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The Franchise Memorandum

Posts from March 2010 - Issue 129.

The parent companies of a hotel chain prevailed against personal injury claims brought in Reider v. Radisson Hotels Int’l et al., No. 3:08-cv-02328 (S.D. Cal. March 8, 2010). The case arose out of serious injuries suffered by the plaintiffs when they fell through a glass door in a sports bar located within a Radisson hotel in Japan. The hotel was operated under a management agreement between the hotel owner and a subsidiary of the defendants based in Singapore. The plaintiffs failed to name the subsidiary as a defendant, bringing suit instead against the two parent companies in the ...

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A Colorado appellate court recently vacated (with a remand for further proceedings) the trial court’s dismissal of claims against a franchisor and its parent, two officers, and its lawyers, alleging fraudulent nondisclosure of the parent’s material financial losses each year since its inception in 1990. The case is Colorado Coffee Bean, LLC  v. Peaberry Coffee, Inc., 2010 LEXIS 210 (Col. App. Feb. 18, 2010). The appellate court found that the trial court erred in finding the franchisees’ reliance on the nondisclosure of the parent’s losses was unreasonable. The appellate ...

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Posted in Advertising

In Doctor’s Associates, Inc. v. QIP Holder LLC, et al., 2010 U.S. Dist. LEXIS 14687 (D. Conn. Feb. 19, 2010), the franchisor of the Subway system sued Quiznos for deceptive advertising under the Lanham Act and the Connecticut Unfair Trade Practices Act and for commercial disparagement under Connecticut law. At issue were a number of ads that depicted a Quiznos sandwich next to a purportedly comparable Subway sandwich, which ads claimed that the sandwiches were not really comparable because the Quiznos sandwich had twice the amount of meat contained in the Subway sandwich. DAI ...

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Posted in RICO

In Jones v. Petland Inc., 2010 U.S. Dist. LEXIS 12538 (S.D. Ohio Feb. 11, 2010), franchisees sued franchisor Petland, asserting in a class action complaint numerous claims of fraud and misrepresentation as well as a RICO claim. Petland moved to dismiss all claims. The court granted Petland’s motion and dismissed all of the franchisees’ claims with prejudice. The court found that the plaintiffs had failed to plead their fraud and misrepresentation claims with particularity as required under the Federal Rules of Civil Procedure. The court also found the franchisees’ RICO ...

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Posted in Class Actions

A Minnesota federal court has denied a motion to remand a class action lawsuit to state court, holding that the federal court had jurisdiction over the action under the Class Action Fairness Act (CAFA). In Green et al. v. SuperShuttle Int’l, Inc. et al., 2010 U.S. Dist. LEXIS 7456 (D. Minn. Jan. 29, 2010), a putative class of current and former franchisees sued various SuperShuttle entities that provide shared-ride airport shuttle services, claiming the entities had mischaracterized them as franchisees rather than as employees. The plaintiff-franchisees originally sued in ...

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Posted in Arbitration

Despite the heavy presumption in favor of the enforceability of final arbitration awards, a federal court in Michigan recently vacated a final award upon finding that one member of the arbitration panel had displayed evident bias. In The Thomas Kinkade Co. v. Lighthouse Galleries, LLC, 2010 U.S. Dist. LEXIS 6443 (E.D. Mich. Jan. 27, 2010), the issue was whether an arbitrator’s late disclosure of his conflicts of interest and law partners’ association with the defendants prejudiced the parties’ arbitration. At arbitration, one of the arbitrators disclosed that certain of ...

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Posted in Damages

A car dealership that had prevailed against a manufacturer under the New Jersey Franchise Practices Act has been denied summary judgment on damages. In Liberty Lincoln-Mercury, Inc. v. Ford Motor Co., 2010 U.S. Dist. LEXIS (D.N.J. Feb. 22, 2010), the plaintiff had prevailed on its claim that Ford’s warranty service and repair parts surcharges to dealers violated the NJFPA. But that did not mean that the plaintiff could automatically obtain disgorgement of the surcharges. The court held, instead, that “damages sustained” by the franchisee had to be proved under the statute ...

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Posted in Noncompetes

A Montana federal court has granted H&R Block’s motion for a preliminary injunction to enforce a covenant not to compete. The case is H&R Block Tax Services LLC v. Kutzman, 2010 U.S. Dist. LEXIS 12837 (D. Mont. Jan. 26, 2010). At issue was whether the covenant’s geographic 45-mile restriction and one-year prohibition were reasonable under Montana law. The franchisee, who continued to provide tax preparation services after the expiration of the franchise agreement, claimed that the covenant violated a Montana statute. The court disagreed, finding that while noncompete ...

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Posted in Damages

In Century 21 Real Estate LLC v. Perfect Gulf Properties, Inc., 2010 U.S. Dist. LEXIS 13438 (M.D. Fla. Feb. 17, 2010), a Florida federal court recently granted the franchisor’s motion for partial summary judgment on its breach of contract claims against the individual guarantors, and held that the franchisor was entitled to almost $1.4 million in damages. The franchisor sued the terminated franchisees and the individual guarantors to recoup unpaid royalties and advertising fees, as well as the remaining balance due on a promissory note that accelerated upon the termination of ...

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Posted in Terminations

The Ninth Circuit has affirmed a district court’s order for specific performance requiring the franchisor to renew the franchise agreement at the existing royalty rate. Prudence Corp. v. Shred-It America, Inc., 2010 U.S. App. LEXIS 3214 (9th Cir. Feb. 11, 2010). Although the court does not fully explain, it appears to have based its decision on findings that Shred-It breached the franchise agreement by waiting over a year to “timely submit proposed renewal terms” to Prudence. The court also held that specific performance was an appropriate remedy because the franchise ...

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Posted in Class Actions

A federal court in California has dismissed the claims of the remaining franchisee classmembers in Samica Enterprises, LLC, et al. v. Mail Boxes Etc. USA, Inc., et al., 2010 U.S. Dist. LEXIS 21343 (C.D. Cal. Feb. 26, 2010). In granting summary judgment against these more than 200 putative plaintiffs, the court rejected their attempts to circumvent the prior decisions dismissing claims of two representative subclasses. The claims all arose out of the efforts of the defendants to convert Mail Boxes Etc. franchisees to UPS Store franchisees, which the plaintiffs claimed to be a fraud ...

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Posted in Noncompetes

Two judges in the same Michigan federal district court issued different rulings in non-compete cases recently. In the first case, Domino’s Pizza Franchising, LLC v. Yeager, 2:09-cv-14704 (E.D. Mich. Jan. 25, 2010), the court handed Domino’s a victory in its efforts to enforce its post-term rights. Domino’s had sued after the defendants breached their obligations by continuing to operate pizza restaurants using the franchisor’s marks and failing to return proprietary information. The defendants denied liability. After Domino’s provided photographic evidence ...

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Posted in Terminations

The United States Supreme Court has held that claims of “constructive” termination and nonrenewal under the Petroleum Marketing Practices Act will not lie when the franchisee continues to operate under the franchisor’s marks. Mac’s Shell Service, Inc. v. Shell Oil Products Co., No. 08-240, and Shell Oil Products Co. v. Mac’s Shell Service, Inc., 2010 U.S. LEXIS 2203 (March 2, 2010). As reported in Issue 128 of The GPMemorandum, this was the first Supreme Court decision to interpret the PMPA. This decision could also help business format franchisors in similar cases.

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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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