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The Franchise Memorandum

Posts from March 2013 - Issue 165.
Posted in Class Actions

In Martin v. JTH Tax, Inc. d/b/a Liberty Tax Service, 2013 U.S. Dist. LEXIS 15512 (D.S.C. Feb. 5, 2013), the United States District Court for the District of South Carolina refused to certify customers of Liberty Tax franchises as a class under Federal Rule of Civil Procedure 23. The plaintiffs alleged that Liberty Tax franchisees pressured them into paying additional fees to file unnecessary forms, and that they incurred additional tax liability as a result of the fraudulently filed forms. The court gave two reasons for refusing to certify the plaintiffs as a class. First, it found ...

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Posted in Bankruptcy

In Carroll v. Farooqi, 2013 U.S. Dist. LEXIS 22329 (N.D. Tex. Feb. 19, 2013), the United States District Court for the Northern District of Texas affirmed a U.S. Bankruptcy Court’s holding that an individual had standing to pursue an action against a franchisor under the Texas Deceptive Trade Practices Act (DTPA). The case involved an unsuccessful sale of a Salad Bowl franchise. The CEO of the fast causal franchise company (who was also its president, chairman, and CFO) contacted a potential buyer of a franchise. The buyer signed a thirty-day option contract and paid $25,000 to the ...

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Posted in Settlement

A federal court in the Northern District of Illinois ruled that a signed terms sheet between a settling franchisor and franchisee was an enforceable agreement under Illinois state law. Pinnacle Performance, Inc. v. Garbis, 2013 U.S. Dist. LEXIS 24433 (N.D. Ill. Feb. 21, 2013). This lawsuit began when the franchisor, Pinnacle Performance, filed suit against its former franchisees to enforce the covenant not to compete in the parties’ franchise separation agreement. Months into the litigation, the parties negotiated and signed a settlement terms sheet in a settlement ...

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In You Fit, Inc. v. Pleasanton Fitness, LLC, 2013 U.S. Dist. LEXIS 18106 (M.D. Fla. Feb. 8, 2013), a federal court in Florida granted the motion of You Fit, a franchisor, for a preliminary injunction under trademark law. The court found that the defendant former franchisee’s operation of FIT U health clubs was confusingly similar to the franchisor’s YOUFIT health clubs.

The court discussed the seven factors used to evaluate whether there was a likelihood of confusion, focusing primarily on the two most important—the strength of the plaintiff’s mark and any actual confusion ...

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Posted in Insurance

A federal district court in Wisconsin granted partial summary judgment to a franchisor’s directors and officers (D&O) insurance carrier following its denial of liability coverage based on key policy exclusions. In Cousins Submarines, Inc. v. Federal Ins. Co., 2013 U.S. Dist. LEXIS 17306 (E.D. Wis. Feb. 8, 2013), citing the corporate liability coverage that supplemented its standard D&O liability coverage, a sandwich shop franchisor asked its insurer (Federal) to defend it in an underlying lawsuit. The underlying lawsuit alleged that Cousins and its representatives enticed ...

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In Long John Silver’s Inc. v. Nickleson, 2013 U.S. Dist. LEXIS 18391 (D. Ky. Feb. 12, 2013), a federal court in Kentucky granted in part and denied in part a franchisor’s motion for summary judgment on a former franchisee’s counterclaims. After Long John Silver’s initiated a lawsuit against Nickleson in connection with multiple failed franchises in Minnesota, Nickleson brought various counterclaims, alleging violations of the Minnesota Franchise Act (MFA) and common law fraud, among other claims. Nickleson’s counterclaims were based on Long John Silver’s ...

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In Days Inns Worldwide, Inc. v. Royal Hospitality Group, LLC, 2013 U.S. Dist. LEXIS 19464 (D.N.J. Feb. 11, 2013), the United States District Court for the District of New Jersey upheld the validity of a forum selection clause contained in the parties’ franchise agreement. Days Inn terminated the franchise agreement after the franchisees, who were located in California, failed to pay outstanding fees. When Days Inn brought suit in New Jersey for breach of contract, the franchisees moved to dismiss the complaint on the grounds that the court lacked personal jurisdiction over them ...

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The United States Court of Appeals for the Ninth Circuit last week affirmed a judgment won by an Avis licensee in Alaska who claimed that Avis steered business toward Budget® branded locations after the acquisition of that brand in 2002. Alaska Rent-ACar, Inc. v. Avis Budget Group, Inc., 2013 U.S. App. LEXIS 4566 (9th Cir. Mar. 6, 2013). The Alaska-based plaintiff claimed that Avis violated a prior settlement agreement, which promised licensees that any rental car companies acquired by Avis in the future would maintain separate sales, marketing, and reservation operations. An ...

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Posted in Terminations

A federal district court in the Eastern District of Pennsylvania this month issued a permanent injunction against a 7-Eleven franchisee and its employees who were found to have defrauded the franchisor by underreporting store sales. 7-Eleven, Inc. v. Upadhyaya, 2013 U.S. Dist. LEXIS 29091 (E.D. Pa. Mar. 1, 2013). In this case, the franchisor had terminated the franchise without an opportunity to cure, which the court upheld on the grounds that fraud by the franchisee goes directly to the essence of the contract and cannot be cured. Finding that the defendants had failed to offer ...

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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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