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The Franchise Memorandum

Posts from June 2008 - Issue 108.

It has now been well over a year since the Federal Trade Commission released its amended FTC Franchise Rule (“Amended Rule”) in January 2007. At this point, it is fair to assume that most franchisors have already converted their UFOCs to the new Franchise Disclosure Document format under the Amended Rule and have addressed, or are in the process of addressing, comments received from state franchise examiners. No doubt, however, there are other franchisors who are racing to meet the fast-approaching July 1 conversion deadline. After this deadline, franchisors may only use FDDs to ...

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A California appellate court ruled late last month that United Parcel Service (“UPS) and Mail Boxes Etc., Inc. (“MBE”) should not have prevailed on summary judgment on some of the franchisee claims brought against them after UPS acquired MBE. G.I. McDougal, Inc., et. al. v. Mail Boxes Etc., Inc. et al., 2008 WL 2152911 (Cal. App. 2 Dist. May 23, 2008). The essence of the plaintiffs’ 33-count complaint is that MBE franchisees were harmed by the 2001 acquisition and the alleged subsequent emphasis on “The UPS Store” units. The trial court granted the defendants’ summary ...

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In PuroSystems, Inc. v. John Fralc (In re Fralc), 2008 WL 1932311 (Bankr. D. Ariz. April 28, 2008), PuroSystems made a motion to the bankruptcy court seeking relief from the automatic stay in order to enforce injunctive relief, granted through arbitration, against its former franchisee. The bankruptcy court granted PuroSystems’ motion for relief from the automatic stay so that it could seek confirmation of its arbitration award in federal district court.

In 2006, PuroSystems terminated John Fralc after he failed to pay royalties due under the franchise agreement. Following ...

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Posted in Damages

In Meineke Car Care Centers, Inc. v. L.A.C. 1603 LLC, et al., 2008 WL 1840779 (W.D.N.C. April 23, 2008), the federal court in the Western District of North Carolina declined to grant franchisor Meineke lost prospective fees due to the early termination of the franchise. Meineke originally terminated the franchise for failure to pay fees, then sued the former franchisee to recover unpaid fees and lost prospective fees for three years. Meineke was awarded over $100,000 for past-dues fees, but did not fare as well on the claim for prospective fees.

The court held that Meineke’s claim ...

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In Allen v. Choice Hotels Intern., Inc., 2008 WL 1925110 (4th Cir. May 1, 2008), the United States District Court for the District of South Carolina had granted summary judgment in favor of defendant franchisor on a negligence claim asserting both direct and vicarious liability in a case involving a deadly fire at a Comfort Inn and Suites facility. The fire killed six hotel guests and injured twelve others. The plaintiffs filed suit against franchisor, alleging that Choice failed to exercise due care by not requiring the franchisee to retrofit the hotel with sprinklers. The district ...

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Posted in Arbitration

In Jimmy John’s Franchise, LLC v. Kelsey, 2008 WL 1722188 (C.D. Ill. Apr. 10, 2008), Jimmy John’s sought to vacate an arbitration award on the ground that the arbitrator had exceeded his authority under the Federal Arbitration Act and had disregarded the law in awarding damages to the franchisee’s guarantor. More specifically, Jimmy John’s argued that the arbitrator either did not read the agreement in dispute between the parties or disregarded the agreement entirely and implemented his notion of what was fair and reasonable.

In denying Jimmy John’s motion, an Illinois ...

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In Emfore Corp. v. Blimpie Associates, Ltd., 2008 WL 1946657 (N.Y.A.D. 1 Dep. May. 6, 2008), the court recalled and vacated its December 20, 2007, order in which it had held that disclaimers in questionnaires do not bar franchisee claims for fraud under the New York Franchise Act. The court, however, did not change the holding of its original order. Under New York’s Franchise Act, it is unlawful for a franchisor to require a franchisee to waive any duty or liability imposed on the franchisor by the Act. The questionnaire at issue asked the franchisee, among other things, to affirm that ...

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Posted in Arbitration

Two more courts have weighed in on the unconscionability of arbitration clauses. In Sammy Enterprises v. O.P.E.N. America, Inc., 2008 WL 2010357 (Wash. App. Div. 1 May 12, 2008), the Washington Court of Appeals upheld enforcement of an arbitration provision despite the franchisee’s challenge. And in Smith v. Paul Green School of Rock Music Franchising, LLC., 2008 WL 2037721 (C.D. Cal. May 5, 2008), a federal district court in California refused a California franchisee’s request to stop an arbitration from being conducted in Pennsylvania, the home state of the franchisor.

In ...

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Posted in Food Safety

A produce supplier breached its contractual obligation to name Wendy’s International, Inc. as an insured party, according to a Utah federal court in Cohron v. Wendy’s International, Inc., 2008 WL 2149386 (D. Utah. May 20, 2008). The case arose out of a personal-injury claim alleged to stem from contaminated lettuce provided by the supplier. Wendy’s filed a third-party claim and sought summary judgment against the produce supplier.

One issue raised by the supplier was whether Wendy’s waived the right to be named as an additional insured. The supplier’s theory was that ...

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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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