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The Franchise Memorandum

Posts from August 2012 - Issue 158.
Posted in Contracts

Last month, the United States District Court for the Central District of Illinois granted summary judgment to a franchisee of five Steak N Shake restaurants in a contract dispute over the franchisor’s policy requiring all franchisees to “follow set menu and pricing (with the exception of breakfast items), and to offer all company promotions published.” Stuller, Inc. v. Steak N Shake Enterprises, Inc., 2012 U.S. Dist. LEXIS 97414 (C.D. Ill. July 12, 2012). According to the plaintiff, the policy was “contrary to longstanding custom, practice, policy, agreement, and ...

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Posted in Contracts

McLane Foodservice, Inc., a regional distributor of raw produce to Taco Bell restaurants, was named as a defendant in several customer lawsuits arising out of a 2006 E. coli outbreak that was allegedly traced to lettuce served at the restaurants. McLane subsequently filed suit against Ready Pac Produce, Inc., who processed produce for Taco Bell, and Tanimura & Antle, Inc., the entity that procured the raw produce processed by Ready Pac. McLane sought to recover inventories, profits, and goodwill that it lost as a result of the outbreak. McLane also asserted claims for ...

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The United States District Court for the District of New Jersey also recently refused to grant injunctive relief to enforce a covenant against competition contained in a franchise agreement. In Lawn Doctor, Inc. v. Rizzo, 2012 U.S. Dist. LEXIS 89678 (D.N.J. June 27, 2012), the franchisor sought a preliminary injunction requiring the defendant franchisees to comply with their post-termination obligations. The parties agreed to all the relief sought by Lawn Doctor, except enforcement of the covenant that required the franchisees to refrain from operating a competing business in ...

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Posted in Trademarks

In Phelan Holdings, Inc. v. Wendy’s International, Inc., 2012 U.S. Dist. LEXIS 101643 (M.D. Fla. July 3, 2012), the United States District Court for the Middle District of Florida dismissed three trademark-related claims because the plaintiff failed to cite properly to statutory causes of action. The dispute arose in connection with the alleged misuse of plaintiff’s service mark “you can’t fake fresh.” (The plaintiff operates seafood restaurants under the mark “Pincher’s Crab Shack.”) The court granted leave for the plaintiff to amend its complaint, but ...

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A franchisor’s motion to strike a franchisee’s demand for jury trial was granted after a California federal district court found a contractual jury waiver to be enforceable. In Century 21 Real Estate LLC v. All Professional Realty, Inc., 2012 U.S. Dist. LEXIS 93895 (E.D. Cal. July 6, 2012), the court considered Century 21’s motion to strike the demand for a jury trial made by its former franchisee, All Professional Realty, Inc. Century 21 had filed an action based on All Professional’s use of Century 21’s trademarks after the parties’ real estate brokerage franchise ...

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Taco Bell Corp. has won an important ruling in a California federal district court against class action claims involving unauthorized text messages. In Thomas v. Taco Bell Corp., 2012 U.S. Dist. LEXIS 107097 (C.D. Cal. June 25, 2012), the court granted summary judgment dismissing the claims against the franchisor, despite its role in the franchisee advertising association that had approved the text messaging component of the promotion. The texting was alleged to violate a federal statute prohibiting certain unauthorized communications.

In granting summary judgment, the ...

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The California Court of Appeals recently affirmed dismissal of a franchisee’s claims for violation of the California Franchise Investment Law (CFIL) and breach of contract, both of which were based on a franchisor’s alleged oral promise to grant an additional franchise territory in the future. In Celsi v. H&R Block Tax Services, LLC, 2012 Cal. App. Unpub. LEXIS 5275 (July 17, 2012), an H&R Block franchisee entered into a franchise agreement that gave it the right to operate a business in a specific franchise territory. At the same time, the franchisee also executed an addendum ...

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A federal court recently dismissed a franchisee’s antitrust claims but permitted its fraud claims to proceed. In Ohio Learning Ctrs., LLC v. Sylvan Learning, Inc., 2012 U.S. Dist. LEXIS 102784 (D. Md. July 24, 2012), a Maryland federal court considered claims for fraud and antitrust violations arising out of plaintiffs’ purchase of a Sylvan Learning Center franchise. The plaintiffs’ fraud claims alleged that, in connection with the sale of the center at issue, the defendants made numerous misrepresentations and material omissions as to the true financial condition of the ...

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In a decision with implications for lawyers representing franchisees, a New Jersey court recently disqualified a firm because of a conflict of interest. In Mody v. The Quiznos Franchise Company, 2012 N.J. Super. LEXIS 1719 (N.J. Super. Ct. App. Div. July 18, 2012), the New Jersey appellate court disqualified the Marks & Klein, LLP (“M&K”) law firm from representing the plaintiffs in a lawsuit against Quiznos after M&K hired an attorney, Andrew Bleiman, who had represented various Quiznos-related entities in litigation relating to franchise disputes. Significantly, the ...

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Posted in Choice of Law

A federal court recently granted summary judgment to a franchisor despite rejecting the franchisor’s choice of law argument. In Red Roof Franchising, LLC v. AA Hospitality Northshore, LLC, 2012 U.S. Dist. LEXIS 90564 (D.N.J. June 28, 2012), the United States District Court for the District of New Jersey upheld the termination of a franchisee who ceased making payments under its franchise agreement before completely abandoning the business. The franchisee had operated a Red Roof Inn in Minnesota under an agreement that contained a Texas choice of law provision. Prior to the end of ...

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A Minnesota federal district court has enjoined a former franchisee’s use of its franchisor’s trademarks and certain proprietary products, but has refused to prevent the defendant from operating a competing business. In Novus Franchising, Inc. v. Dawson, 2012 U.S. Dist. LEXIS 103025 (D. Minn. July 25, 2012), Novus, the franchisor, terminated Dawson’s franchise rights and alleged that Dawson breached that agreement’s post-termination obligations by operating a competitive automotive glass replacement and repair business under the name of CarMike, and by using the ...

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Ohio recently revised its business opportunity law, effective September 30, 2012. Notably, the scope of the law was expanded to increase the threshold for the definition of the initial payment, clarify the process for agreement cancellation, and prohibit any “venue or choice of law provision that deprives a purchaser who is an Ohio resident” from the benefits of the law. Although any franchisor who complies “in all material respects” with the FTC’s franchise rule is exempt from the Ohio business opportunity law, any franchisor who does not materially comply with the FTC ...

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Posted in Arbitration

An association representing its 35 regional franchisee members brought an arbitration proceeding against franchisor Fantastic Sams for breach of contract and other claims on behalf of its members. In Fantastic Sams Franchise Corp. v. FSRO Association Ltd., 683 F.3d 18 (1st Cir. June 27, 2012), FSRO sought declaratory and injunctive relief, but not damages. Fantastic Sams filed a motion in federal court to stay the arbitration and to compel the Association’s members to arbitrate their claims individually. The court granted that motion in part, finding that 25 of the members’ ...

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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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