The Franchise Memorandum

In Ganezer, et al. v. DirectBuy, Inc, et al., 2009 WL 363908 (C.D. Cal. Feb. 11, 2009), a California federal court granted the plaintiffs’ motion to remand the case back to state court. The plaintiffs had filed a class action suit in California state court against DirectBuy, a franchisor of outlets marketing a direct-buying service to the public through club membership programs. DirectBuy removed the action to federal court under the provisions of the Class Action Fairness Act (CAFA). The plaintiffs moved to remand to state court claiming that the CAFA amount in controversy and ...

In Sherman Street Associates, LLC v. JTH Tax, Inc., 2009 WL 426469 (D. Conn. Feb. 20, 2009), a Connecticut federal court considered dueling summary judgment motions from the terminated former franchisee-plaintiff and franchisor-defendant, JTH Tax, Inc. (doing business as Liberty Tax Service). The case came about after the franchisor terminated the franchise agreement for underpayment of fees and failure to pay on a promissory note, among other alleged violations. The franchisee’s lawsuit claimed wrongful termination in violation of the Connecticut Franchise Act (CFA) and ...

In Homes & Land Affiliates, LLC v. Homes & Loans Magazine, LLC, 2009 WL 260992 (M.D. Fla. Feb. 4, 2009), the court granted a franchisor partial summary judgment against one of its competitors on claims of trademark infringement. In this case, the franchisor published Homes & Land, a free magazine containing real estate advertisements found in display racks, which the franchisor licensed to franchisees in several markets across the country. The franchisor owned a federal registration of its mark HOMES & LAND®, which it first used in commerce in 1973, and also owned a domain name ...

In Elbanna v. Captain D’s, LLC, 2009 WL 435051 (M.D. Fla. Feb. 17, 2009), a prospective franchisee brought suit against a franchisor, alleging he was rejected from the system because he was Arab, and also claiming Captain D’s defamed him throughout the application process. Elbanna had been operating several Shoney’s franchises when he approached Captain D’s about opening one of its restaurants. Although his application was initially approved, the parties were unable to agree on a location. Two years later, Elbanna again approached Captain D’s about buying several ...

Despite the present uncertainty over the EFCA’s ultimate form, union-free employers should consider actions that can be taken now to keep their operations union free. Following are just two examples of many such possible action steps.

Adopt an Internal Position Statement on Unions and Labor Relations. To help focus your business on the issue of unions and guide development of its labor relations strategy, it may be useful to develop an internal position statement on these matters. This statement could subsequently be modified as needed for communications with management and ...

The union-backed and much-talked-about Employee Free Choice Act (EFCA) was introduced in Congress on March 10, 2009. The legislative fight over the EFCA will begin soon. In the meantime, franchisors and other employers should ensure that they are familiar with the requirements and ramifications of the new law, that they contact their representatives in Congress to express their views, and that they begin taking lawful steps to prevent unionization, which will help whether or not the EFCA becomes law.

In Rocky Mountain Chocolate Factory, Inc. v. SDMS, Inc., 2009 WL 579516 (D. Col. Mar. 4, 2009), a Colorado federal court this month denied a franchisor’s claim for future royalties after termination of the franchise. This case shows that, although future royalties may be claimed under certain states’ laws, a franchisor must still prove that they are certain. The parties in this case entered into a franchise agreement for a franchise in San Diego. From the beginning, the franchisees operated at a loss. They were defaulted several times for failure to comply with the franchisor’s ...

A Pennsylvania federal court has confirmed an arbitrator’s dismissal of a counterclaim brought by a California franchisee under the California Franchise Investment Law (CFIL) and enforced a covenant not to compete despite the fact that California law disfavors such provisions. Paul Green School of Rock Music Franchising, LLC v. Smith, 2009 WL 426175 (E.D. Pa. Feb. 17, 2009). The franchisee in this case had operated a music lesson franchise in California under an agreement that contained Pennsylvania choice of law and venue provisions. The franchisor began the case by filing an ...

In Vaden v. Discover Bank, et al., No. 07-773 (U.S. Sup. Ct. March 9, 2009), the United States Supreme Court held last week that under the Federal Arbitration Act (FAA), the district court is to “look through” a petition to compel arbitration to determine whether the underlying claim states a federal question that would allow for removal of the case from state court to federal court. As part of its holding, the Court noted that the FAA does not itself confer subject matter jurisdiction and such jurisdiction does not arise because of the content of a counterclaim, much like the ...

Card Check Recognition Without Secret Balloting. The EFCA would amend the National Labor Relations Act in numerous significant respects. The most troublesome provision for employers and the one receiving a lot of media attention is the abolishment of the right to a “secret ballot” election process by which employees decide if they will be represented by a union. The EFCA seeks to change existing procedure by eliminating an employer’s right to a secret ballot election before requiring the employer to accept unionization of its workforce. The law would require employers to ...