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The Franchise Memorandum

Posts from June 2009 - Issue 120.
Posted in Bankruptcy

A bankruptcy court in North Carolina has refused to apply the automatic stay in bankruptcy to agreements that were never formally transferred to the would-be franchisee corporation. In re KVS Foodsystems, LLC, 2009 WL 1241272 (Bankr. E.D.N.C. April 29, 2009). Subway’s parent company, Doctor’s Associates, had entered into a franchise relationship and sublease agreement for two Subway stores with an individual named Vitus Bradshaw. Bradshaw then formed KVS Foodsystems, LLC (KVS), to operate his two stores, but he never transferred the rights or obligations of the franchise ...

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Posted in Damages

In Medicine Shoppe International, Inc. v. Turner Investments, Inc., 2009 WL 1295978 (E.D. Mo. May 7,  2009), the district court confirmed a $475,000 arbitration award in favor of the franchisor, Medicine Shoppe International (MSI). The American Arbitration Association had ruled that MSI was entitled to its past-due license fees, attorneys’ fees and costs, and future licensing fees due to the franchisee’s decision to close the franchise 13 years into the 20-year franchise term. 

Turner Investments moved to vacate the award, arguing that the arbitrator disregarded the law by ...

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Posted in Damages

The Sixth Circuit in Krowtoh II LLC v. Excelsius Int’l Ltd., No. 08-5492 (6th Cir. May 19, 2009), overturned a district court’s opinion that had defaulted franchisees for their failure to find counsel, timely appear at a court hearing, and comply with discovery. The district court had awarded the franchisor damages in the amount of $781,226.00, but that judgment to the franchisor failed to withstand appeal. 

This case began when the franchisees terminated the relationship after two years of operation. The franchisor sued for breach of contract, misappropriation of trade ...

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On May 18, 2009, the FTC posted five new Frequently Asked Questions on its website (FAQs 29-33). All 33 FAQs and the FTC staff’s respective responses can be found at The release of the new FAQs occurred on the same day that Craig Tregillus, FTC Franchise Rule Coordinator, participated in an “Ask the Regulators” session at the International Franchise Association’s 42nd Annual Legal Symposium. Consequently, Mr. Tregillus was able to give those in attendance a first-hand introduction to these important new ...

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An Illinois federal district court recently dismissed a motion for class certification arising out of the plaintiffs’ claim that they were deceived about the ingredients in McDonald’s french fries and hash browns. In re McDonald’s French Fries Litig., 2009 WL 1286024 (N.D. Ill. May 6, 2009). The plaintiffs had claimed that McDonald’s falsely stated that its potato products were gluten, wheat, and dairy-free (i.e., “allergen free”) through its Web site and literature available at McDonald’s restaurants. The plaintiffs further alleged that they purchased these ...

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Following its adoption of the 2008 Franchise Registration and Disclosure Guidelines in June 2008, the North American Securities Administrators Association, Inc. (NASAA) released a proposed Commentary to those guidelines and accepted comments to the same until October 23, 2008. After reviewing and analyzing the comments it received, NASAA on April 27, 2009, adopted a final version of the Commentary, a copy of which can be obtained at While NASAA made some minor revisions and clarifications to the proposed ...

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Posted in Damages

In a case litigated by Gray Plant Mooty, the Eleventh Circuit Court of Appeals last month affirmed the grant of summary judgment to a franchisor seeking recovery of liquidated damages owed under a hotel franchise agreement. In Country Inns & Suites by Carlson, Inc. v. Interstate Properties, LLC, 2009 WL 1298401 (11th Cir. May 12, 2009), the court of appeals considered the franchisee’s arguments that the liquidated damages clause at issue could not be enforced because it did not take into account the amount of time remaining on the franchise agreement in calculating liquidated ...

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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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