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The Franchise Memorandum

Posts from May 2009 - Issue 119.
Posted in Arbitration

In U-Save Auto Rental of America, Inc. v. Furlo, 2009 WL 901922 (S.D. Miss. Mar. 31, 2009), a Mississippi federal district court denied a franchisee’s motion to set aside the judgment and dismiss franchisor U-Save’s suit to confirm the arbitration award based upon lack of subject matter jurisdiction. In reaching its decision, and finding that it had jurisdiction over U-Save’s suit to confirm the award, the court held that the amount in controversy in U-Save’s suit should be determined based on the amount the franchisee demanded in the underlying complaint rather than the ...

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In a blow to plaintiffs seeking to sue U.S. franchisors in a domestic forum for injuries allegedly incurred at franchised locations outside of the U.S., an Illinois federal court dismissed a lawsuit arising out of the death of an Illinois resident at a franchised hotel in Mexico. In Wozniak v. Wyndham Hotels and Resorts, LLC, 2009 WL 901134 (N.D. Ill. Mar. 31, 2009), an Illinois federal court granted the defendant franchisor’s motion to dismiss under the doctrine of forum non conveniens. The case arose when plaintiff and her husband, who were from Illinois, stayed at a Wyndham hotel ...

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In I’mnaedaft, LTD v. The Intelligent Office System, LLC, 2009 WL 1011200 (D. Colo. Apr. 15, 2009), the plaintiff, a former franchisee of Intelligent Office Systems (“IOS”), requested a court order preventing IOS from interfering with subpoenas that the plaintiff had issued to several of IOS’ franchisees. As part of the request, the plaintiff also sought a “no contact” order preventing IOS from having any further contact with non-party franchisees.

The court denied the plaintiff’s request and determined that IOS did not interfere with the subpoenas or tamper with ...

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Posted in Terminations

In a case that further buttresses the termination rights of franchisors, both a bankruptcy and federal district court upheld such rights despite the fact that more than seven months passed between the date the franchisees had received their notices of termination and the date the franchisor announced that it would seek to enforce them. The franchisee at issue in In re Making the Dough, Inc., 2009 WL 975170 (Bkrtcy. M.D. Pa. Mar. 27, 2009), and Domino’s Pizza Franchising LLC v. Making the Dough, Inc., 2009 WL 1011584 (M.D. Pa. Apr. 15, 2009), owned two pizza franchisees near ...

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Posted in Antitrust

An Ohio federal court recently dismissed a franchisee’s claim against its franchisor for illegal tying in violation of Section 1 of the Sherman Act. Arnold v. Petland, Inc., No. 2:07-cv-01307 (S.D. Ohio Mar. 26, 2009). The Arnolds, owners of a failed Petland franchise, claimed, after being supplied with sick puppies and stale pet food, that Petland illegally tied the purchase of puppies and pet food from Petland’s preferred supplier to the ownership of the Petland franchise. Noting that dismissal of a tying claim is appropriate where a plaintiff has improperly limited its ...

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Posted in Antitrust

In an opinion issued four days after the Petland decision, an Illinois federal court denied Harley Davidson, Inc.’s motion to dismiss the tying claim of an independent manufacturer of plastic merchandise bags. Packaging Supplies, Inc. v. Harley-Davidson, Inc., No. 08-cv-400 (N.D. Ill. Mar. 30, 2009). Whereas the court in Petland focused upon the existence of market power in the market for the tying product, the Packaging Supplies court evaluated whether the plaintiff had properly alleged that the defendant possessed market power in the market for the tied product.

Packaging ...

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In Allan Rand and Iron Horse Venture Group, Inc. v. CM Franchise Sys., Inc., 2009 WL 667227 (Wash. Ct. App. Mar. 16, 2009), a Washington appellate court affirmed a decision that Rand’s fraud claims were barred by the statute of limitations. In June 2003, Rand and CM Franchise Systems, Inc. entered into a subfranchise agreement for certain territories in Washington and Oregon. CM was not registered in Washington when the agreement was executed. Rand’s business subsequently failed and, in March 2007, he sued CM seeking rescission of the agreement and damages. In particular, Rand ...

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Posted in Contracts

In Honey Dew Assoc. v. Creighton Muscato Enter., Inc., 73 Mass. App. Ct. 846 (Mass. App. Ct. Mar. 23, 2009), the Massachusetts Court of Appeals vacated a judgment against a franchisee for failing to pay advertising fees. The Court found that by signing a newer franchise agreement with an ad fee clause in it, the corporate franchisee had not agreed to pay ad fees for all of its owner’s earlier established locations in the name of other commonly-owned entities.

Specifically, franchisor Honey Dew added a provision in its franchise agreement that the franchisee agreed to contribute to an ...

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Posted in Class Actions

In an important decision upholding a contractual prohibition of collective actions, a Colorado federal court last month refused to certify a class of franchisees in Bonanno v. Quiznos Franchise Co., 2009 WL 1068744 (D. Colo. Apr. 20, 2009). This ruling was based on language in the franchise agreement that a franchisee’s claim “may not be consolidated with another proceeding between Franchisor and any other entity or person.” The court found this clause an effective bar to the proposed class action fraud challenge to the franchisor’s practices for selling Quiznos ...

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Posted in Terminations

In Guesthouse Int’l Franchise Sys., Inc. v. British Am. Properties, 2009 WL 792570 (M.D. Tenn. Mar. 23, 2009), a Tennessee federal court awarded franchisor Sumner Ventures, Inc. (formerly Guesthouse International) $82,651.95 in attorneys’ fees and costs as well as damages in the amount of $358,708.28 on its claims that the franchisee had breached the parties’ hotel franchise. As reported in Issue No. 116 of The GPMemorandum, the court granted in part the franchisor’s motion for summary judgment on its claims that the franchisee had breached the agreement in failing to ...

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Posted in Contracts

Real estate franchisor Cendant Corporation has prevailed against a variety of claims arising out of a prospective subfranchise arrangement in Greece.  Katsiavrias v. Cendant Corp., 2009 WL 872172 (D.N.J. Mar. 30, 2009). A prospective franchisee sued Cendant after not receiving exclusive subfranchise rights to Greece. Earlier, after sending a letter of intent to the potential subfranchisee, Cendant had heard nothing. It then went so far as to inform the party of a competing offer for the subfranchising rights before signing with another company. In evaluating Cendant’s ...

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Posted in Contracts

A recent decision illustrates the importance of carefully describing the bounds of a protected territory in a franchise agreement. In Ingraham v. Planet Beach Franchising Corp., 2009 WL 909567 (E.D. La. Apr. 1, 2009), the franchisee opened a Planet Beach tanning salon in a suburb of Philadelphia. The franchise agreement prohibited Planet Beach from establishing another franchise within the protected territory, defined as “Philadelphia, PA 30,000 in Population.”  When Planet Beach established another franchise within five miles of the plaintiffs’ location, the ...

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“Social media” refers to online tools or Web sites that allow interaction between the Web site operator and Web site users, or among users, and usually permit user-generated content to be posted. Examples of social media include Facebook, Twitter, YouTube, LinkedIn, blogs and other interactive Web sites. Social media can be a valuable tool for marketing purposes but can also create serious headaches for franchisors when it comes to maintaining brand integrity. Recent examples have shown that the damage to a brand from an employee with poor judgment and a video camera can ...

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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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