The Franchise Memorandum

A federal magistrate judge in Michigan granted in part and denied in part a franchisee's motion for leave to amend her counterclaims against her franchisor in L.A. Insurance Agency Franchising, LLC v. Montes, 2016 WL 922948 (E.D. Mich. Mar. 11, 2016). L.A. Insurance sued the franchisee, Montes, after she unilaterally terminated one of her franchises and allegedly opened a competing insurance agency. After filing an initial answer and counterclaim, Montes sought leave to amend and supplement her counterclaims. In her proposed amended countercomplaint, Montes argued that the ...

Meanwhile, a federal district court in Washington has denied Money Mailer Franchise Corporation's motion for summary judgment and motion to compel arbitration against one of its franchisees. Money Mailer, LLC v. Brewer, 2016 WL 1393492 (W.D. Wash. Apr. 8, 2016). Brewer entered into a franchise agreement with Money Mailer that required him to contract with Money Mailer's affiliated company, Money Mailer, LLC (the "LLC"), for the use of certain equipment and supplies in the operation of his franchised business. The LLC filed a complaint against Brewer for breach of contract for ...

The United States District Court for the Western District of Missouri recently enforced a post-termination noncompete covenant against a former Alabama tax preparation franchisee and a business operated by the franchisee's spouse based on a theory of successor liability. H&R Block Tax Services, LLC v. Clayton, 2016 WL 1247205 (W.D. Mo. Mar. 24, 2016). Gray Plant Mooty represented the franchisor in this case. Following the termination of his franchise agreement for failure to pay royalties, the franchisee's husband opened a tax return preparation business in close proximity to ...

The United States Court of Appeals for the Fifth Circuit has affirmed a ruling dismissing a franchisee's counterclaims under the Texas Deceptive Trade Practices Act ("DTPA") and the Texas Business Opportunity Act ("BOA") stemming from the negotiation of the parties' franchise agreement. Yumilicious Franchise, LLC v. Barrie, 2016 WL 1375871 (N.D. Tex. Apr. 6, 2016). Yumilicious, a franchisor of frozen yogurt restaurants, brought suit against the franchisee, Why Not LLC, after Why Not allegedly failed to make royalty and product payments and closed a store without permission. In ...

A United States District Court in Indiana granted a motion for a protective order prohibiting a franchisee from obtaining discovery from a major shareholder of the franchisor in Noble Roman's, Inc. v. Hattenhauer Distributing Co., 2016 WL 1162553 (S.D. Ind. Mar. 24, 2016). Noble Roman's and Hattenhauer were parties to franchise agreements pursuant to which Hattenhauer was granted the right to make and sell Noble Roman's pizza products at convenience stores in exchange for royalty payments based on Hattenhauer's gross sales. The dispute arose when Noble Roman's audited ...

The Fifth Circuit also recently affirmed a district court's dismissal of a franchisee's complaint against another frozen yogurt franchisor for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). Braatz, L.L.C. v. Red Mango FC, L.L.C., 2016 WL 1253679 (5th Cir. Mar. 30, 2016). After the Braatzes inquired about opening a Red Mango franchise in Wisconsin, a Red Mango representative sent them a business plan, financial projections for an established Red Mango franchise, and a copy of Red Mango's FDD. Over a month later, at the Braatzes' request, Red Mango sent them ...

A Virginia federal court has concluded that a lawn care franchisor was not a joint employer of a franchisee's employee. Wright v. Mountain View Lawn Care, LLC, 2016 WL 1060341 (W.D. Va. Mar. 11, 2016). The employee had sued Mountain View Lawn Care (the franchisee) and U.S. Lawns (the franchisor) for gender discrimination, harassment, and retaliation in violation of Title VII of the Civil Rights Act. She argued that U.S. Lawns was a joint employer because she wore a U.S. Lawns uniform, drove a truck with a U.S. Lawns logo, and received correspondence from her employer on U.S. Lawns ...

On April 7, 2016, the Nebraska legislature passed and Governor Pete Ricketts signed into law modifications to Nebraska's Franchise Practices Act (the "Franchise Act") and Seller-Assisted Marketing Plan Act (the "SAMP Act") that direct courts and arbitrators to use what is generally known as the "blue pencil" rule when asked to enforce noncompete provisions in franchise agreements subject to Nebraska law. See Franchise Act, Neb. Rev. Stat. §§ 87-402, -404; SAMP Act, Neb. Rev. Stat. § 59-1724. Nebraska had been one of only a handful of jurisdictions in which courts refused to reform ...

The United States Court of Appeals for the Ninth Circuit recently ruled that an international arbitration clause was unenforceable because the agreement containing the clause was not binding on the parties. Casa Del Caffe Vergnano S.P.A. v. ItalFlavors, LLC, 2016 WL 1016779 (9th Cir. Mar. 15, 2016). The court reversed the district court's finding that the question of arbitrability was for an arbitrator to decide, finding instead that the threshold issue of whether the parties had agreed to submit their dispute to arbitration through a binding agreement, in the first place, was for ...

In Lawn Doctor, Inc. v. Rizzo, 2016 WL 1445071 (3d Cir. Apr. 13, 2016), the United States Court of Appeals for the Third Circuit upheld an order holding the Rizzos, former franchisees of the Lawn Doctor system, in contempt of a consent injunction that prohibited them from operating a competing business after the termination of their franchise. The contempt finding was based on the Rizzos' transfer of their business to a third party while acting as the third party's lender. The Third Circuit affirmed the district court's finding that the act of providing financing to a competitor was ...