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The Franchise Memorandum

Posts from November 2010 - Issue 136.
Posted in Noncompetes

In Sylvan Learning, Inc. v. Gulf Coast Educ., Inc., 2010 U.S. Dist. LEXIS 107160 (M.D. Ala. Oct. 6, 2010), the franchisor of Sylvan Learning Centers brought a preliminary injunction motion against a recently terminated franchisee for continuing to operate a learning center in violation of the license agreement’s noncompete provision. At issue was whether Sylvan had a substantial likelihood of success in enforcing its two-year, 20-mile noncompete provision, and whether the court should apply Alabama or Maryland law. As an initial matter, the Alabama federal court applied ...

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Posted in Insurance

A franchisor is not obligated to contact its franchisee’s insurance company directly in order to invoke the franchisee’s obligation to defend and indemnify the franchisor, the Michigan Court of Appeals ruled late last month. Basset v. Burger King Corp., 2010 Mich. App. LEXIS 2091 (Mich. App. Oct. 28, 2010). This decision arose out of a personal injury case in which only the franchisor was sued originally. It notified the franchisee of the lawsuit and demanded defense and indemnity under the franchise agreement. When the franchisee failed to assume defense of the case, BKC was ...

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Posted in Choice of Law

In 1-800-GOT JUNK? LLC v. Superior Court, 2010 Cal. App. LEXIS 1805 (Cal. App. 2d Dist. Oct. 21, 2010), a California court of appeals decided that a franchisee could enforce a Washington choice of law clause in a California case notwithstanding the anti-waiver provision in the California Franchise Relations Act (CFRA), which voids a contractual stipulation that purports to waive any provision of the CFRA. A California-based franchisee had sued 1-800-Got-Junk, a Delaware company headquartered in Vancouver, Canada, for wrongful termination and argued that the franchise ...

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Posted in Arbitration

In Edible Arrangements Int’l, Inc. v. JHRV Enter., Inc., 2010 U.S. Dist. LEXIS 105614 (D. Conn. Oct. 1, 2010), a Connecticut federal court enforced franchise agreements that provided for arbitration in Connecticut of all disputes arising from the franchise relationship. The franchisee had operated 18 stores in California. The franchisor and franchisee had entered into a settlement agreement to resolve one series of disputes, and the settlement agreement provided that any dispute arising out of that agreement would be resolved in California state court.

Approximately one ...

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Posted in Class Actions

On October 27, the United States District Court for the Southern District of New York  rejected class action certification in the obesity case filed against McDonald’s Corporation in 2002. Pelman v. McDonald’s Corp., 2010 U.S. Dist. LEXIS 114247 (S.D.N.Y. Oct. 27, 2010). This is the case in which the plaintiff claimed that “deceptive marketing schemes” had caused consumer obesity. In a lengthy opinion, the court ruled that “extensive individualized inquiries” in the case preclude class action treatment. Those individual questions include causation and injury. As ...

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Posted in Procedure

In a troubling discovery ruling in ongoing litigation between Burger King Corporation and a franchisee association, a magistrate judge in the Southern District of Florida has found that BKC must produce sensitive information to the plaintiff. National Franchisee Ass’n v. Burger King Corp., 2010 U.S. Dist Lexis 105953 (S.D. Fla. June 20, 2010). First, “Show of Support” documents related to the addition of the double cheeseburger to Burger King’s Value Menu must be turned over. Show of Support documents are voting forms that franchisees submit to indicate whether they ...

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Posted in Contracts

Must a pizza franchisor force its franchisees to stay within their delivery territories? “No”, said the United States District Court for the Eastern District of Michigan last month. Cottage Inn Carryout & Delivery, Inc. v. True Freedom Investments LLC, 2010 U.S. Dist. LEXIS 113170 (E.D. Mich. Oct. 20, 2010). The question was raised by a franchisee who claimed the franchisor was allowing others to infringe on its “protected” trading area. The franchisor argued that the parties’ agreement did not require it to police its franchisees to make sure that they were staying ...

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In an unusual split decision, a federal district court in Georgia ruled last week that a former franchisee was not in contempt of an injunction order against use of the franchisor’s trademarks. AFC Enterprises, Inc. v. The Restaurant Group LLC, 2010 U.S. Dist. LEXIS 117240 (N.D. Ga. Nov. 3, 2010). The franchisee had simply closed the store in face of an order not to “operate” it and not to “use” the POPEYES® marks of the franchisor. The signs apparently stayed up, and the franchisor moved for contempt. The court held, however, that its order not to “use” the marks meant only ...

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Posted in Employment

Earlier this year, The GPMemorandum reported on a ruling that sent shock waves through the franchise community when a Massachusetts federal district court judge compared a franchise to a modified Ponzi scheme and ruled in a putative class action case that Coverall, a janitorial services franchisor, had misclassified its franchisees as independent contractors when they were actually employees. Awuah v. Coverall North America, 2010 U.S. Dist. LEXIS (D. Mass. March 23, 2010). Following its earlier adverse ruling, the Massachusetts court has provided Coverall with some victories ...

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Posted in Contracts

A franchisee since the 1970s who had owned 21 Hardee’s stores lost on its attempt to evade the jury trial waiver in its franchise renewal agreement. Hardee’s Food Sys., Inc. v. Hallbeck, 2010 U.S. Dist. LEXIS 114192 (E.D. Mo. Oct. 27, 2010). Jury trial waivers “are valid under federal law,” the court held. In this recent decision, the court also found significant that the jury waiver appeared twice in the agreement, including once in bold type.  Under these facts, the court found the waiver was made knowingly and voluntarily. The case will go forward sans jury.

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Posted in Antitrust

In September 2009, The GPMemorandum reported that an Ohio federal court had denied the motion of Wendy’s International Inc. to dismiss a claim by several of its franchisees that Wendy’s had violated Section 1 of the Sherman Act by requiring the franchisees to purchase food supplies only from sellers in which Wendy’s had a financial interest. Burda v. Wendy’s Int’l, Inc., 659 F. Supp. 2d 928 (S.D. Ohio 2009). The court held that the franchisee-plaintiffs had sufficiently alleged that Wendy’s had market power in the tying product market under the “lock-in” theory ...

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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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