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The Franchise Memorandum

Posts from June 2014 - Issue 181.

The California Department of Business Oversight has announced that "Beginning at noon on June 18, 2014... franchise applications and exemption notices filed under the Franchise Investment Law may be filed and paid for online using the DOCQNET selfservice portal." All franchise filings may be completed online after that date.

Although CALEASI, the electronic database of franchise filings, is being phased out, information previously found there is being transferred to the DOCQNET website. Information about the DOCQNET system is available at www.dbo.ca.gov/DOCQNET.

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Posted in Terminations

In Bans Pasta, LLC v. Mirko Franchising, LLC, 2014 U.S. Dist. LEXIS 71466 (W.D. Va. May 23, 2014), a federal court in Virginia denied franchisee Bans Pasta's motion to dismiss franchisor Mirko's counterclaims for breach of contract and other claims. We reported on a previous decision in this case in Issue 178 of The GPMemorandum. Franchisee Bans Pasta accused Mirko Franchising and its representatives of negligently or fraudulently inducing it to enter into the franchise agreement. Bans Pasta notified Mirko in March 2013 that its bad acts constituted a constructive termination of ...

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On interlocutory appeal, the Eleventh Circuit reversed in part a district court's grant of summary judgment for a franchisor on the basis that the appellant-franchisee's claims of illegal and undisclosed kickbacks were barred by the one-year contractual limitations period. Massey, Inc. v. Moe's Southwest Grill, LLC, 2014 U.S. App. LEXIS 8765 (11th Cir. May 9, 2014). The appeal stems from an action filed by 39 Moe's franchisees which sought to recover monies provided by approved suppliers to Moe's CEO and affiliates. In purchasing a franchise, each of the three appellant ...

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Posted in Arbitration

The United States District Court for the District of New Hampshire recently granted a franchisor's motion to compel arbitration, finding it had not waived its rights to arbitrate a dispute by having first sought preliminary injunctive relief. Pla-Fit Franchise, LLC v. Patricko, Inc., 2014 U.S. Dist. LEXIS 69047 (D.N.H. May 20, 2014). Pla-Fit sued its former franchisee, Patricko, seeking injunctive relief for trademark infringement, a declaratory judgment that Patricko had violated the post-termination non-compete provisions of the franchise agreements between the ...

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Posted in RICO

In Jennings v. Bonus Building Care, Inc., Bus. Franchise Guide (CCH) 9115,284 (W.D. Mo. May, 7, 2014), a federal district court dismissed a lawsuit brought by four unit franchisees under the federal Racketeer Influenced and Corrupt Organizations Act ("RICO") because the franchisees could not meet any of the five elements required to sustain a RICO action. The franchisees alleged fraudulent and deceptive business practices against a total of 55 defendants associated with the Bonus Building Care franchise system, including corporate entities owned by the franchisor, multiple ...

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In Jack in the Box, Inc. v. Mehta, 2014 U.S. Dist. Lexis 68519 (N.D. Cal. May 19, 2014), the court approved the request of Jack in the Box ("JIB") to modify an existing order authorizing JIB to operate restaurants owned by previously terminated franchisees, as the court approved a private foreclosure sale of the restaurant assets by GE Capital Bank ("GECB"), a secured creditor of the franchisees, to JIB. Mehta's franchise agreements and leases were terminated by JIB due to payment defaults. In a lawsuit, JIB obtained a "turnover order" allowing it to take over operation of Mehta's ...

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In Sanford v. Maid-Rite Corp., Civil File No. 13-2250 (D. Minn. Apr. 21, 2014), the court dismissed the plaintiffs' Minnesota Franchise Act ("MFA") claims against the defendant directors of franchisor Maid-Rite for failure to demonstrate minimum contacts necessary to establish personal jurisdiction. Sanford alleged two factors in support of personal jurisdiction over the defendant directors: a prima facie case for the directors' personal liability under the MFA, and the identification of the directors in Franchise Disclosure Document filed in Minnesota. In support of the ...

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Posted in Damages

In Dunkin' Donuts Franchising LLC v. Sai Food & Hospitality, LLC, 2014 U.S. Dist. LEXIS 67512 (E.D. Mo. May 16, 2014), the United States District Court for the Eastern District of Missouri granted a franchisor's motion for attorneys' fees, costs, and expenses following a bench trial in which the court upheld the termination of a group of franchisees on the grounds that they fraudulently concealed the true ownership of their operating company prior to signing their franchise agreements. Gray Plant Mooty represents the franchisor in this matter. As reported in Issue 176 of The ...

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A New Jersey appellate court affirmed a state trial court's ruling that terminated insurance agents were not in a franchise relationship with Allstate Insurance Company and that the New Jersey Franchise Practices Act did not apply to their termination. DeLuca v. Allstate N.J. Ins. Co., 2014 N.J. Super. Unpub. LEXIS 1090 (N.J. Super. Ct. App. Div. May 13, 2014). In this case, three terminated independent insurance agents sued Allstate for wrongful termination, seeking to apply the NJFPA to their relationship. The trial court issued an order dismissing the complaints, concluding ...

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Posted in Contracts

The United States District Court for the District of New Jersey recently granted a franchisor's motion to dismiss a franchisee's counterclaims for, among other things, fraud and a breach of the New Jersey Consumer Fraud Act ("NJCFA"). Yogo Factory Franchising, Inc. v. Ying, 2014 U.S. Dist. LEXIS 61968 (D.N.J. May 5, 2014). Ying's counterclaims were premised on allegations that he was induced into purchasing franchises by pre-contract misrepresentations of earnings potential, investment costs, and services to be provided by Yogo Factory.

In dismissing the fraud claim, the court ...

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Posted in Patents

Patent litigation remains a topic of discussion in franchise circles, as more and more franchisors have been named as defendants in large cases involving some element of their franchise system technology. This week the United States Supreme Court issued two unanimous decisions likely to benefit franchisors facing patent infringement allegations. In Nautilus, Inc. v. Biosig Instruments, Inc., No. 13-369 (U.S. June 2, 2014), and Limelight Networks, Inc. v. Akamai Technologies, Inc., No. 12-786 (U.S. June 2, 2014), the Supreme Court clarified the enforceability of certain ...

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Posted in Terminations

The United States Court of Appeals for the Third Circuit recently affirmed a trial court's grant of summary judgment in favor of a hotel franchisor on its breach of contract claim, and on the franchisee's counterclaims, despite the franchisee's claims that the franchisor first breached its obligations under the franchise agreements. Red Roof Franchising, LLC v. Patel, 2014 U.S. App. LEXIS 8078 (3d Cir. Apr. 29, 2014). Red Roof terminated Patel's franchise agreements in New Jersey and Minnesota as a result of uncured failure to pay royalties and other amounts due. Red Roof then ...

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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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