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The Franchise Memorandum

Posts from August 2009 - Issue 122.

In Sound Security, Inc. v. Sonitrol Corp., 2009 WL 1835653 (W.D. Wash. June 26, 2009), franchisor Sonitrol served nonparty discovery requests on the Sonitrol National Dealers Association (“SNDA”), an association of Sonitrol franchisees. SNDA moved the court for an order shifting the costs of complying with those discovery requests to Sonitrol, arguing that as a nonparty to the litigation, it should not be required to bear the cost of responding. The court denied that motion and ordered SNDA to bear its own costs and attorneys’ fees.

The court found that Sonitrol’s ...

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In Cold Stone Creamery, Inc. v. Lenora Foods I, LLC, 2009 WL 1532736 (11th Cir. June 3, 2009), the Eleventh Circuit Court of Appeals affirmed a decision dismissing franchisee Lenora’s counterclaims against Cold Stone Creamery, Inc. under the Florida Franchise Act and the Florida Deceptive and Unfair Trade Practices Act. The court dismissed these claims due, in part, to specific statements in Cold Stone’s franchise documents encouraging franchisees to conduct independent investigations before purchasing a franchise and notifying franchisees of the risks in purchasing a ...

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The United States Court of Appeals for the Eleventh Circuit recently affirmed summary judgment in favor of Burger King Corporation in a case arising out of its termination of multiple franchise agreements based on a franchisee’s refusal to implement the Burger King “Value Menu.” In Burger King Corporation v. E-Z Eating, 41 Corporation, 2009 WL 1856744 (11th Cir. June 30, 2009), a franchisee with four financially distressed Burger King locations in New York City refused to implement Burger King’s required menu or to submit a written application to be excused from the ...

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Posted in Terminations

A Florida federal court recently granted an injunction to franchisor Dunkin’ Donuts for the franchisee’s failure to pay franchise and advertising fees and to comply with the post-termination provisions of the franchise agreements.  The case is Dunkin’ Donuts Franchised Rest. LLC v. KEV Enter., Inc., 2009 WL 1587983 (M.D. Fla. June 5, 2009). At issue was whether the franchisor had waived the right to terminate based on nonpayment. The franchisee contended that Dunkin’ Donuts tolerated late payment and therefore waived the right to terminate it on those grounds. The court ...

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Posted in Noncompetes

In Atlanta Bread Company Int’l, Inc. v. Lupton-Smith, 2009 WL1834215 (Ga. June 29, 2009), the Georgia Supreme Court held that in-term and post-term covenants against competition in franchise agreements are subject to a strict scrutiny standard of review, rendering them more difficult to enforce in Georgia. In this case, the franchise agreements between Atlanta Bread Company International, Inc. (“ABCI”) and the franchisee prohibited the franchisee from owning or engaging in any “bakery/deli business whose method of operation is similar to that employed by store units ...

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Posted in Terminations

In Ramada Worldwide, Inc. v. RIP Management Group Corp., 2009 WL 1810733 (D.N.J. June 25, 2009), Ramada terminated the franchise agreement after the franchisees failed to cure certain quality assurance defaults. The franchisees argued that the termination was wrongful and that Ramada “unfairly and inconsistently” conducted the quality assurance inspections with the intention of defaulting them in breach of the covenant of good faith and fair dealing under New Jersey law.

On Ramada’s motion for summary judgment, the court held that the express terms of the franchise ...

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As reported in our last issue of The GPMemorandum, New York recently enacted a new tax law that imposes unprecedented new reporting requirements on franchisors that have at least one franchisee in New York that is required to collect sales tax. To provide further detail as to these reporting requirements, on July 7, 2009, the New York Department of Taxation and Finance issued an informational statement titled “New Requirement for the Filing of Information Returns for Franchisors”. This document is available at In reaction to the new law, on July 20, 2009, IFA ...

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After three years of difficult litigation across the country, a United States Magistrate Judge in Pennsylvania once again has dissected Quiznos’ ongoing franchise battle in Martrano v. Quiznos Franchise Co., 2009 WL 1704469 (W.D. Pa. June 15, 2009). In analyzing Quiznos’ motion to dismiss, the Pennsylvania court issued a decision with heavy citation to a Wisconsin court’s treatment of a similar Quiznos motion to dismiss in Westerfield v. Quizno’s Franchise Co., LLC (see Issue 101 of The GPMemorandum). The Pennsylvania court then dismissed only the franchisees’ ...

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Posted in Terminations

The Sixth Circuit recently affirmed a summary judgment ruling by an Ohio federal district court in favor of plaintiff Wendy’s International, Inc. on all claims brought against it by a franchisee. Wendy’s International, Inc. v. Saverin, 2009 WL 2018163 (6th Cir. July 9, 2009). The franchisee operated 42 stores in Missouri and Illinois. In 2006, the franchisee began defaulting on its financial obligations, leading Wendy’s to terminate three of its franchise agreements. The parties subsequently reinstated the franchises through a reinstatement agreement that required the ...

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Posted in Arbitration

The Eighth Circuit last month held that a supplier could not compel arbitration of a dealer’s cross-claim against it under the arbitration clause of the dealer agreement because the supplier was not a party to that agreement. In so ruling, the Eighth Circuit reversed the district court, which had found that arbitration could be compelled. The appellate decision is Donaldson Co., Inc. v. Burroughs Diesel, Inc., No. 08-2705 (8th Cir. July 20, 2009).

The supplier argued that although it was not a party to the dealer agreement, arbitration was required because the dealer’s claim was ...

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As we previously discussed in Issue No. 115 of The GPMemorandum (January 21, 2009), 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.  Enforcement by the Federal Trade Commission was set to begin August 1, 2009, but has now been delayed (again) until November 1, 2009 ...

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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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