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The Franchise Memorandum

Posts from July 2014 - Issue 182.

A federal district court in New York enforced part of a noncompete covenant that existed between a franchisor and former franchisee, finding some of the provision overly broad and only enforcing the aspects necessary to protect the franchisor's legitimate business interests. Mister Softee, Inc. v. Tsirkos, 2014 U.S. Dist. LEXIS 77434 (S.D.N.Y. June 5, 2014). In moving for a preliminary injunction, Mister Softee sought, among other things, enforcement of covenants that barred former franchisee Tsirkos from competing in former and other franchise territories throughout four ...

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Posted in Terminations

A federal court in California has refused to summarily grant a declaratory judgment that a franchisor properly terminated an agreement with its franchisee. Valvoline Instant Oil Change Franchising, Inc. v. RFG Oil, Inc., 2014 U.S. Dist. LEXIS 77382 (S.D. Cal. June 4, 2014). After franchisee RFG failed to make timely payments, Valvoline terminated its license agreement. But Valvoline agreed to forgo enforcement remedies and early termination fees if RFG released all claims and entered into a new "We Feature" Agreement by which RFG would continue to operate its various locations ...

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Posted in Internet

In another recent decision a federal court in New Jersey denied the motion of Wyndham Worldwide Corporation, Wyndham Hotel Group, LLC, and Wyndham Hotel Management, Inc. (collectively, the "Wyndham Entities") to dismiss the complaint brought by the FTC for unfair or deceptive acts or practices based on breaches of the property management computer system used by the Wyndham franchisor and its franchisees. FTC v. Wyndham Worldwide Corp., 2014 U.S. Dist. LEXIS 84913 (D.N.J. June 23, 2014). The FTC alleged that franchisor Wyndham Hotels and Resorts, along with its affiliates ...

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Posted in Damages

The United States District Court for the District of New Jersey recently granted a $570,000 default judgment damage award in favor of a franchisor. Howard Johnson Int'l, Inc. v. Ebuehi, 2014 U.S. Dist. LEXIS 73560 (D.N.J. May 29, 2014). The defendants were co-owners of Viva Vista Ventures, Inc., which entered into a hotel franchise agreement with Howard Johnson. They provided a guarantee that if Viva defaulted on its obligations, they would perform. After Viva stopped operating the facility as a Howard Johnson location, the franchisor sent Viva a termination letter that triggered ...

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A New Jersey federal district court last week dismissed a franchisee's wrongful termination counterclaims alleging violation of the New Jersey Franchise Practices Act ("NJFPA"). Kumon N. Am., Inc. v. Timban, 2014 U.S. Dist. LEXIS 84907 (D.N.J. June 23, 2014). Under the NJFPA, a franchisor normally may not terminate, cancel, or fail to renew a franchise unless it provides advanced written notice of such action and the action is taken for "good cause." After Kumon asserted claims against franchisee Timban for continuing to operate his formerly franchised Kumon Math and Reading ...

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Posted in Class Actions

The United States Court of Appeals for the Ninth Circuit has affirmed a ruling from a federal California court, approving a proposed class action settlement agreement that included nearly a million dollars in fees to the plaintiffs' attorneys. Laguna v. Coverall N. Am., Inc., 2014 U.S. App. LEXIS 10259 (9th Cir. June 3, 2014). In 2009, the plaintiffs brought a class action suit against Coverall, a janitorial franchising company, alleging that Coverall misclassified California franchisees as independent contractors allowing them to avoid certain protections afforded to ...

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A federal court in Puerto Rico granted a franchisor's motion to transfer a case to the United States District Court for the Southern District of Florida based on the forum selection clause in the franchise agreements. Caribbean Rests., LLC v. Burger King Corp., 2014 U.S. Dist. LEXIS 76352 (D.P.R. June 3, 2014). Burger King and Caribbean Restaurants entered into 182 franchise agreements for Burger King restaurants located throughout Puerto Rico. When Burger King attempted to assert control over Caribbean's expenditure of funds for advertising, promotion, and public relations, by ...

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Posted in Advertising

In an 8-0 decision announced on June 12, 2014, the Supreme Court held that a company may sue a competitor for unfair competition under the Lanham Act because of false or misleading food and beverage labeling and advertising, even when the labeling and advertising otherwise meet the requirements of the Federal Food Drug and Cosmetic Act ("FDCA"). POM Wonderful LLC v. Coca-Cola Co., 189 L. Ed. 2d 141 (U.S. June 12, 2014). POM, a pomegranate juice producer that markets and sells a pomegranate-blueberry juice, sued Coca-Cola under the Lanham Act for misleading labeling of the ...

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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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