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The Franchise Memorandum

Posts from August 2010 - Issue 133.
Posted in Renewals

A California federal court has granted a franchisor’s motion to dismiss an amended complaint brought by many of its Union 76 brand gas station franchisees in connection with the franchisor’s renewal of their franchise agreements. The case is In re ConocoPhillips Co. Service Station Rent Contract Litig., 2010 U.S. Dist. LEXIS 61300 (N.D. Cal. Jun. 2, 2010). The plaintiff-franchisees sued, claiming that Conoco violated Section 31101 of California’s Franchise Investment Law (CFIL). Section 31101 exempts the offer and sale of a franchise from the registration requirements ...

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Posted in Arbitration

A recent case from a Michigan federal court represents a mixed bag for franchisors seeking to require arbitration of claims brought by franchisees. In Binder v. Medicine Shoppe Int’l, Inc., 2010 U.S. Dist. LEXIS 72614 (E.D. Mich. July 20, 2010), a corporate franchisee signed a franchise agreement containing an arbitration clause. Its principals also signed personal guaranty agreements, under which they agreed to be personally bound by the franchise agreement.

When a dispute arose between the parties, the franchisor commenced arbitration against both the corporate ...

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In Terry Delamater, et. al. v. Anytime Fitness, Inc., 2010 U.S. Dist. LEXIS 64126 (E.D. Cal., June 25, 2010), a California federal court granted the franchisor’s motion to dismiss a franchisee’s complaint for declaratory relief that sought to require the parties to mediate in California. The franchisor and the franchisee were parties to several franchise agreements, under which the parties were to engage in mediation at a site selected by the mediation organization before submitting their claims to arbitration or litigation. A dispute arose between the parties, and the ...

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In a case handled by Gray Plant Mooty and first reported in Issue No. 131 of The GPMemorandum after a prior ruling, the court in Bonus of America, Inc. v. Angel Falls Services, LLC, 2010 U.S. Dist. LEXIS 67079 (D. Minn. July 6, 2010),  has now entered a preliminary injunction against a master franchisor and two affiliated parties through which the master franchisor was conducting business,  enjoining them from violating the in term noncompete provisions of the Master Franchisor Agreement (MFA) and from using the franchisor’s name, trademarks, or proprietary materials. The master ...

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In Aussie Pet Mobile Inc. v. Benton, 2010 U.S. Dist. LEXIS 65126 (C.D. Cal. June 28, 2010), a California federal court denied a franchisee’s motion to dismiss, finding that the franchisee’s attendance at mandatory training in the franchisor’s home state of California was sufficient grounds for the California court to exercise personal jurisdiction over a principal of the franchisee, who was a resident of Ohio. Under federal law, a court can exercise jurisdiction over the resident of another state if (a) the defendant has purposefully directed activities within the forum ...

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In Krispy Kreme Doughnut Corp. v. Satellite Donuts, L.L.C., 2010 U.S. Dist. LEXIS 73913 (S.D.N.Y. Jul. 22, 2010), a franchisor obtained a preliminary injunction against its former franchisee. Krispy Kreme had terminated the franchise agreement after Satellite failed to pay royalties and other amounts, but Satellite continued to operate as a Krispy Kreme store after termination. Krispy Kreme brought suit seeking a temporary restraining order and a preliminary injunction to stop Satellite from using its trademarks and proprietary materials.

In granting the franchisor’s ...

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Posted in Terminations

In Ramada Worldwide, Inc. v. Hotel of Grayling, Inc., 2010 U.S. Dist. LEXIS 65186 (D.N.J. June 30, 2010), Ramada terminated and sued its franchisee for failing to pay over $90,000 in royalties and defaulting on its guarantee. The franchisee counterclaimed, and alleged that because Ramada materially breached the agreement before the fees were due, by failing to provide it with proper signage, conduct training, and provide a working computer system, it was not liable for unpaid fees.

The court rejected that argument and awarded Ramada summary judgment on its claims. The court cited ...

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Posted in Choice of Law

The Ninth Circuit recently confirmed that a state franchise law does not apply to claims involving out-of-state franchisees even if the franchise agreement has a choice of law provision applying that state’s law. The franchisees in Taylor v. 1-800-GOT-JUNK?, LLC, 2010 U.S. App. LEXIS 14433 (9th Cir. July 14, 2010), operated a junk removal franchise in Oregon pursuant to a franchise agreement that contained a Washington choice of law provision. Neither the franchisees nor the franchisor were Washington residents. A previous dispute between the parties, in which the franchisees ...

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Posted in Trademarks

The Ninth Circuit in Toyota Motor Sales, USA, Inc. v. Farzad Tabari, et al., 2010 U.S. App. LEXIS 13903 (9th Cir. July 8, 2010), vacated and remanded an order granting a preliminary injunction in favor of Toyota enjoining the use of one of its trademarks in a domain name. Toyota, the exclusive distributor of Lexus vehicles in the United States, sued the defendant auto brokers based on the use of the term “Lexus” in their business Web site domain names. The district court found that the defendants’ domain names, buy-a-lexus.com and buyorleaselexus.com, infringed the trademark ...

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Posted in Damages

After a franchisee abandoned his franchise and allowed his son to open a competing business in the same location, the franchisor filed suit in Moran Indus., Inc. v. Mr. Transmission of Chattanooga, Inc., 2010 U.S. Dist. LEXIS 71753 (E.D. Tenn. Jul. 15, 2010), claiming lost future royalties. The defendants filed a motion to dismiss, arguing  that the license agreement provided that the royalty payment obligation lasted only five years. The court rejected that argument, noting that an addendum the parties signed  seven years after the license agreement provided for a decreased royalty ...

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Posted in Arbitration

The Third and Eighth Circuits recently affirmed arbitration awards in favor of franchisors, despite similar arguments by franchisees. Most recently, in Paul Green School of Rock Music Franchising, LLC v. Smith, 2010 U.S. App. LEXIS 16082 (3d Cir. August 2, 2010), the Third Circuit sidestepped the question of whether “manifest disregard of the law” remains a ground to vacate an arbitration award after the Supreme Court’s decision in Hall Street Associates, L.L.C. v. Mattel, Inc. Describing a “circuit split” on that question, the Third Circuit simply ruled that the law ...

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About this Publication

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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