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The Franchise Memorandum

Posts from December 2008 - Issue 114.
Posted in Arbitration

In Coffee Beanery, Ltd. v. WW, L.L.C., 2008 WL 4899478 (6th Cir. Nov. 14, 2008), the United States Court of Appeals for the Sixth Circuit vacated an arbitration award that had been entered in favor of franchisor Coffee Beanery, Ltd., as the appeals court held that the arbitrator manifestly disregarded the law. The court concluded that the United States Supreme Court’s recent decision in Hall Street Assocs., L.L.C. v. Mattel, Inc., 128 S. Ct. 1396 (2008), did not limit the review of arbitration awards under the well-established “manifest disregard” standard. That standard ...

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In SDMS, Inc. v. Rocky Mountain Chocolate Factory Inc., 2008 WL 4838557 (S.D. Cal. Nov. 6, 2008), the United States District Court for the Southern District of California considered claims brought by terminated franchisees under the California Unfair Business Practices and Unfair Competition Acts. The franchisees alleged that the sale of products by Rocky Mountain to discount retail outlets such as, without disclosure to the franchisees prior to execution of the franchise agreement, violated their rights under the California statutes. At the outset the court ...

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In It’s Just Lunch International LLC. v. Island Park Enterprise Group, Inc., 2008 WL 4683637 (C.D. Cal. Oct. 21, 2008), a federal district court in California decided not to enforce a Nevada choice of law provision set forth in the franchise agreement in the face of a franchisee’s counterclaims under the California Franchise Investment Law (CFIL) and the New York Franchise Sales Act (NYFSA). This case shows the difficultly franchisors have in enforcing choice of law provisions as to claims brought by franchisees under the CFIL and NYFSA – especially where the franchisors ...

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In Sunshine Restaurant Partners, L.P. v. Shivshakti One, Inc., 2008 WL 2809096 (S.D. Fla. Nov. 5, 2008), the United States District Court for the Southern District of Florida granted an International House of Pancakes subfranchisor’s motion to dismiss a franchisee’s claim for breach of the covenant of good faith and fair dealing regarding the construction of a new location in a site the franchisee wanted, finding the construction fell in line with the contract between the parties. However, the court denied the subfranchisor’s motion to dismiss the contract claim, finding ...

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A recent decision by the United States District Court for the Southern District of Indiana addressed a novel argument by a terminated franchisee to justify its continued use of its franchisor’s trademark. In Country Inns & Suites by Carlson, Inc. v. Nayan, LLC, 2008 WL 4735267 (S.D. Ind. Oct. 28, 2008), CIS had terminated the franchisee for failure to pay amounts owed under its license agreement. When the franchisee continued to operate using CIS trademarks, CIS brought suit. Gray Plant Mooty represented the franchisor.

The franchisee conceded that CIS was likely to succeed on the ...

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Posted in Antitrust

The United States District Court for the District of Connecticut recently dismissed the third amended complaint of a convenience store franchisee who challenged the franchise system’s primary merchandise vendor for alleged violations of federal and state antitrust laws and the Connecticut Unfair Trade Practices Act. Bansavich v. McLane Co., Inc., No. 3:07cv702 (D. Conn. Oct. 31, 2008). Plaintiff Bansavich, a Mobil on the Run franchisee, challenged the requirement that franchisees participating in the system’s “Exclusive Product Program” purchase certain ...

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On October 27, 2008, the United States District Court for the Northern District of Georgia decided a trilogy of virtually identical cases, Moe Dreams, LLC, et al. v. Sprock, et al., 2008 WL 4787493 (N.D. Ga. 2008), Peterson, et al. v. Sprock, et al., 2008 WL 4787351 (N.D. Ga. 2008), and Massey, Inc., et al. v. Moe’s Southwest Grill, LLC, et al., 2008 WL 4767788 (N.D. Ga. 2008), in which it addressed civil RICO claims, fraud claims and claims under the Robinson-Patman Act. In all three cases, the plaintiffs—comprised primarily of investors and franchisees—initiated an action for ...

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Posted in Damages

In the latest rejection of the doctrine first announced by the California Court of Appeals in PIP v. Sealy, the Texas Court of Appeals has awarded a franchisor its lost future profits suffered as a result of a franchisee’s breach of contract. In Progressive Child Care Systems, Inc. v. Kids ‘R’ Kids International, Inc., 2008 WL 4831339 (Tex. Ct. App. Nov. 6, 2008), a franchisee breached its franchise agreements, leading the franchisor to terminate them. The franchisor then brought suit to recover past due fees as well as fees owed for the remainder of the agreements’ terms.

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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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