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The Franchise Memorandum

Posts from January 2009 - Issue 115.
Posted in Arbitration

In Bencharsky v. Cottman Transmission Systems, LLC, 2008 WL 5411500 (N.D. Cal. Dec. 29, 2008), the United States District Court for the Northern District of California enforced an arbitration clause in a franchise agreement, but with some significant limitations. The franchisee had filed the lawsuit alleging breach of contract, fraud, negligent misrepresentation, interference with contract, and violation of the California Franchise Investment Law (CFIL). The factual basis for the action was that, among other things, the franchisor had refused to renew the franchise ...

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Posted in RICO

In HT of Highlands Ranch, Inc. v. Hollywood Tanning Systems, Inc., 2008 WL 5109745 (D. N.J. Dec. 1, 2008), four unrelated franchisees joined together to sue their system’s franchisor and its related entities, setting forth several causes of action, including a claim under the Racketeer Influenced and Corrupt Organizations Act (RICO). The plaintiffs’ RICO claim was based on their allegation that the franchisor fraudulently created vague equipment leases, which it then used as a basis to invoice the plaintiffs for equipment that did not exist or for used equipment that was ...

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Posted in Damages

In Howard Johnson Int’l., Inc. v. Inn Development, Inc., 2008 WL 5378247 (D.S.D. Dec. 22, 2008), the court granted summary judgment to a plaintiff franchisor on its claim brought under a personal guaranty signed by the corporate franchisee’s principals. Howard Johnson had terminated the franchisee’s license agreement for failure to comply with quality standards. The franchisee’s principals had signed a personal guaranty by which they promised to pay all amounts owed under the license agreement. The parties also executed an addendum that replaced a liquidated damages ...

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What started as a routine post-termination injunction case brought by a franchisor turned into a more fundamental dispute when a franchisor terminated the franchise agreements of two of its franchisees for non-payment of royalties and other fees in Dunkin’ Donuts Franchised Restaurants LLC v. Shrijee Investment, Inc., 2008 WL 5384077 (E.D. Mich. Dec. 23, 2008). Dunkin’ Donuts, represented by Gray Plant Mooty, began the case by suing the franchisees for their continued use of Dunkin’ trademarks after termination. The franchisees, in turn, sued Dunkin’ for allegedly ...

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Posted in Arbitration

A Pennsylvania federal court has confirmed an arbitrator’s award for the franchisor despite one of the co-franchisees’ claims that he did not receive notice of the arbitration. In AAMCO Transmissions, Inc. v. Sally, 2008 WL 5272449 (E.D. Pa. Dec. 17, 2008), two individuals signed the franchise agreement together, but one franchisee left the day-to-day business operations entirely to his co-franchisee son-in-law. Soon thereafter, AAMCO discovered that the franchisees collectively had underreported sales and committed other breaches of the franchise agreement ...

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Posted in Procedure

In AAMCO Transmissions, Inc. v. Baker, 2008 WL 5245768 (E.D. Pa. Dec. 16, 2008), 2008 WL 5272781 (E.D. Pa. Dec. 18, 2008), and 2008 WL 5412026 (E.D. Pa. Dec. 24, 2008), a federal district court in Pennsylvania handed down three decisions concerning pretrial motions filed by the parties. The case arose following the termination of Baker’s franchise in Tallahassee, Florida, after an investigation by AAMCO showed that Baker was not dealing with the public fairly and honestly. Baker filed counterclaims against AAMCO for, among other things, breach of contract and intentional ...

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Posted in Procedure

In Brunet v. Quizno’s Franchise Company LLC, 2008 WL 5378140 (D. Colo. Dec. 23, 2008), a United States Magistrate Judge for the District of Colorado issued a discovery ruling notable for its requirement that the plaintiff-franchisees create a detailed list of particular statements they claim were made by the defendant-franchisor before the franchisor would be required to produce a corporate representative to testify regarding the statements. The franchisees had demanded that the franchisor produce the corporate representative(s) most knowledgeable regarding “all ...

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Posted in Identity Theft

The new federal “Red Flags Rule” requires certain businesses to establish written programs to detect, identify and respond to signs of possible identity theft. The rule is aimed at reducing identity theft by making it more difficult for identity thieves to use stolen identity information to purchase goods or services. The Federal Trade Commission will begin enforcing this new rule on May 1, 2009.

Franchisors and the Red Flags Rule. The Red Flags Rule applies to “creditors” with “covered accounts.” Franchisors are considered “creditors” under the rule if they ...

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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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