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The Franchise Memorandum

Posts from September 2010 - Issue 134.
Posted in Class Actions

A California appeals court recently upheld a trial court’s decision to strike all class allegations contained in a complaint brought by members of a walnut producing cooperative marketing association against a walnut processor. The court relied upon a class action waiver contained in the arbitration agreements between the parties, rejecting the argument that the waiver was unconscionable. The case is Walnut Producers of California et al. v. Diamond Foods, Inc., No. C060346, 2010 Ca. App. LEXIS 1419 (Ca. Ct. App. 3d Div. Aug. 16, 2010). This nonfranchise decision is notable for ...

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Posted in Class Actions

In Castaneda v. Burger King Corp., 2010 U.S. Dist. LEXIS 78299 (N.D. Cal. July 12, 2010), a California federal court approved a settlement of a disability class action lawsuit. The plaintiffs had contended that Burger King’s restaurants were not accessible to customers who use wheelchairs and scooters in violation of the Americans with Disabilities Act and California’s Unruh Act. Under the terms of settlement, Burger King agreed, among other things, to an injunction to eliminate accessibility barriers at certain of its restaurants and to pay $5 million in damages (an average ...

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Posted in Noncompetes

In Big O Tires, LLC v. Felix Bros. Inc., 2010 U.S. Dist. LEXIS 81559 (D. Colo. Jul. 12, 2010), a franchisee group owned and operated three Big O Tires franchises in California. The franchisee elected not to renew the franchise agreement for one of the units, and requested early termination of the remaining two units. That request was declined, and the franchisee continued to operate its remaining two franchises. The franchisee also continued to operate its first tire store, changing the name to “Budget Tires and Automotive.” 

The franchisor sought a preliminary injunction to ...

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In Sherman v. PremierGarage Systems, LLC, 2010 U.S. Dist. LEXIS 77392 (D. Ariz. July 30, 2010), a handful of PremierGarage franchisees sued the franchisor for, among other things, intentional and negligent misrepresentation and fraud, breach of contract and of the implied covenant of good faith and fair dealing, and violations of Florida’s Franchise Misrepresentation Act. The franchisees claimed the franchisor, PremierGarage, made affirmative earnings claims before the execution of the franchise agreement and misrepresented the quality of the floor-coating materials ...

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Posted in Terminations

In United Consumers Club, Inc. v. Prime Time Mktg. Mgmt., Inc., 2010 U.S. Dist. LEXIS 87236 (N.D. Ind. Aug. 23, 2010), a federal district court late last month denied a franchisor’s motion to dismiss claims for, among other things, wrongful termination and breach of fiduciary duty. Prime Time, a franchisee of an organization known as DirectBuy, had sued the franchisor after its franchise was terminated. Prime Time sold memberships to its buying club, with DirectBuy receiving royalty fees. In denying the motion to dismiss, the court found that the majority of Prime Time’s claims ...

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In Bye v. Nationwide Mutual Ins., 2010 U.S. Dist. LEXIS 78930 (E.D. Mich., Aug. 5, 2010), a Michigan federal court last month granted Nationwide Mutual Insurance Company’s motion for summary judgment, holding that the Michigan Franchise Investment Law did not apply to the relationship between Nationwide and its insurance agent because the agent did not pay a franchise fee. The plaintiff was a Nationwide insurance agent for many years. The agent eventually opened a competing business, and Nationwide terminated his agency. In response, the plaintiff filed suit alleging, among ...

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In Andre v. Sellstate Realty Sys. Network, Inc., 2010 U.S. Dist. LEXIS 84853 (M.D. Fla. July 30, 2010), the franchisor moved to strike the franchisees’ jury trial demand based upon the following language in two promissory notes: “THE AREA REPRESENTATIVE, BY SIGNING OF THIS NOTE, AND THE FRANCHISOR, BY ACCEPTANCE OF THIS NOTE, MUTUALLY AND WILLINGLY WAIVE THE RIGHT TO A TRIAL BY JURY OF ALL CLAIMS BETWEEN THEM . . . .” The franchisees objected, arguing that the promissory notes were ancillary to their claims that the franchisor had made fraudulent representations and induced them ...

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Posted in Arbitration

An Oregon federal court, in JuiceMe, LLC v. Booster Juice Ltd. P’ship, 2010 U.S. Dist. LEXIS 77375 (D. Ore. July 30, 2010), denied the defendant franchisors’ motions to dismiss and stayed the case pending arbitration. The plaintiffs, who are U.S. and Canadian Booster Juice franchisees, had filed a demand for arbitration with the American Arbitration Association in January 2008 against Booster Juice Limited Partnership, the franchisor of the Booster Juice system in the U.S., and other related parties. The plaintiffs later added AW Holdings Corporation, the franchisor of the ...

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Posted in Trademarks

In Doctor’s Associates, Inc. v. Subway.SY LLC, 2010 U.S. Dist. LEXIS 83223 (D. Minn. Jul. 30, 2010), the plaintiff franchisor, which owns numerous trademarks associated with the SUBWAY sandwich restaurant chain, obtained a permanent injunction against a defendant who operated an infringing Web site in Syria. The defendant formed Subway.SY LLC in 2008 and used images copied directly from plaintiff’s Web site on its own Web site and Facebook page, which advertised the opening of a “Subway” restaurant shop in Syria. Although the defendant claimed that the Web site was not ...

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Posted in Terminations

A recent Missouri federal court decision serves as a warning to franchisors to carefully draft guaranty provisions in franchise agreements to ensure they will be effective. In Medicine Shoppe Int’l, Inc. v. Anick, Inc., 2010 U.S. Dist. LEXIS 78431 (E.D. Mo. Aug. 4, 2010), the court dismissed the franchisor’s breach of guaranty claim against the franchisee’s corporate representative who signed the license agreement. That agreement contained a “note,” immediately below the franchisee’s signature block, stating “IF THE LICENSEE IS A CORPORATION OR PARTNERSHIP ...

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In Maaco Franchising, Inc. v. Augustin, 2010 U.S. Dist. LEXIS 83895 (E.D. Pa. Aug. 16, 2010), a Pennsylvania federal district court declined to impose sanctions on the franchisee defendants despite finding that they destroyed documents in bad faith during litigation with Maaco. This case involves the former franchisees’ operation of a competing business after Maaco terminated their franchise agreements for nonpayment. Maaco served several requests for documents and then sought sanctions against the franchisees for destroying documents during litigation and making false ...

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Posted in Bankruptcy

In Doctor’s Associates, Inc. v. Jesal Desai, 2010 Bankr. LEXIS 86454 (D.N.J. August 23, 2010), the franchisor (“DAI”) sought to remove pending litigation from the bankruptcy court to federal district court. The procedural history of the case includes litigation in arbitration, state court, federal district court, and bankruptcy court. DAI’s motion to withdraw the reference was brought after it was unsuccessful in asking the bankruptcy court to remand the pending litigation back to the district court. A motion to withdraw the reference is very similar to a motion to ...

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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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