The Franchise Memorandum

A California federal court recently dismissed a putative franchisee class action against IHOP for violation of California’s Unfair Competition Law in Hameed v. IHOP Franchising, LLC et al., No. 2:10-cv-02276 (E.D. Cal. Feb. 10, 2011). Hameed, an IHOP franchisee in Sacramento, sued IHOP on behalf of a class of IHOP franchisees, alleging that IHOP violated California’s Unfair Competition Law by, among other things, denying him monetary aid pursuant to IHOP’s Development Impact Assistance Program (DIAP). The DIAP provides money to an existing franchisee who is impacted ...

A Minnesota federal court recently confirmed an arbitrator’s award despite a clarification to which the losing former franchisee objected. In Wakeman v. Aqua2 Acquisition, Inc., 2011 U.S. Dist. LEXIS 14672 (Feb. 14, 2011), in which Gray Plant Mooty represented the franchisor of the AutoQual system, the franchisor had sought to prevent the former franchisee from operating a competing business in violation of his franchise agreement’s post-termination restrictive covenant. AutoQual commenced an arbitration proceeding to enforce that restrictive covenant, and it ...

A Delaware state court has resolved an ongoing dispute regarding the control of advertising strategy in the KFC franchise system. In KFC Nat'l Council & Advertising Cooperative, Inc. v. KFC Corporation, No. 5191-VCS (Del. Ch. Jan. 31, 2011), the dispute was between KFC and its franchisees over the authority of the KFC National Council and Advertising Cooperative (NCAC) to determine the national advertising strategy for the KFC brand. KFC argued that it had sole authority to develop advertising plans, and the NCAC (whose governing body consists of 13 franchisee representatives ...

In Masters v. UHS of Del., Inc., No. 09-3543 (8th Cir. Jan. 6, 2011), the Eighth Circuit affirmed a jury verdict finding that UHS, the owner of psychiatric hospitals, willfully infringed on the plaintiff’s service mark and breached a licensing agreement with the plaintiff. Although this was not a franchise case, the scenario could easily arise in franchising. Under the parties’ license agreement, the plaintiff licensed its service mark to UHS for a certain use. But UHS expanded its use of the mark beyond the scope of the license by using it to promote other programs. The licensor ...

A federal court in Maryland granted a franchisor’s motion to dismiss franchisees’ counterclaims in an interesting case challenging the adequacy of the franchisor’s disclosure regarding payments from its affiliate. The Cleaning Authority, Inc. v Neubert, 2011 U.S. Dist. LEXIS 13949 (D. Md. Feb. 11, 2011). Franchisor TCA had filed separate actions against each of the defendants for termination of their franchise agreements. The franchisees countersued, alleging that they were fraudulently induced to enter into the franchise agreements because the Uniform Franchise ...

Last month a Massachusetts federal court narrowly interpreted a settlement agreement and determined that KFC was required to provide a notice and opportunity to cure for each separate operational deficiency under that agreement. KFC Corp. v. Springfield Food Sys., 2011 U.S. Dist. LEXIS 14218 (D. Mass. Feb. 14, 2011). At issue was the language in the settlement agreement that said that after KFC provided written notice of default to the franchisees, they “shall have ten (10) days from the date of the notice to cure the default. PROVIDED, HOWEVER, that KFC shall not be obligated to ...

Once again, a jury trial waiver has been upheld by a federal court, this time in Michigan. In ERA Franchise Systems LLC v. Bowers Realty and Associates, Inc., 2011 U.S. Dist. LEXIS 14474 (E.D. Mich. Feb. 14, 2011), the court enforced the language of the parties’ franchise agreement. The franchisor had sued the franchisee for breach of the agreement, and Bowers’ answer included a demand for a jury. ERA moved to strike the demand, arguing that the franchise agreement’s express waiver provision controlled.  

To strike a jury waiver provision in the Sixth Circuit, the contesting party ...

In Singas Famous Pizza Brands Corp. v. New York Advertising LLC, 2011 U.S. Dist. LEXIS 14524 (S.D.N.Y. Feb. 14, 2011), the court granted franchisor Singas a preliminary injunction to prevent its franchisee from running two competing businesses in violation of an in-term and post-term covenant not to compete. This case arose when the franchisee’s husband started a business called Queens New York Famous Pizza, in which the franchisee participated. In holding that the standards for an injunction were met, the court cited the fact that the Queens restaurant provided nearly ...