The Franchise Memorandum

The Washington Court of Appeals recently upheld a lower court decision affirming an arbitration award against a franchisor after the trial court refused to enforce the venue requirements in the franchise agreement’s arbitration clause. In Saleemi v. Doctor’s Associates, Inc., 2012 Wash. App. LEXIS 96 (Wash. Ct. App. Jan. 24, 2012), the defendant-appellant (DAI) was the franchisor of Subway restaurants. Saleemi was a franchisee with three restaurants in the state of Washington. DAI alleged that the plaintiff had breached its franchise agreement by violating its ...

The California Court of Appeals, Second Appellate District, affirmed a trial court’s ruling that a franchisor did not breach the franchise agreements with its former franchisees by refusing to renew their franchises on the same terms found in their original franchise agreements. G.I. McDougal, Inc. v. Mail Boxes Etc., Inc., 2012 Cal. App. Unpub. LEXIS 243 (Cal. Jan. 12, 2012). As described earlier in this memorandum, MBE was the franchisor of packaging and shipping businesses that was acquired by United Parcel Service, which changed the franchise name to “The UPS Store.” ...

The California Court of Appeals, Second Appellate District, has reversed a trial court’s grant of summary judgment in favor of a franchisor regarding its former franchisees’ claims for negligent misrepresentation and violation of the California Franchise Investment Law and the California Corporations Code. D.T. Woodard, Inc. v. Mail Boxes Etc., Inc., et al., 2012 Cal. App. Unpub. LEXIS 242 (Cal. Jan. 12, 2012). Mail Boxes Etc., Inc. (MBE), a franchisor of packaging and shipping businesses, was acquired by United Parcel Service, which changed the franchise name to “The UPS ...

In Country Inns & Suites By Carlson, Inc. v. Camarillo Hospitality, LLC, Case No. SACV 11- 1802 AG (ANx) (N.D. Cal. Jan. 9, 2012), a case handled by Gray Plant Mooty, the franchisor filed a motion for preliminary injunction seeking to prevent the defendant from using and/or infringing upon its registered trademarks in promoting its new hotel as the “Camarillo Country Inn & Suites.” The hotel had been operated as a Country Inn & Suites By Carlson system hotel for over twelve years, but the former franchisee had recently been terminated and the property repossessed by its lender. In ...

In Fantastic Sams Salons Corp. v. Maxie Enterprises, Inc. and Paul Rubin, 2012 U.S. Dist. Lexis 8106 (M.D. Ga. Jan. 24, 2012), a former Fantastic Sams franchisee continued to operate a hair salon at its Fantastic Sams location after termination of the franchise agreement. In response to Fantastic Sams’ suit to enforce its noncompete agreement, the franchisee argued that the noncompete should be declared invalid under Georgia law. The clause at issue prohibited the former franchisee from “directly or indirectly participating as an owner, partner, member, director, officer ...

In Novus Franchising, Inc. v. Livengood, 2012 U.S. Dist. LEXIS 2610 (D. Minn. Jan. 8, 2012), a Minnesota federal court denied the franchisees’ motion to dismiss Novus’ claim for breach of contract based on the franchisees’ continued operation of their business during the post-term noncompete period, failure to pay required fees and royalties, underreporting of revenues, and failure to submit accurate financial information. The dispute arose when Novus learned that the franchisees had underpaid their royalties by roughly $10,000 through the end of the franchise term ...

In Outdoor Lighting Perspective Franchising, Inc. v. Home Amenities, Inc., et al., 2012 U.S. Dist. LEXIS 5406 (W.D.N.C. Jan. 18, 2012), the United States District Court for the Western District of North Carolina granted Outdoor Lighting Perspectives Franchising, Inc.’s (OLP’s) motion for a preliminary injunction, enjoining a former franchisee from continuing to operate a competing business within its former territory or that of another franchisee for a period of two years. Gray Plant Mooty represented OLP.

The court concluded that a “franchisor’s goodwill and ...

The United States District Court for the Southern District of Ohio recently enforced a franchise agreement’s arbitration provision, rejecting a franchisee’s claim of unconscionability. In Rodriguez v. Tropical Smoothie Franchise Development Corp., 2012 U.S. Dist. LEXIS 750 (S.D. Ohio, Jan. 4 2012), a franchisee brought suit against the franchisor of the Tropical Smoothie chain alleging that Tropical Smoothie violated state franchise disclosure laws, resulting in failure of the franchisee’s business. Tropical Smoothie moved to dismiss or stay the proceedings and ...

In In re Wagstaff Minnesota, Inc., 2012 U.S. Dist. LEXIS 372 (D. Minn. Jan. 3, 2012), the United States District Court for the District of Minnesota reversed a United States Bankruptcy Court decision by holding that a comprehensive set of Workout Agreements involving four separate contracts (Reinstatement Agreement, Addendum to Reinstatement Agreement, Letter Agreement, and KFC Franchise Agreement, collectively “Workout Agreements”) should be interpreted as forming one executory contract. Under the Bankruptcy Code, all defaults under an executory contract must be ...

In KFC Corp. v. JRN, Inc., 2012 U.S. Dist. LEXIS 6127 (W.D. Ky. Jan. 19, 2012), a federal district court denied a franchisor’s motion for a preliminary injunction seeking to prevent the continued operation of multiple franchises. KFC had terminated ten franchises owned by JRN, Inc., one of its largest franchisees, for not meeting a remodel schedule agreed to after its franchise agreements had gone into effect. KFC sued to enforce the terminations, taking the position that a breach of these ancillary agreements also constituted a breach of the underlying franchise agreements. The ...

This is the second in our series of articles reviewing the progeny of what we identified in our December 2007 ten-year anniversary edition as the most significant franchise case decisions summarized in Issues 1 through 100 of The GPMemorandum, which covered the period from late 1997 through 2007. The second of those ten significant rulings was United States v. Days Inns of America, Inc., which actually represented a series of cases brought around the country against franchisors under the building accessibility requirements of the Americans With Disabilities Act. (Gray Plant Mooty ...