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The Franchise Memorandum

Posts from February 2015 - Issue 190.

A federal court in California recently denied a motion by former franchisees to dismiss a franchisor's claims for breach of contract and trademark infringement based on the contractual limitations period in the parties' franchise agreement. Fantastic Sam's Salons, Corp. v. Moassesfar, 2015 U.S. Dist. LEXIS 6934 (C.D. Cal. Jan. 21, 2015). Moassesfar had operated one Fantastic Sam's salon for three years and a second for over two years without paying franchise fees. In 2014, Fantastic Sam's sent Moassesfar a notice of default and provided an opportunity to cure the financial ...

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A federal court in Pennsylvania recently barred a franchisee from introducing evidence at trial that a franchisor had fraudulently induced the franchisee to enter into a contract through extra-contractual assurances. In G6 Hospitality v. HI Hotel Group, LLC, 2015 U.S. Dist. LEXIS 5125 (M.D. Pa. Jan. 15, 2015), G6 Hospitality brought suit for breach of contract and infringement of G6's Motel 6 trademarks. As trial approached, G6 anticipated that HI would assert an affirmative defense to the contract claim by arguing that it entered into the franchise agreement only because of ...

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Posted in Damages

A federal court in New Jersey last week refused to grant judgment to a franchisor without a trial to enforce a guaranty because the target guarantor submitted evidence that, while his own signature was undisputed, the signatures of his fellow guarantors were forged. Ramada Worldwide Inc. v. Jafri, 2015 U.S. Dist. LEXIS 10050 (D.N.J. Jan. 29, 2015). There were four guarantors to the franchisee's obligations under the hotel franchise agreement in this case. The party against which the franchisor sought summary judgment opposed the motion on the theory that he would not have committed ...

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The United States District Court for the Northern District of New York has preliminarily enjoined a former franchisee from operating a competing business in violation of her covenant not to compete with the franchisor. H&R Block Tax Servs., LLC v. Strauss, Case No. 1:15-cv-0085 (N.D.N.Y. Feb. 4, 2015). Gray Plant Mooty represents H&R Block in this case. The franchisee, Strauss, had agreed that upon termination of her franchise agreement she would neither solicit clients to whom her franchise had provided tax return preparation services nor compete with H&R Block in the business of ...

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Posted in Arbitration

A federal court in Illinois recently held that it lacked subject-matter jurisdiction over a putative franchisee class action in light of the binding arbitration provision in the governing franchise agreement. Sanchez v. CleanNet USA, Inc., 2015 U.S. Dist. LEXIS 5383 (N.D. III. Jan. 15, 2015). The named plaintiff, Sanchez, filed suit against franchisor CleanNet USA and area operator CleanNet IL claiming violation of the Fair Labor Standards Act. Both defendants moved for dismissal based on a mandatory arbitration provision in the franchise agreement. In response, Sanchez ...

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In Vann v. Massage Envy Franchising, LLC, 2015 U.S. Dist. LEXIS 1002 (S.D. Cal. Jan. 6, 2015), the United States District Court for the Southern District of California found that Massage Envy Franchising was not the employer or a joint employer of its franchisees' employees, and therefore was not liable for any alleged wage and hour law violations. Vann, a former employee of two franchised spas, alleged Massage Envy exercised control over hiring and firing because it: (a) provided franchisees with operations manual containing suggested personnel policies; (b) hired district ...

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Posted in Terminations

The United States Court of Appeals for the Ninth Circuit upheld the termination of a group of franchisees based on their failure to make required payments and their abandonment of one of their franchised offices. Century 21 Real Estate LLC v. All Prof'l Realty, Inc., 2015 U.S. App. LEXIS 645 (9th Cir. Jan. 15, 2015). After Century 21 filed suit to enforce termination of the parties' franchise agreements, the franchisees asserted a variety of counterclaims, including breach of contract, unfair competition, breach of the implied covenant of good faith and fair dealing, and violation of ...

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Despite various procedural efforts by McDonald's, it remains unclear what specific conduct the NLRB contends makes a franchisor—even McDonald's—a "joint employer" with its franchisees. As is well known in franchising circles, on Dec. 19, 2014, the NLRB Office of the General Counsel (GC) issued 13 complaints involving McDonald's USA, LLC and 21 of its franchisees, consolidating 78 alleged violations of labor laws including "discriminatory discipline, reduction in hours, discharges and other coercive conduct directed at employees in response to union and protected ...

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Posted in Arbitration

Affirming a district court decision that had in turn confirmed an arbitration award for a franchisor, the United States Court of Appeals for the Seventh Circuit last Friday ruled that an arbitrator's alleged error of law would not constitute manifest disregard of the law. Renard v. Ameriprise Fin. Servs., Inc., 2015 U.S. App. LEXIS 1558 (7th Cir. Jan. 30, 2015). Ameriprise, the franchisor in this case, had won an arbitration award against the Wisconsin-based franchisee, Renard, of more than $448,000 on promissory notes. In the arbitration hearing, Renard had argued that he 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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