The Franchise Memorandum

A federal district court in California determined that a franchisor could be held liable for violation of the California Unfair Competition Law (UCL) based upon the content of form membership agreements it had originated and distributed to its franchisees for sale to the public. In Hahn v. Massage Envy Franchising, LLC, 2014 U.S. Dist. LEXIS 147899 (S.D. Cal. Sept. 25, 2014), the plaintiffs represented a class of customers who had signed membership agreements at one of Massage Envy's franchised clinics. They argued that a provision in the agreements that required customers to ...

A federal court recently determined that a franchisee's affirmative defenses were barred by the doctrine of res judicata. In KFC Corp. v. Kazi, 2014 U.S. Dist. LEXIS 138278 (W.D. Ky. Sept. 30, 2014), KFC sought to recover past-due money from Kazi, the guarantor and sole shareholder of four franchisees that operated 142 terminated KFC units. Kazi asserted affirmative defenses attacking the franchisees' liability to KFC. The franchisor argued Kazi's defenses were barred because they were, or should have been, litigated during prior bankruptcy proceedings involving the ...

A federal court in New Jersey recently granted a franchisor default judgment confirming an arbitration award against a former franchisee. Doctor's Assocs. Inc. v. Singh-Loodu, 2014 U.S. Dist. LEXIS 142208 (D.N.J. Oct. 6, 2014). Doctor's Associates prevailed in arbitration proceedings against Singh-Loodu, which terminated his Subway franchise, enjoined him from continuing to use its marks, and awarded monetary damages for each day he continued to operate the store. After arbitration, Doctor's Associates sought to confirm the award in federal court against both Singh-Loodu ...

A federal court granted partial summary judgment in favor of a former franchisee after finding clear but technical violations of the Maryland and New York registration and disclosure laws, but refused to award damages. A Love of Food I v. Maoz Vegetarian USA, Inc., 2014 U.S. Dist. LEXIS 138962 (D.D.C. Sept. 30, 2014). After approximately two years of operations, franchisee A Love of Food's quick-service restaurant went out of business as a result of large operating losses and significantly higher than expected outof-pocket expenditures. A Love of Food brought suit against its ...

The United States District Court for the Western District of Missouri awarded H&R Block Tax Services, which Gray Plant Mooty represented, $481,184.57 in attorneys' fees and costs incurred in connection with litigation arising out of Block's termination of its largest franchisee in Puerto Rico. H&R Block Tax Servs. LLC v. Acevedo-Lopez, 2014 U.S. Dist. LEXIS 139269 (W.D. Mo. Oct. 1, 2014). The court had previously awarded Block more than $1.3 million in damages and issued a permanent injunction enforcing the franchisee's posttermination obligations.

The court found that the time ...

A Louisiana Court of Appeal recently upheld dismissal of a franchisee's complaint, which alleged that a franchisor's refusal to grant development rights and to approve the transfer of additional franchises to the existing franchisee violated the Louisiana Unfair Trade Practices Act (LUTPA). LeCompte v. AFC Enters., Inc., Bus. Franchise Guide (CCH)1 15,386 (La. Ct. App. Oct. 1, 2014). LeCompte was a franchisee for AFC Enterprises' Popeye's restaurants. He requested development rights after AFC announced its intent to expand in his local market. LeCompte's requests for ...

In Robinson v. Wingate Inns International, the United States District Court for the District of New Jersey granted in part and denied in part the hotel franchisors' motion to dismiss a former franchisee's claims relating to two failed hotel franchises. 2014 U.S. Dist. LEXIS 139758 (D.N.J. Sept. 24, 2014). Robinson, the franchisee, brought claims against Wingate for breach of contract, breach of the covenant of good faith and fair dealing, and fraud, all based on his inability to obtain financing described in the FDD. Robinson also brought good faith and fair dealing and fraud claims ...