The Franchise Memorandum

In Ron Winter, et al. v. Window Fashions Professionals, Inc., 2008 WL 3845229 (Cal. App. 5 Dist., August 19, 2008), the California Court of Appeals affirmed the trial court’s decision that there was no meeting of the minds on an arbitration clause in a franchise agreement due to a state addendum to the franchisor’s Uniform Franchise Offering Circular (“UFOC”).

Ron Winter and Window Fashions Professionals, Inc. (“WFP”) entered into a franchise agreement that required the parties to submit claims to binding arbitration in Dallas County, Texas and provided that the ...

In Bridge Fund Capital Corporation v. Fastbucks Franchise Corporation, 2008 WL 3876341 (E.D. Cal. Aug. 20, 2008), the court dismissed a franchisor’s motion to dismiss or stay the action pending the outcome of arbitration because it declined to enforce the choice of law, choice of forum, and arbitration clauses in the franchise agreements at issue. This case demonstrates how careful franchisors must be, especially in cases where courts would apply California law, with respect to contractual provisions in franchise agreements that create one-sided legal rights in their favor.

The federal district court in New Jersey has changed its mind and has now confirmed an arbitration award won by a franchisor. Bapu Corp. v. Choice Hotels International, Inc., 2008 WL 4192056 (D.N.J. Sept. 8, 2008). The court’s earlier decision, as reported in Issue 109 of The GPMemorandum, had vacated the award based on the court’s belief that the applicable statute of limitations had expired before the franchisor commenced the arbitration. In reconsidering that decision, the court realized that the statute of limitations evaluation was for the arbitrator, not the court, to ...

In Casual Dining Development, Inc. v. QFA Royalties, LLC, 2008 WL 4186692 (E.D. Wis. Sept. 5, 2008), the plaintiffs, Quiznos franchisees, filed a complaint for declaratory relief related to the Area Director Marketing Agreement between the parties. The plaintiffs sought a declaratory judgment excusing them from their development quota obligations under the development agreement. The plaintiffs argued that their failure to develop additional franchises was the result of unfavorable press and negative customer attitudes toward the franchisor. However, as the Court noted ...

In Jay Bharat Developers, Inc. v. Minidis, 2008 WL 4173626 (Cal. App. 2 Dist. Sept. 11, 2008), the California Court of Appeals this month upheld the trial court’s entry of a preliminary injunction prohibiting a former master franchisee of the Red Brick Pizza franchise system from continuing to display the franchisor’s trademarks after the termination of its franchise rights. The master franchisee sued Red Brick Pizza’s co-founders, alleging that those individuals had fraudulently induced the franchisee to enter its franchise agreement. While that action was pending, Red ...

In Klosek v. American Express Co., 2008 WL 4057534 (D. Minn. Aug. 26, 2008), the United States District Court for the District of Minnesota addressed issues arising from the American Express Company’s decision to spin off its subsidiary, American Express Financial Advisors, and the spin-off‘s subsequent adoption of a new brand name—“Ameriprise”. The plaintiffs, former American Express Financial Advisors (now Ameriprise) franchisees, brought a putative class action asserting claims for breach of contract, breach of the implied covenant of good faith and fair ...

A franchisor’s lawsuit against the operators of two franchises in California was transferred this month to that state despite contractual forum selection clauses that had specified venue in the franchisor’s home state of New Jersey. Elite Sports Enterprises, Inc. v. Lococo, 2008 WL 4192045 (D.N.J. Sept. 5, 2008). Noting that the forum selection clauses “may be considered” in the court’s analysis of a transfer motion, the parties’ choice of venue is “not dispositive,” the New Jersey court held. In this case, the court found more significant that the “operative ...

In Blockbuster, Inc. v. C-Span Entertainment, Inc., 2008 WL 3318882 (Tex. App. Aug. 12, 2008), a Texas Court of Appeals overturned a huge judgment that had been won by a franchisee on breach of warranty, conversion, and fraudulent inducement claims. The provision at issue was a broad release in a transfer agreement, through which agreement the franchisor had been released from all claims by the franchisee.

Sunil Dharod purchased a number of Blockbuster® shops in Tyler, Texas. At closing, Dharod signed the franchise agreement for the shops in his individual capacity. Blockbuster ...

In Pearle Vision, Inc. v. Romm, 2008 WL 4059793 (7th Cir. Sept. 3, 2008), the United States Court of Appeals for the Seventh Circuit reviewed the lower court’s decision holding a former multi-unit franchisee in contempt for failing to comply with a preliminary injunction, and awarding a judgment on the contempt in favor of the plaintiff franchisor in the amount of $321,000. 

The defendant is an optometrist and former franchisee who had operated (by himself and through his companies) four Pearle Vision stores, pursuant to separate franchise agreements. After the plaintiff had ...

The Sixth Circuit Court of Appeals has taken the relatively rare step of vacating an arbitration award on the grounds of “manifest disregard for the law.” In Coffee Beanery, LTD. v. WW, L.L.C., 2008 WL 3838010 (6th Cir. Aug. 8, 2008), an unsuccessful franchisee sued its franchisor alleging, among other claims, fraud, negligent misrepresentation, breach of contract, and violation of several franchise disclosure laws. The franchisor successfully moved to dismiss the court action and compel arbitration, based on the franchise agreement’s arbitration clause. At ...

In Hopkins v. GNC Franchising, Inc., 2008 WL 3845375 (3d Cir. Aug. 19, 2008), the Third Circuit Court of Appeals overturned a Pennsylvania federal court’s decision dismissing a terminated franchisee’s second lawsuit against franchisor GNC for breach of contract and tortious interference with contract. The Third Circuit allowed both claims to proceed against the franchisor.

The district court had found that the terminated franchisee’s claims were barred by the doctrine of issue preclusion, which bars a subsequent action from being decided when there previously has been a ...

A panel of the California Court of Appeals has reversed a summary judgment and award of $270,000 in attorney’s fees that had been won by a franchisor in Gogri v. Jack In The Box, Inc., 166 Cal. App. 4^th 255 (Cal. App. 4 Dist. August 25, 2008). The basis of the reversal was that the plaintiff-franchisee had voluntarily withdrawn his claims prior to the summary judgment ruling. The appellate court found that the voluntary dismissal was timely under California state procedures even though the summary judgment motion had been pending at the time of the franchisee’s withdrawal of claims ...