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The Franchise Memorandum

Posts from February 2016 - Issue 202.

The United States District Court for the District of Connecticut recently considered whether the economic loss doctrine barred allegations that a franchisor's purported misrepresentations induced a group of franchisees to enter into their franchise agreements. Family Wireless #1, LLC v. Automotive Techs. Inc., 2016 WL 183475 (D. Conn. Jan. 14, 2016). Nearly 40 franchisees brought suit against Automotive Technologies, a master franchisee of Verizon Wireless, for breach of contract, fraud, common law negligent and innocent misrepresentation, and violations of state and ...

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A federal district court in Illinois granted a franchisor's motion to dismiss a franchisee's fraudulent misrepresentation counterclaim in Fantastic Sams Salon Corp. v. PSTEVO, LLC, No. 15--cv-3008 (N.D. Ill. Jan. 15, 2016). Baker, the franchisee, alleged that prior to entering into the parties' franchise agreement, Fantastic Sams presented him with financial disclosure documents falsely stating that he would only need three months of working capital to open a franchise, and that he could expect the franchise to be profitable thereafter. Baker asserted that these disclosure ...

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Posted in Insurance

The United States District Court for the District of Colorado has granted an insurer's motion for summary judgment, holding that it had no duty to defend its insured, Carpet World, in an underlying lawsuit brought by a group of Carpet World's current and former franchisees. AMCO Ins. Co. v. Carpet Direct Corp., 2016 WL 284827 (D. Colo. Jan. 22, 2016). The franchisees alleged that while they were initially promised they would "become independent business owners, with rights of ownership" in the Carpet World businesses in which they were investing, they subsequently learned that they ...

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A Minnesota federal court has dismissed a franchisee's claim against The UPS Store, Inc. ("TUPSS") under the Minnesota Franchise Act (MFA) and has transferred the rest of the case to a California federal court in accordance with the forum selection clause contained in the parties' franchise agreement. Moxie Venture L.L.C. v. The UPS Store, Inc., 2016 WL 128136 (D. Minn. Jan. 12, 2016). Moxie alleged that TUPSS had fraudulently induced it to enter into the franchise agreement by misrepresenting the best location for Moxie's UPS Store and the franchise's anticipated revenue, cash ...

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Following a bench trial, a Michigan federal court granted rescission of a contract relating to a vehicle deodorizing and sanitation business on the grounds that the business met the definition of a "franchise" under the Michigan Franchise Investment Law (MFIL). Lofgren v. AirTrona Canada, 2016 WL 25977 (E.D. Mich. Jan. 4, 2016). Lofgren had originally purchased equipment for the business from non-party AirTrona Green Technologies in 2009 and subsequently purchased upgraded equipment from AirTrona Canada in 2011. While the parties did not sign a formal, written agreement ...

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Posted in Arbitration

The United States Court of Appeals for the Third Circuit recently weighed in on an issue that often arises in the franchise and distribution context — class arbitrability. In Chesapeake Appalachia, LLC v. Scout Petroleum, LLC, 809 F.3d 746 (3d Cir. Jan. 5, 2016), the court concluded that, while no magic language is required to overcome the presumption in favor of judicial control over this issue, the adoption by the parties of the rules of the American Arbitration Association (which provide for arbitrators to decide the issue) does not "clearly and unmistakably" delegate the ...

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About this Publication

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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