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The Franchise Memorandum

Posts from October 2010 - Issue 135.
Posted in Terminations

A California appellate court upheld a trial court’s grant of summary judgment dismissing a former franchisee’s action for wrongful termination against franchisor International House of Pancakes. In doing so, the appellate court found that IHOP was within its rights to terminate the franchisee for failure to pay fees and produce records. The case is Safaei v. IHOP Corp., No. E046996, 2010 Cal. App. Unpub. LEXIS 7700 (Cal. Ct. App. 4th Dist. Sept. 28, 2010).

IHOP terminated the franchise agreement after having sent 10 separate notices to cure for failure to pay fees between 1996 ...

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In Fleetwood, et al. v. Stanley Steemer Int’l, Inc., 2010 U.S. Dist. LEXIS 94402 (Sept. 10, 2010), the United States District Court for the Eastern District of Washington denied the plaintiff franchisees’ motion for reconsideration of the court’s denial of the franchisees’ motion for summary judgment and partial grant of summary judgment in favor of the franchisor, Stanley Steemer. The franchisees claimed that Stanley Steemer breached its duty of good faith and fair dealing by giving them unsound business advice, counseling, and management assistance, and by failing to ...

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In JM Vidal Inc. v. Texdis USA, Inc., 2010 U.S. Dist. LEXIS 93564 (S.D.N.Y. Sept. 3, 2010), a franchisee sued under the Washington Franchise Investment Protection Act (WFIPA) after its “Mango” clothing store franchise did not meet performance expectations. It was undisputed that the franchisee had flown to Barcelona to meet with the franchisor regarding the possibility of purchasing a franchise before the franchisor had become registered in Washington or prepared an offering circular. In addition, the franchisee had prepared financial projections for the store, which it ...

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A federal magistrate judge recently recommended that an injunction be issued in favor of franchisor Smoothie King Franchises, Inc. enforcing a post-termination covenant not to compete against its former franchisee. Smoothie King Franchises, Inc. v. UKE-MEX Enterprises, Inc., et al., 4:10-CV-01285 (S.D. Tex. Sept. 17, 2010). Gray Plant Mooty represents the franchisor in this matter. Smoothie King is the franchisor of a business offering nutritional drinks and products. Defendant UKE-MEX and its predecessor owned and operated one of Smoothie King’s franchises in Texas ...

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A residential home cleaning franchisor brought suit in federal court in Maryland against several South Carolina franchisees as well as one franchisee’s office manager in The Cleaning Authority, Inc. v. Neubert, et al., 2010 U.S. Dist. LEXIS 92526 (D. Md. Sept. 7, 2010). The Cleaning Authority (TCA) alleged several of its franchisees attempted to terminate their franchise agreements in order to continue operating an identical cleaning business with identical customers through an employee or other third parties unknown to TCA. The office manager moved to dismiss on the grounds ...

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Posted in Arbitration

In contrast to the California law ruling referenced above, a recent decision by the federal district court in Minnesota underscores the bulk of the judiciary’s strong preference for enforcing arbitration agreements according to their terms. In Green v. SuperShuttle Int’l, Inc., 2010 U.S. Dist. LEXIS 95235 (D. Minn. Sept. 13, 2010), the court granted a defendant franchisor’s motion to dismiss the plaintiff franchisees’ claims and to compel arbitration based on the plain language of the arbitration agreement in the parties' franchise agreements. The franchise ...

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In Coldwell Banker Real Estate, LLC  v. Brian Moses Realty, Inc., 2010 U.S. Dist. LEXIS 93827 (D.N.H. Sept. 8, 2010), a New Hampshire federal court last month granted franchisor Coldwell Banker’s motion for summary judgment on its noncompete claim against a former franchisee, finding that the franchisee had clearly violated the in-term covenant not to compete in its franchise agreement by engaging in a competing Re/Max Properties real estate business. Although the court also granted Coldwell Banker’s motion for summary judgment on all counterclaims, factual disputes ...

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Posted in Arbitration

In Bridge Fund Capital Corp. v. Big Bad 1, LLC, 2010 U.S. App. LEXIS 19309 (9th Cir. Sept. 16, 2010), the Ninth Circuit rejected a franchisor’s appeal from a district court’s holding that an arbitration clause contained in its franchise agreement was unenforceable under California law. The franchisor had first argued that the question of arbitrability was one to be decided by the arbitrator, not a court. The court disagreed, finding that the franchisee had raised a specific challenge to the arbitration clause itself, separate and apart from its challenge to the franchise ...

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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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