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The Franchise Memorandum

Posts from January 2013 - Issue 163.
Posted in Arbitration

A United States District Court in Connecticut granted a franchisor’s motion to compel arbitration of a dispute with several of its franchisees.  EA Independent Franchisee Assoc., LLC v. Edible Arrangements Int’l, Inc., 2012 U.S. Dist. LEXIS 166082 (D. Conn. Nov. 22, 2012). The franchisee association filed a declaratory judgment action against Edible Arrangements alleging breaches of franchise agreements for the imposition of several system changes, including hours of operation and purchasing requirements, and Edible Arrangement’s failure to disclose its ...

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In Myers v. Jani-King of Philadelphia, Inc., 2012 U.S. Dist. LEXIS 172782 (E.D. Pa. Dec. 5, 2012), the United States District Court for the Eastern District of Pennsylvania dismissed the franchisees’ claim that the franchisor had breached the duty of good faith and fair dealing because the applicable state law did not recognize the existence of such a duty between parties to a franchise agreement. The franchisees brought a class-action lawsuit against Jani-King on the grounds that their franchise agreements constituted illegal employment contracts and raised their breach of ...

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Posted in Transfers

A federal court in Kentucky has upheld a franchisor’s rejection of three separate Asset Purchase Agreements (APAs) that would have transferred the franchisees’ restaurants to a third party. As part of a settlement agreement resolving various franchise agreement violations, the franchisee defendants in KFC Corp. v. Kazi, 2012 U.S. Dist. LEXIS 180424 (W.D. Ky. Dec. 20, 2012), were obligated to close any sale of their restaurants by November 30, 2012. KFC rejected the first proposed APA because it involved 100% financing, which did not meet KFC’s financial requirements. The ...

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In Lawn Doctor, Inc. v. Rizzo, 2012 U.S. Dist. LEXIS 17139 (D.N.J. Dec. 11, 2012), the United States District Court for the District of New Jersey granted Lawn Doctor’s motion for a declaratory judgment enforcing the parties’ settlement agreement and finding that Lawn Doctor’s covenant not to compete was valid and enforceable. Even though the covenant did not specifically prohibit irrigation services, a “competitive business” was defined to include “[a]ny business which operates, or grants franchises or licenses to others to operate, a business for the ...

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The United States District Court for the Northern District of Alabama recently held that Alabama’s Sales Representative Commission Contract Act, which requires timely payment of commissions to terminated sales representatives, did not apply to a franchise development agent. The plaintiff in Johnson v. Mossy Oak Properties, Inc., 2012 U.S. Dist. LEXIS 167605 (N.D. Ala. Nov. 27, 2012), was a terminated development agent for a real estate franchisor. As a development agent, Johnson was involved in the training and servicing of Mossy Oak franchisees in a specified territory ...

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In Tutor Time Learning Centers, LLC v. KOG Industries, Inc., 2012 U.S. Dist. LEXIS 162124 (E.D.N.Y. Nov. 13, 2012), the United States District Court for the Eastern District of New York denied Tutor Time’s motion for a preliminary injunction to enforce a posttermination noncompete agreement against its former franchisee. The court began by finding that Tutor Time was not irreparably harmed by potential customer confusion because the former franchisee changed its phone number and sent a letter to all existing customers informing them that it was no longer associated with Tutor ...

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Posted in Arbitration

The franchisor has gained a victory in the ongoing litigation between Coverall North America, Inc. and its franchisees. In Awuah v. Coverall North America, Inc., 2012 U.S. App. LEXIS 26461 (1st Cir. Dec. 27, 2012), the First Circuit held that a sub-group of purported class members who became Coverall franchisees by signing Consent to Transfer Agreements or Guaranties to Coverall’s franchise agreements must arbitrate their claims against Coverall. The district court had determined that this sub-group did not have to arbitrate their claims because, as a matter of contract ...

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The United States District Court for the Eastern District of California granted a franchisor’s motion for a preliminary injunction on its trademark infringement claim against a holdover franchisee after finding that it demonstrated all of the elements required for injunctive relief. 7-Eleven, Inc. v. TSC Lending Grp., Inc., 2012 U.S. Dist. LEXIS 166691 (E.D. Cal. Nov. 20, 2012). The franchisee was terminated for failing to maintain a net worth of $15,000, but it continued operating under 7-Eleven’s marks. The court held that 7-Eleven had demonstrated a likelihood of success ...

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Posted in Contracts

Jiffy Lube was recently sued by a real property company under which Jiffy Lube served as both the landlord and tenant of property located in Anne Arundel County, Maryland. Bird Realty Ltd. P’ship v. Jiffy Lube Int’l, Inc., 2012 U.S. Dist. LEXIS 177207 (D. Md. Dec. 14, 2012). Jiffy Lube entered into a prime lease for the property in 1989 and immediately thereafter entered into a sublease with the plaintiff. The plaintiff, in turn, subleased the property to a subsidiary of Jiffy Lube.  Through a series of mergers, Jiffy Lube assumed the obligations of the property as both landlord and ...

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Posted in International

In an important victory for franchisors, the Court of Appeal for Ontario has upheld a lower court’s decision dismissing Tim Hortons franchisees’ claims in a proposed class action. Fairview Donut, Inc. v. The TDL Group Corp., [2012] ONCA 867 (Dec. 7, 2012). As we reported in the April 2012 edition of The GPMemorandum, the Ontario Superior Court of Justice had dismissed a $2 billion action brought against Tim Hortons by a putative class of franchisees relating to Tim Horton's transition to a new donut production system and the pricing of its products.

The franchisees appealed the ...

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An arbitrator’s finding that a real estate brokerage franchisor violated the Connecticut Business Opportunity Investment Act has been upheld in GMAC Real Estate, LLC v. Fialkiewicz, 2012 U.S. App. LEXIS 26480 (2d Cir. Dec. 27, 2012). Franchisor GMAC Real Estate had sought to vacate the award in a Connecticut federal district court, which refused. The United States Court of Appeals for the Second Circuit affirmed late last month, finding that the arbitrator did not “manifestly disregard the law” in applying the state’s business opportunity statute.

The appeals court gave ...

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Posted in Class Actions

In Simpson v. Best Western International, Inc., 2012 U.S. Dist. LEXIS 162181 (N.D. Cal. Nov. 13, 2012) and Simpson v. Vantage Hospitality Group, Inc., 2012 U.S. Dist. LEXIS 172157 (N.D. Cal. Dec. 4, 2012), two separate federal judges ruled against two separate hotel franchisors on their respective motions to dismiss the plaintiffs’ consumer class action complaints. In each case the plaintiffs asserted that the franchisors violated a California penal statute when their reservation centers recorded Plaintiffs’ cellphone calls, and the franchisors moved to dismiss on the ...

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The Virginia State Corporation Commission issued an Order to Take Notice on November 16, 2012, stating that the Virginia Division of Securities and Retail Franchising had recommended certain revisions to Chapter 110 of Title 21 of the Virginia Administrative Code entitled “Retail Franchising Act Rules” (Virginia Franchise Rules), with a proposed effective date of March 1, 2013. For the most part, these changes are technical, but they may require some modifications to franchisors’ renewal filings in Virginia. The proposed modifications are as follows:

  • All filings must ...
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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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