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The Franchise Memorandum

Posts from December 2009 - Issue 126.
Posted in International

In November, the Australian government announced its response to a previously published parliamentary report evaluating franchise regulations in Australia. In doing so, the government announced changes that are intended to strengthen the Australia Franchising Code of Conduct (the “Code”) and the unconscionable conduct provisions of the Trade Practices Act (the “Act”). While the government stopped short of adding a general obligation of good faith and fair dealing (despite intense political pressure), the government will enact the following changes in an attempt ...

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Posted in Arbitration

In Roberts v. Synergistic Int’l, 2009 WL 3642776 (E.D. Cal. Oct. 30, 2009), Synergistic (which operates as the franchisor for the Glass Doctor franchise system) moved to compel arbitration after the franchisee sued claiming, among other things, that Synergistic breached the parties’ franchise agreement by failing to provide proper training, adequate support, and an effective advertising campaign. The franchisee argued that the arbitration provision was unenforceable because there was no “meeting of the minds” between the parties. It also argued that the ...

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Posted in Procedure

In a case that demonstrates the difficulties of maintaining confidentiality during litigation, the United States Court of Appeals for the First Circuit dismissed Coverall’s interlocutory appeal from a district court order partially denying its request for a protective order to protect select passages of deposition testimony. Awuah v. Coverall North Am., Inc., 2009 WL 3429574 (1st Cir. Oct. 27, 2009). The appeal arose out of a class action filed by Coverall’s franchisees alleging that Coverall made misrepresentations, failed to keep its contractual promises, and wrongly ...

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An Ohio federal court recently granted a franchisor’s motion to transfer venue to Illinois based on the franchise agreement’s forum selection clause. Egrsco, LLC v. Evans Garment Restoration, LLC, 2009 WL 3259432 (S.D. Ohio, Oct. 8, 2009). After the franchisee-plaintiffs suspended the operation of their franchise and sued the franchisor in Ohio, the franchisor moved to transfer venue under the agreement. The plaintiffs argued that the forum selection clause was invalid because: (1) its language was permissive, not mandatory; (2) the franchise agreement was the product of ...

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Posted in Arbitration

The Ohio Court of Appeals recently ordered an advertising cooperative to arbitrate its claims against a franchisor, while simultaneously permitting the cooperative to litigate its related claims against individual franchisees. In Cleveland-Akron-Canton Advertising Cooperative v. Physician’s Weight Loss Centers of Am., Inc., 2009 WL 3490756 (Ohio Ct. App. Oct. 29, 2009), the cooperative brought suit against the franchisor to recover mandatory advertising contributions owed by franchisees pursuant to an agreement between the franchisees and the cooperative. The ...

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Posted in Terminations

In Cleveland v. AmeriSpec, Inc., Case No. 2007 CA 8747 (Fla. 12th Jud. Dist., Nov. 16, 2009 ), a Florida trial court upheld the immediate termination of a husband and wife franchisee after the husband was arrested for transmitting harmful material to a minor by use of a computer and using a computer for child exploitation. Gray Plant Mooty represented the franchisor in this case. Two years after the husband and wife had purchased an AmeriSpec franchise, the husband was arrested and charged with multiple counts of soliciting a minor over the Internet. According to local news coverage of ...

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In MRW, Inc. v. Big-O Tires, LLC, 2009 WL 3368438 (E.D. Cal. Oct. 16, 2009), a California federal court granted summary judgment in favor of the franchisor and the franchisees’ small business lender, CIT. The plaintiff-franchisees brought suit, claiming that the franchisor, Big-O Tires, violated Section 17200 of California’s Unfair Competition Law, which prohibits “unlawful, unfair, or fraudulent business acts or practices.” The franchisees alleged that Big-O Tires had acted unfairly and provided misleading information in inducing them to enter into the franchise ...

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In Allegra Network LLC v. Reeder, 2009 WL 3734288 (E.D. Va. Nov. 4, 2009), the franchisor won an injunction preventing trademark infringement, but lost its request to enforce a post-termination non-compete agreement. Allegra is a franchisor of several print and imaging brands. When the franchisees moved their store to a location about 1.5 miles from another Allegra location without written consent, Allegra terminated the franchise based on a clause in the agreement that restricted the franchisees’ ability to operate a store within two miles of another Allegra franchise. The ...

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Posted in Internet

A federal district court in California ruled last month on the important issues surrounding the right of a franchisor to sell products via the Internet into a franchisee’s territory. In Stillwell v. RadioShack Corp., 2009 WL 3697995 (S.D. Cal. Nov. 2, 2009), a group of RadioShack franchisees sued RadioShack in connection with its direct internet sales to consumers. The franchise agreements (which had been globally modified by a past class action suit) granted the franchisees an “Area of Primary Responsibility” (AOPR), in which RadioShack would “not open a company store ...

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In Boyle v. Vanguard Car Rental USA, Inc., 2009 WL 3208310 (D.N.J. Sept. 30, 2009), the plaintiff, the owner of a car rental agency, sued Vanguard under the New Jersey Franchise Practices Act (NJFPA) for terminating the parties’ agreement without good cause and without the required 60-days’ notice. Vanguard moved to dismiss, contending that the NJFPA did not apply because the parties were not in a franchise relationship, there was no “community of interest” between the parties, and the plaintiff did not have $35,000 in gross sales with Vanguard to impute the NJFPA. The court ...

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The United States Court of Appeals for the Second Circuit late last month issued its decision on the appeal of a case brought by a franchisee who claimed to have been harmed by Hilton Hotels Corporation’s sale of its Red Lion brand. Century Pacific, Inc. v. Hilton Hotels Corp., et al., No 09-0545-cv (2d Cir. Nov. 25, 2009). As reported in Issue 100 of The GPMemorandum, a New York federal district court in 2007 had granted summary judgment to the franchisor on the grounds that the franchisee-plaintiff could not show fraudulent intent or reliance. The Second Circuit has now affirmed in a ...

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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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