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The Franchise Memorandum

Posts from September 2013 - Issue 171.

In a recent award, a panel of three arbitrators in Canada concluded that H & R Block Canada was entitled to require franchisee Gerger Enterprises to use computer tax preparation software provided by Block. Gerger Enters. Ltd. v. H & R Block Canada, Inc., Private Arbitration Award (Aug. 1, 2013). The dispute arose when Block decided that it was desirable to have uniform tax preparation software used by all of its franchisees, which would, among other things, enable expanded communication between the company and its many franchised offices. Block therefore amended its operations ...

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Posted in Damages

A federal court in Missouri recently granted a significant award of attorneys’ fees to a franchisor based on the contractual fee-shifting provision contained in the franchise agreement between itself and the franchisee. In Coral Group, Inc. v. Shell Oil Co., 2013 U.S. Dist. LEXIS 113219 (W.D. Mo. Aug. 12, 2013), the court agreed to award over $3.1 million in attorneys’ fees and expenses incurred over an eight-year period defending against claims related to Coral Group’s operation of Shell gasoline stations and convenience stores. In a previous ruling that had been upheld by ...

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The United States District Court for the District of New Jersey recently denied a franchisor’s motion to dismiss based on an area development agreement’s forum selection clause, on the ground that the contract had created a “franchise” and controlling state law did not enforce such clauses against New Jersey franchisees. The parties in Navraj Restaurant Group, LLC v. Panchero’s Franchise Corp., 2013 U.S. Dist. LEXIS 115199 (D.N.J. Aug. 14, 2013), had entered into an area development agreement under which the developer had the right to recruit and solicit franchisees in ...

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A federal district court in Arizona recently held that a franchisor was not liable for Title VII claims brought by an employee of one of its franchisees. In Courtland v. GCEPSurprise, LLC, 2013 U.S. Dist. LEXIS 105780 (D. Ariz. July 29, 2013), the plaintiff sued a franchisee as well as the franchisor, Buffalo Wild Wings, alleging that she was subject to sexual discrimination, harassment, and retaliation by members of the restaurant’s management staff. Buffalo Wild Wings moved for summary judgment on the plaintiff’s claims and argued that it could not be held liable for her ...

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Posted in Terminations

A United States District Court in Colorado last week issued a preliminary injunction against Steak ‘n Shake franchisees who were terminated for failing to honor the system’s mandatory promotional programs. Steak ‘n Shake Enters., Inc. v. Globex Co., 2013 U.S. LEXIS 125330 (D. Colo. Sept. 3, 2013). Specifically, the franchisees refused to comply with the chain’s “$4 meal” menu, and a codefendant had failed to open stores required under an area development agreement. The injunction order prohibits the defendants from operating certain terminated restaurants and ...

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Posted in Contracts

A Wisconsin federal district court dismissed a terminated franchisee’s tort based claims premised on a pre-agreement misrepresentation by the franchisor, but refused to dismiss—for the time being—the franchisee’s unjust enrichment claim. ERA Franchise Sys., LLC v. Hoppens Realty, Inc., 2013 U.S. Dist. LEXIS 107078 (W.D. Wis. July 31, 2013). Prior to the execution of a franchise agreement, a representative from ERA allegedly told the franchisee that it would receive support and training from ERA during the franchise relationship. The franchisee claimed that ERA made ...

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The United States Court of Appeals for the Eighth Circuit last month upheld a district court’s denial of injunctive relief for a franchisor that had waited too long to enforce a former franchisee’s post-termination covenant against competition. Novus Franchising, Inc. v. Dawson, 2013 U.S. App. LEXIS 16103 (8th Cir. Aug. 5, 2013). The district court subsequently allowed the franchisee’s counterclaims under the Minnesota Franchise Act to proceed. Novus Franchising, Inc. v. Dawson, 2013 U.S. Dist. LEXIS 117717 (D. Minn. Aug. 20, 2013). This case began in 2012, when Novus ...

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Posted in Arbitration

A federal court in Louisiana has ruled that the arbitrator is the appropriate person to decide both substantive questions and questions of arbitrability under a franchise agreement requiring arbitration of “all disputes.” Planet Beach Franchising Corp. v. Zaroff, 2013 U.S. Dist. LEXIS 121908 (E.D. La. Aug. 27, 2013). This case began when the owners of four Planet Beach salons, all operated under separate franchise agreements, filed a demand for arbitration claiming that Planet Beach allegedly made a number of material misrepresentations and omissions in its sales ...

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Posted in Employment

The battle continues in the case of Awuah v. Coverall North America. As regular readers of The GPMemorandum will recall, Awuah is a class action matter involving janitorial services franchisees. The lawsuit asserts that the class of franchisees should be considered to be employees, instead of as franchisees and independent contractors, for purposes of applying minimum wage and overtime laws. As first reported in Issue 130 of The GPMemorandum (May 2010), the franchisee class survived summary judgment on its claims, sounding alarm bells throughout the franchising community. As ...

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In WW, LLC v. The Coffee Beanery, Ltd., 2013 U.S. Dist. LEXIS 100673 (D. Md. July 17, 2013), the United States District Court for the District of Maryland granted in part and denied in part Coffee Beanery’s motion for summary judgment relating to the franchisee’s claims alleged under the Maryland Franchise Act. WW alleged that Coffee Beanery violated Section 14-227 of the Act, which creates civil liability if the person who sells or grants a franchise makes an untrue statement or omission of a material fact to induce an unaware buyer to purchase a franchise. WW claimed that Coffee ...

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Posted in Contracts

In Joseph McSweeney Enterprises, LLC v. Mr. Softee Sales and Manufacturing, LLC, 2013 U.S. Dist. LEXIS 122279 (D.N.J. Aug. 17, 2013), the United States District Court for the District of New Jersey granted Mr. Softee and its affiliates’ motion to dismiss a franchisee’s claims for fraud, breach of the New Jersey Consumer Fraud Act (CFA), breach of warranty, and breach of contract based on an integration clause in the franchise agreements. The franchisee claimed that the ice cream trucks it purchased from Mr. Softee’s affiliate pursuant to its franchise agreements did not ...

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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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