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The Franchise Memorandum

Posts from January 2011 - Issue 138.

The United States District Court in Colorado recently denied dismissal of a franchisee’s fraud claim in connection with the franchisor’s failure to provide an updated Franchise Disclosure Document when the franchisee was granted additional territory. In McKinnis v. Fitness Together Franchise Corp., 2010 U.S. Dist. Lexis 133976 (D. Colo. Dec. 6, 2010), the plaintiff—a Fitness Together master franchisee—claimed that the franchisor committed fraud by selling the plaintiff an additional master franchise territory and requiring that the sale be accomplished by ...

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Posted in Arbitration

Last week, a state appellate court in California issued what appears to be an important ruling upholding a franchisor’s right to arbitrate in another state against a California franchisee. MKJA, Inc. v. 123 Fit Franchising, LLC, 2011 Ca. App. LEXIS 6 (Cal. App. 4th Dist., Div. 1 Jan. 4, 2011). This appeal was from a California state court’s order that had lifted a stay of the franchisee’s California litigation. The trial court had found that the franchisee could not afford to arbitrate in Colorado, thus the stay previously issued under California Code Civ. Pro. §1281.4 had been ...

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In Hetrick v. Ideal Image Development Corp., 2010 U.S. Dist. LEXIS 135065 (M.D. Fla. Dec. 21, 2010), a Florida judge recently denied franchisor Ideal Image’s motion for summary judgment on the franchisee’s claim that certain representations made during the sale of the franchise violated the Florida Deceptive and Unfair Trade Practices Act. The Hetricks claimed that during meetings discussing their purchase of a franchise, an Ideal Image representative made representations (not included in Item 19 of its UFOC) regarding the profitability of certain existing franchises ...

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Posted in Terminations

In Dunkin’ Donuts Franchised Restaurants LLC, et al. v. Strategic Venture Group, Inc., et al., 2010 LEXIS 119417 (D. N.J. Nov. 10, 2010), a case handled by Gray Plant Mooty attorneys, the U.S. District Court for the District of New Jersey entered a declaratory judgment finding that Dunkin’ Donuts had good cause under the New Jersey Franchise Practices Act to terminate the defendants’ franchise agreements for failing to “obey all laws” in connection with the operation of the franchises.

Dunkin’ terminated the defendants’ franchise agreements based on their failure ...

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Posted in Class Actions

A federal district court judge in National Franchisee Association v. Burger King Corp., 2010 U.S. Dist. LEXIS 123065 (S.D. Fla. Nov. 19, 2010), has dismissed for failure to state a claim a class action suit brought by Burger King franchisees challenging the franchisor’s ability to set maximum prices on products. The franchisees claimed that Burger King’s decision to set a $1.00 maximum price for certain items to be included on the $1.00 Value Menu breached its express and implied duties of good faith and fair dealing, was not permitted under the franchise agreements, and violated ...

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Posted in Employment

A federal district court in Mississippi recently issued a reminder that franchisors should not establish or control their franchisees’ employment policies, practices, or decisions and should not participate in hiring or managing their franchisees’ employees. In  Reese v. Coastal Restoration and Cleaning Services, Inc. d/b/a SERVPRO of Pearl River/Hancock & SW Harrison Counties et al., 2010 U.S. Dist. LEXIS 132858 (S.D. Miss. Dec. 15, 2010), the plaintiff was hired and employed by Coastal Restoration and Cleaning Services, Inc. (Coastal), a SERVPRO franchisee. Reese ...

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Posted in State Taxation

On December 30, 2010, the Iowa Supreme Court affirmed the Iowa Department of Revenue’s imposition of income taxes on royalties an out-of-state franchisor, KFC Corporation, received from its Iowa franchisees. KFC Corporation v. Iowa Department of Revenue, No. 09-1032 (Iowa S. Ct. Dec. 30, 2010). As background, in Quill v. North Dakota, 504 U.S. 298 (1992), the U.S. Supreme Court had reaffirmed an interpretation of the Commerce Clause that prevents states from imposing sales or use taxes on any business without a “physical presence” in the state. The U.S. Supreme Court ...

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In Marblelife, Inc. v. Stone Resources, Inc., 2010 U.S. Dist. LEXIS 136041 (E.D. Pa. Dec. 23, 2010), the defendant franchisee chose to let its franchise agreement expire. The franchisee then began operating a competing business in violation of a covenant against competition contained in the franchise agreement, using the franchisor’s confidential business information, trade secrets, trademarks, and exclusive advertising arrangement. The franchisor moved for injunctive relief to prevent trademark infringement and to enforce the two-year post-termination non-compete ...

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Posted in Damages

In Captain D’s, LLC v. Arif Enterprises, Inc., 2010 U.S. Dist. LEXIS 129242 (M.D. Tenn. Dec. 6, 2010), Captain D’s moved for summary judgment on its claim for past due fees and liquidated damages. Arif Enterprises breached its franchise agreements by failing to comply with the franchisor’s quality standards. Captain D’s then terminated those agreements and sought to recover both past due fees and liquidated damages to compensate it for fees that would have been payable for the agreements’ remaining terms. The court granted Captain D’s motion for summary judgment and ...

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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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