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The Franchise Memorandum

Posts from January 2010 - Issue 127.
Posted in Terminations

In L & L Wings, Inc. v. Marco-Destin, Inc., 2009 WL 4884165 (S.D.N.Y. Dec. 16, 2009), the court granted summary judgment in favor of plaintiff L & L Wings for breach of contract and trademark infringement.  The parties had entered into an agreement by which, among other things, the defendants obtained a license to use the L & L Wings trademark and trade dress on several retail stores selling beachwear and accessories.  At the closing, one of plaintiff’s owners failed to sign the license agreement, although it was signed by his business partner later that day.  When the license expired in ...

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In Stites v. Hilton Hotels Corp., 2009 WL 4548351 (Cal. App. 2 Dist., Dec. 7, 2009), the California Court of Appeals upheld a lower court’s grant of summary judgment to Hilton Hotels Corporation on a claim by a would-be hotel patron that he was denied a room because he was accompanied by a disabled person with a service dog. The would-be patron filed suit after the desk clerk at a franchised Hampton Inn refused to rent him a room because his brother had a Great Dane with him, and the hotel did not allow non-service dogs on the premises. The customer claimed that the dog was a service dog, even ...

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Posted in Terminations

A California federal court this month granted a franchisor’s motion for summary judgment and upheld the termination of a franchise due to the sale of unapproved products. Baskin-Robbins Franchising LLC v. Mihranian, No. 2:08-cv-07022 (C.D. Cal. Jan. 5, 2010). Gray Plant Mooty represents the franchisor in this case. Baskin-Robbins had terminated the franchisees without opportunity to cure immediately after finding in October 2008 that they were selling frozen yogurt at their store, a product specifically prohibited for sale by the franchisor after April 2008. Despite being ...

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Posted in Class Actions

A California federal court recently denied a motion to dismiss a class action complaint alleging alter ego liability of a franchisor’s parent corporation.  Laguna v. Coverall North America, inc., 2009 WL 5125606 (S.D. Cal., Dec. 18, 2009). In Laguna, the complaint alleged that Coverall improperly sold janitorial franchises knowing that the franchisees lacked sufficient business to satisfy their obligations under the franchise agreements and that it misrepresented the guaranteed amount of monthly income from the franchises. Another key allegation was that the class members ...

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In Brown v. Moe’s Southwest Grill, LLC, 2009 WL 5175280 (N.D. Ga. Dec. 21, 2009), a Georgia federal court declined to dismiss several claims brought by a group of franchisees alleging that franchisor Moe’s Southwest Grill had made misrepresentations when they received copies of the UFOC and entered into their franchise agreements.  In analyzing Moe’s motion to dismiss, the court evaluated the sufficiency of the franchisees’ amended complaint under the “plausibility” standard set forth in the recent Iqbal and Twombly U.S. Supreme Court opinions, which requires the ...

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Posted in Arbitration

In Foot Solutions, Inc. v. Washio, 2009 WL 4261213 (N.D. Ga. Nov. 24, 2009), a Georgia federal court declined to award attorneys’ fees to franchisees who had successfully argued that their claims were subject to arbitration. After the franchisees had initiated arbitration, the franchisor filed suit in federal court, alleging that the franchisees had improperly filed their demand  because they failed to follow the dispute resolution procedures in the franchise agreement. The federal court dismissed the franchisor’s action, holding that the disputed claims were properly in ...

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Posted in Noncompetes

In Rescuecom Corp. v. Mohamed E. Khafaga, 2009 WL 4269441 (Bankr. E.D.N.Y. Nov. 30, 2009), a franchisor brought a bankruptcy nondischargeability lawsuit against its former franchisee for

violation of the noncompete provision in the franchise agreement and diversion of business away from the franchisor.  Khafaga was a franchisee in the Rescuecom system, which provides computer repair services. Khafaga was obligated to report his sales, submit annual financial records, and pay royalties for computer repair services rendered to his customers. Khafaga’s wife secretly opened a ...

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Posted in Arbitration

In O’Neal v. Total Car Franchising Corp., 2009 WL 4827152 (La. App. 2d Cir., Dec. 16, 2009), a Louisiana appellate found for O’Neal on appeal finding that the arbitration clause in his area developer agreement did not apply to the dispute between O’Neal and the franchisor, Total Car Franchising Corporation (“TCF”), which was the franchisor of the Colors on Parade system.

O’Neal and TCF entered into an area developer agreement under which O’Neal agreed to arbitrate all “disagreements within the Colors on Parade community” providing that “[o]ne or each ...

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Posted in Terminations

In 7-Eleven Inc. v. Puerto Rico-7 Inc., 2009 WL 4723199 (N.D. Tex. Dec. 9, 2009), a federal district court in Texas granted summary judgment against a franchisee who continued to operate its convenience stores after being terminated. The court found that the franchisee had breached its franchise agreement by failing to make required payments to the franchisor and failing to comply with its development schedule for additional stores. The court further found that the franchisor had properly terminated the franchise and advised the franchisee that it was no longer entitled to operate ...

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Posted in Terminations

The United States Court of Appeals for the Seventh Circuit has affirmed the dismissal of RICO claims and a variety of other charges brought by a franchisee in Rao v. BP Products North America, Inc., 2009 WL 4640634 (7th Cir. Dec. 9, 2009). The case was filed by a gas station franchisee alleging that the termination of his operating agreements by franchisor BP violated the Petroleum Marketing Practices Act and the Racketeer Influenced and Corrupt Organizations Act, and was a fraud and a breach of contract. The record in the case, however, showed that the franchisee had, over the course of a ...

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Posted in Antitrust

On January 13, 2010, the U.S. Supreme Court heard oral argument in a case testing the antitrust status of the National Football League, the result of which could affect not only sports franchises but franchising in general. The issue before the Court in American Needle v. National Football League (08-661) is whether the NFL and its member teams function as a “single entity” and therefore cannot possibly violate Section 1 of the Sherman Act, which requires proof of collective action involving separate entities. The case involves a challenge by an excluded hat maker to the joint ...

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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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