The Franchise Memorandum

An Arizona federal district court this month ruled that a franchisor could continue to seek to compel arbitration against a member of its franchisee association, even though the association itself had first sued the franchisor in another state. Cold Stone Creamery, Inc. v. Nutty Buddies, Inc., 2012 U.S. Dist. LEXIS 142955 (D. Ariz. Oct. 3, 2012). The Arizona case filed by Cold Stone seeks a declaratory judgment against franchisee Nutty Buddies, Inc. to compel arbitration of the dispute at the heart of a separate state-court action brought earlier in Florida by the Cold Stone ...

Finding that the defendant franchisee failed to show likelihood of success on the merits, the United States District Court in Nebraska recently denied a motion for a preliminary injunction brought by a Home Instead franchisee who sought to keep operating under two expired franchise agreements. Home Instead, Inc. v. Florance, 2012 U.S. Dist. LEXIS 134554 (D. Neb. Sept. 20, 2012). The court relied solely on the interpretation of the language in the franchise agreements in denying the franchisee’s request to restore its pre-expiration “operational status quo.” The court ...

A North Carolina federal court recently held that a franchise is a legitimate interest that warrants protection by a covenant not to compete. Econo-Lube N’ Tune, Inc. v. Orange Racing, LLC, 2012 U.S. Dist. LEXIS 129219 (W.D.N.C. Sept. 10, 2012). The franchisees operated an Econo-Lube franchise and had agreed not to compete or have an interest in any similar business. When the franchisor learned the franchisees had an interest in a competing business, the franchisor served them with a notice of default. The franchisees then abandoned the franchise but began operating the same ...

In JTH Tax, Inc. v. Noor, 2012 U.S. Dist. LEXIS 138657 (E.D. Va. Sept. 26, 2012), the franchisor filed a motion for contempt against the terminated franchisees for violating a default judgment order that, in part, enjoined the franchisees from operating a tax preparation business in violation of the franchise agreement’s noncompete provision and required the franchisees to return certain information and materials belonging to the franchisor. In support of its motion, the franchisor showed that, among other things, the terminated franchisees were preparing tax returns ...

In Six Continents Hotels, Inc. v. CPJFK, LLC, 2012 U.S. Dist. LEXIS 131675 (E.D.N.Y. Sept. 11, 2012), the franchisor of the Crowne Plaza Hotels system was awarded a large judgment against a terminated hotel franchisee that had failed to meet its financial obligations. The judge granted the franchisor’s unopposed motion for summary judgment on liability. The court ruled that franchisor Six Continents was entitled to terminate the agreement and collect damages. The court went on to find Six Continents could collect unpaid fees and liquidated damages, and it approved the formula ...

The United States District Court for the Western District of Kentucky this month transferred an action brought by franchisor KFC Corporation against a terminated corporate franchisee and its personal guarantors, finding that while the court had jurisdiction over the corporation, it did not have personal jurisdiction over its personal guarantors. Therefore, the court transferred the entire action to the United States District Court for the Northern District of Texas. KFC Corp. v. Texas Petroplex, Inc., No. 3:11-cv-00479 (W.D. Ky. Oct. 5, 2012).

In determining that the ...

The United States District Court for the Southern District of Ohio recently granted summary judgment in favor of Choice Hotels on a claim for trademark infringement by a terminated Econo Lodge franchisee. In Choice Hotels International, Inc. v. Jagaji, Inc., 2012 U.S. Dist. LEXIS 128048 (S.D. Ohio Sept. 10, 2012), the hotel franchisor sent its franchisee notices of default, citing the franchisee’s failure to respond to guest complaints and its failure to pay amounts due under the franchise agreement. Choice subsequently terminated the franchise agreement when the franchisee ...

In Dunkin’ Donuts Franchising LLC v. Oza Brothers, Inc., 2012 U.S. Dist. LEXIS 140595 (E.D. Mich. Sept. 28, 2012), a Michigan federal court granted summary judgment in favor of the franchisors (represented by Gray Plant Mooty) in a case against their former franchisees for breach of contract based on the underreporting of sales, tax fraud, and tax evasion. Oza Brothers owned a Dunkin’ Donuts/Baskin Robbins combination franchise in Michigan. Dunkin’ began an investigation after receiving a tip that Oza Brothers was not reporting sales made to auto dealerships. The ...

In Kairy v. Supershuttle International, Inc., No., 2012 U.S. Dist. LEXIS 134945 (N.D. Cal. Sept. 20, 2012), the United States District Court for the Northern District of California granted a franchisor’s motion to stay proceedings and to compel individual arbitration of franchisees’ claims. The franchisees, who are former airport shuttle drivers, brought suit in federal court alleging that Supershuttle violated the Fair Labor Standards Act and applicable state law by failing to pay minimum wages and overtime. Supershuttle moved to compel arbitration on the grounds that ...

A case that has stood as one of the only recent precedents for an antitrust tying claim in franchising was dismissed last week by the court in Burda v. Wendy’s Int’l, Inc., 2012 U.S. Dist. LEXIS 145447 (S.D. Ohio Oct. 9, 2012). Last week’s decision favors the franchisor, after the same court twice had refused to dismiss the plaintiff franchisee’s tying claims, as reported in Issues 124 and 136 of The GPMemorandum. This time, on motion for summary judgment, Wendy’s prevailed on all claims, including the challenge to the franchisor’s involvement in the supply of products to ...