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The Franchise Memorandum

Posts from June 2015 - Issue 194.
Posted in Contracts

A federal court in Florida recently denied a franchisor's motion for summary judgment, finding that issues of fact remained as to whether the franchisor or the franchisee was responsible for alleged breaches of the franchise agreement. Creative Am. Educ., LLC v. The Learning Experience Sys., LLC, 2015 U.S. Dist. LEXIS 60138 (S.D. Fla. May 7, 2015). Pursuant to a management agreement between the parties, the franchisor ("TLE") assumed initial management responsibilities for the two franchises at issue, then transitioned responsibility to the franchisee ("CAE"). At some point ...

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Posted in Contracts

The United States Court of Appeals for the Seventh Circuit recently reversed a lower court's judgment that a sales agreement was of indefinite duration and therefore terminable at will. Burford v. Accounting Practice Sales, Inc.,2015 U.S. App. LEXIS 7894 (7th Cir. May 13, 2015). The parties had entered into an agreement whereby Burford facilitated the purchase and sale of accounting practices in a designated territory on behalf of Accounting Practice Sales ("APS"). The agreement had an initial term of twelve months and provided that it would renew automatically for another ...

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The U.S. District Court for the Northern District of Texas confirmed that the FTC's Franchise Disclosure Rules do not confer a private right of action. In Yumilicious Franchise, LLC v. Barrie, 2015 U.S. Dist. LEXIS 64407 (N.D. Tex. May 18, 2015), Yumilicious had filed breach of contract claims against a franchisee, Barrie, which had failed to make required payments and closed its franchised frozen yogurt store without consent. Barrie responded with counterclaims alleging violations of the Texas Deceptive Trade Practices Act ("DTPA"), the Franchise Rule, and the Texas and South ...

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Posted in Arbitration

The United States District Court for the Southern District of Georgia granted a franchisor's motion to compel arbitration, concluding that a franchisee and its employee were not transportation employees of the franchisor, and thus not exempt from the Federal Arbitration Act. Morning Star Assocs., Inc. v. Unishippers Global Logistics, LLC, 2015 U.S. Dist. LEXIS 66042 (S.D. Ga. May 20, 2015). The case arose out of three franchise agreements between Morning Star and Unishippers and a noncompetition agreement between Morning Star and one of its employees. Each of the franchise ...

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Posted in Procedure

The United States District Court for the Eastern District of California recently denied a franchisee's request to stay the franchisor's motion for a preliminary injunction so the franchisee could take expedited discovery. TGI Friday's Inc. v. Stripes Rests., Inc., 2015 U.S. Dist. LEXIS 62885 (E.D. Cal. May 13, 2015). TGI Friday's had terminated the franchise agreements after Stripes failed to pay amounts owed. TGI Friday's sued and moved for a preliminary injunction after Stripes continued to operate the TGI Friday's restaurants using TGI Friday's trademarks. Stripes filed an ...

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Posted in Trademarks

The federal district court in Minnesota granted a franchisor's motion for summary judgment against a competitor who used variations of its trademark in online advertisements and when interacting with customers. Zerorez v. Distinctive Cleaning, Inc. 2015 U.S. Dist. LEXIS 58635 (D. Minn. May 5, 2015). Zerorez Franchising System, a carpet cleaning franchisor, brought suit against Distinctive Cleaning, a competing carpet cleaning business located in the same area, and its owner and day-to-day manager after discovering online advertisements for "Zero Rez Carpet Cleaning" with ...

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Posted in Arbitration

The Illinois Court of Appeals held that an arbitrator did not make a gross error of law in concluding that the exemption to the Illinois Franchise Disclosure Act's disclosure requirements did not apply where the franchisor and franchisee were controlled by the same individual and they entered into a franchise agreement when that individual was already in negotiations to sell the franchise to another party. McGill v. Wortham, 2015 III. App. Unpub. LEXIS 1052 (III. App. Ct. May 15, 2015). The arbitrator found that the franchisees, McGill, were entitled to rescission of the franchise ...

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Posted in Arbitration

The Massachusetts Supreme Judicial Court found that a franchisor could compel subfranchisees to arbitrate their disputes under arbitration clauses in the sub-franchise agreements, even if the franchisor was not a signatory to such agreements. Machado v. System4 LLC, 2015 Mass. Lexis 163 (Mass. Apr. 13, 2015). The plaintiff franchisees of a System4 subfranchisor filed a complaint against the subfranchisor and System4 alleging breach of contract and violations of the Massachusetts Wage Act. The subfranchisor and System4 filed a motion to stay proceedings pending arbitration ...

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Posted in Arbitration

The Second Circuit has affirmed in part and reversed in part a district court's injunction in aid of arbitration in a license agreement dispute. Benihana, Inc. v. Benihana of Tokyo, LLC, 2015 WL 1903587 (2nd Cir. Apr. 28, 2015). For many years, Benihana of Tokyo had been operating a restaurant in Hawaii pursuant to a license agreement with Benihana, Inc. ("Benihana America"). Despite provisions in the license agreement that prohibited Benihana of Tokyo from serving unapproved menu items, the restaurant began serving hamburgers without approval. After Benihana America terminated ...

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A franchisor recently prevailed on a motion to dismiss an amended complaint filed by a former franchisee, which alleged the franchisor had violated the Wisconsin Franchise Investment Law during the franchise sales process. Braatz, LLC v. Red Mango FC, LLC, 2015 U.S. Dist. LEXIS 54885 (N.D. Tex. Apr. 27, 2015). On November 4, 2011, Red Mango provided Braatz with its current FDD, which included a form franchise agreement. On December 28, 2011, Red Mango provided Braatz with an official franchise agreement to sign, which was executed and returned by Braatz with a check on January 5, 2012 ...

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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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