The Franchise Memorandum

A federal court in Connecticut denied thirty-five franchisees' collective motion for a preliminary injunction against their franchisor in Family Wireless #1, LLC v. Automotive Technologies, Inc., No. 3:15-cv-01310 (D. Conn. May 4, 2016). The franchisees sought to enjoin their franchisor, Automotive Technologies, Inc. ("ATI"), from withholding a five percent royalty on certain funds paid to the franchisees by Verizon Wireless. As subagents of Verizon, the franchisees sold wireless devices and service plans at their stores and were compensated for those sales in the form of ...

On May 5, 2016, the Consumer Financial Protection Bureau ("CFPB") issued a proposed rule that would prohibit the use of mandatory arbitration clauses in consumer financial services contracts that waive class action lawsuits. Although the proposed rule is aimed at regulating providers of consumer financial services, a number of commentators have highlighted the broad scope of the rule and its applicability to banks, credit unions, consumer lenders, payday lenders, certain auto lenders, loan servicers, debt settlement firms, installment lenders, money transfer services ...

A federal district court in Pennsylvania recently denied a motion to dismiss filed by the franchisor of Friendly's restaurants in which Friendly's argued that a putative class of restaurant employees asserting violations of the Fair Labor Standards Act ("ELSA") and other state labor and wage laws had failed to plead facts sufficient to establish that Friendly's and its franchisees were joint employers. Reed v. Friendly's Ice Cream, LLC, 2016 WL 2736049 (M.D. Pa. May 11, 2016). To determine whether Friendly's could be considered a joint employer under the FLSA, the court applied the ...

The United States District Court for the Eastern District of Kentucky has dismissed a complaint raising claims for breach of contract, promissory estoppel, and misrepresentation in connection with a franchisor's refusal to grant a franchise. 859 Boutique Fitness LLC v. CycleBar Franchising, LLC, 2016 WL 2599112 (E.D. Ky. May 5, 2016). Following negotiations between the parties about a ten-year franchise, Boutique Fitness signed a franchise agreement during a closing call with CycleBar's representatives. Two days after Boutique Fitness signed the agreement, however ...

Meanwhile, the Kentucky Supreme Court recently held that the franchisor of the Quizno's system, QFA Royalties, LLC ("QFA"), did not have up-the-ladder liability for a  workers' compensation claim brought by an employee of one of its franchisees. Uninsured Employers' Fund v. Crowder, 2016 WL 2605624 (Ky. May 5, 2016). The injured worker was employed by a Quizno's franchisee whose workers' compensation insurance had lapsed. The state's Uninsured Employers' Fund paid the employee's benefits and sought reimbursement from QFA under a Kentucky statute that imposes workers ...

After several years of consideration, the United States Congress has enacted the Defend Trade Secrets Act ("DTSA"), the first federal law designed to protect companies' trade secrets. The DTSA passed with strong bipartisan support, and it was signed into law on May 11, 2016.

Prior to the enactment of the DTSA, businesses seeking to hold someone accountable for the misappropriation of their trade secrets had to rely on the Uniform Trade Secrets Act ("UTSA"), a version of which has been adopted in forty-eight states. Although there is significant overlap between most states' version ...

The United States Supreme Court has denied a petition for a writ of certiorari filed by the International Franchise Association ("IFA") in International Franchise Ass'n v. Seattle, 2016 WL 1723297 (S. Ct. May 2, 2016). In its petition, the IFA asked the Court to consider whether a state or local law that discriminates against certain in-state businesses based solely on their ties to interstate commerce violates the Commerce Clause of the United States Constitution. In the underlying case, the United States Court of Appeals for the Ninth Circuit had upheld a lower court's denial of the ...

The Texas Court of Appeals recently held that Falco Franchising, a Belgian entity, and its related principals had sufficient contacts with Texas to subject them to personal jurisdiction in the state. lani-King Franchising, Inc. v. Falco Franchising, S.A., 2016 WL 2609314 (Tex. App. May 5, 2016). Jani-King, a Texas entity, had granted Falco the right to operate a commercial-cleaning franchise in Belgium pursuant to a franchise agreement governed by Texas law. Falco later defaulted on its reporting and payment obligations to Jani-King and gave notice to Jani-King that it intended ...