terminating a distribution agreement between the parties. B & E asserted that it had a franchise relationship with Energy Brands and that under the Connecticut Franchise Act, a franchisor may only terminate a franchise for good ...

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A federal court in Minnesota has refused to stop the non-renewal of a distributor of coin-operated tire-inflator machines and automobile vacuums in William McCabe v. AIR-Serv Group, LLC, 2007 WL 4591932 (D. Minn. Dec. 28, 2007). The change was part of the manufacturer’s business model shift that had resulted in reducing distributor ranks from 130 down to four. Most of the reduction occurred through non-renewal of distribution agreements at the end of their terms. This distributor’s lawsuit claimed protection under the Minnesota Franchise Act and on other grounds.

In denying ...

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The United States District Court for the Northern District of California recently denied a gas station franchisee’s motion for preliminary injunction against a franchisor in a dispute under the Petroleum Marketing Practices Act. Houtan Petroleum, Inc. v. ConocoPhillips Company, U.S. Dist. LEXIS 86869 (N.D. Cal. Nov. 16, 2007).

Houtan had operated a Union 76 gas station as a Conoco franchisee at the same location for 10 years. While Conoco owned the structures, equipment and improvements at the station, it did not own the station property but instead leased it from a third-party ...

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A dealer named Tri-State Hardware filed a three-count petition in federal court in Missouri alleging that John Deere wrongfully terminated Tri-State’s right to sell the manufacturer’s line of products and services. Tri State Hardware, Inc.  v. John Deere Co., 2007 WL 4287867 (W.D. Mo. Dec. 6, 2007). In support of its claims, Tri-State  submitted a certified public accountant’s opinion on future profits allegedly lost because of the termination. The court generally allowed the affidavit, as there were reasonable disputes between the parties over both assumed facts and ...

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The United States District Court for the District of Oregon recently upheld a temporary restraining order that it had issued at the request of a motorcycle dealership, finding that Oregon’s Motor Vehicle Dealerships Act requires courts to maintain the status quo between a dealership and manufacturer while the court determines whether good cause for termination exists.  Everything Cycles, Inc. v. Yamaha Motor Corp. U.S.A, 2007 U.S. Dist. LEXIS 79396 (D. Or. Oct. 25, 2007). Yamaha’s attempted termination of the dealership arose out of the felony conviction of the ...

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Cole’s Tractor & Equipment, Inc. was both a dealer and distributor for Homier Distributing Company, Inc., which sells and distributes Farm Pro tractors, implements, tools, small engines, and related products. Homier sent a notice of termination to Cole due to Cole’s alleged failure to actively develop its territory and its severely declining sales performance.The notice specified that Cole had not, however, lost its “status as a dealer of Homier Farm Pro product lines.” Cole sued Homier in federal court, alleging that Homier had impermissibly contacted the dealerships ...

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The United States District Court for the District of Minnesota recently denied a distributor’s motion for a preliminary injunction, relying on two conclusions of law favorable to the manufacturer defendant.  In Coyne’s & Company v. Enesco, 2007 U.S. Dist LEXIS 79003 (D. Minn. Oct. 12, 2007), the plaintiff had been granted the exclusive rights to distribute the defendant’s product line in the United States and Mexico, in exchange for a 50 percent markup on the products. Plaintiff sued for a preliminary injunction when it appeared the defendant would begin distributing its ...

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Posted in Antitrust

For as long as anyone alive today can remember, federal antitrust law has prohibited suppliers from setting minimum resale prices based on a century-old precedent. Last summer, the United States Supreme Court, in Leegin v. Creative Leather Products, Inc., 2007 WL 1835892 (U.S. June 28, 2007), reversed that long-standing precedent, ruling that all such agreements are now subject to the “rule of reason,” a method of analysis under which the claimant must make the difficult showing that the arrangement harms competition substantially in the market as a whole. This decision is ...

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Posted in Antitrust

For the first time in over a decade, the Supreme Court in early 2006 addressed Robinson-Patman Act standards for price discrimination in Volvo Trucks North America, Inc. v. Reeder-Simco GMC, Inc., 2006 WL 43971 (U.S. Jan. 10, 2006). The decision came in the context of a dealership dispute. A key fact in this case was that Volvo Trucks North America, the defendant at trial, had, like many companies, decided to reduce its dealership ranks so that each dealer would serve a larger market. With that common backdrop, the plaintiff convinced a jury that Volvo Trucks had discriminated against ...

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About this Publication

The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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