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The Franchise Memorandum

Posts from November 2016 - Issue 211.

A California federal district court recently denied a hotel’s motion to dismiss a claim that it violated the California Customer Records Act (“CRA”), which requires businesses to “implement and maintain reasonable security measures.” Dugas v. Starwood Hotels & Resorts Worldwide, Inc., 2016 WL 6523428 (S.D. Cal. Nov. 3, 2016). Following a breach of Starwood’s computer system, Paul Dugas, a customer of Starwood’s Sheraton San Diego Hotel, claimed that the hotel and its franchisor violated the CRA by failing to follow industry-standard encryption procedures to ...

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Posted in Antitrust

A North Carolina trial court dismissed a state-law antitrust claim that Window World franchisees brought against their franchisor in Window World of Baton Rouge, LLC v. Window World, Inc., 2016 WL 6242945 (N.C. Super. Ct. Oct. 25, 2016). The franchisees claimed that Window World conspired with a supplier of vinyl replacement windows by requiring franchisees to purchase products at inflated prices, rather than allowing them to pay the lowest price available among suppliers of their own choosing. Although federal Sherman Act precedent was instructive to the court’s analysis ...

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Posted in Arbitration

The District of Columbia Court of Appeals recently affirmed a lower court’s denial of a franchisee’s late attempt to compel arbitration. In Hossain v. JMU Properties, LLC, 2016 WL 6134871 (D.C. Oct. 20, 2016), Hossain, a franchisee, sued its landlord and the landlord’s owner for wrongful eviction. The landlord’s owner, who also owned the taxpreparation franchisor that had contracted with Hossain, responded by suing Hossain for breach of the franchise agreement. Early in the case, JMU brought a motion to stay the proceedings and compel arbitration pursuant to an ...

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The United States District Court for the District of Arizona rejected an argument that a general release clause barred a franchisee’s counterclaims for fraudulent inducement. Zounds Hearing Franchising LLC v. Moser, 2016 WL 6476291 (D. Ariz. Nov. 2, 2016). Moser, a franchisee of Zounds, had purchased an existing franchise through an assignment agreement. The agreement contained broad release language in which the parties waived “known and unknown” claims. The relationship between Moser and Zounds eventually soured, and Zounds sued Moser, who in turn, brought ...

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Posted in Noncompetes

The United States District Court for the Middle District of Florida granted U.S. Lawns, Inc.’s request to enjoin its former franchisee, Landscape Concepts of CT, LLC, from competing after termination. U.S. Lawns sought the preliminary injunction enforcing the covenant not to compete pending arbitration of other claims. U.S. Lawns, Inc. v. Landscape Concepts of CT, LLC, No. 6:16-cv-929-Orl-41DAB (M.D. Fla. Oct. 31, 2016). In granting the motion the court found U.S. Lawns had established legitimate business interests in protecting its goodwill, franchise system ...

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Posted in Noncompetes

In Pirtek USA, LLC v. Twillman, 2016 WL 5846978 (M.D. Fla. Oct. 6, 2016), a federal court granted, in part, Pirtek’s motion for a preliminary injunction seeking to enjoin the use of confidential information and the operation of a competing business by former franchisees, Michael Twillman, Dolores Twillman, and Donald Twillman, in Missouri. In February 2016, Michael Twillman executed a franchise agreement for the operation of a Pirtek franchise in Missouri. Each of the Twillmans also executed a personal guaranty. Both the franchise agreement and the personal guaranty ...

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A federal court in Florida partially granted, and partially denied, a motion to dismiss filed by franchisor Le Macaron Development LLC regarding claims brought by a franchisee for fraud, misrepresentation, and breach of contract. Le Macaron, LLC v. Le Macaron Development LLC, 2016 WL 6211718 (M.D. Fla. Oct. 24, 2016). The franchisee claimed that it based its decision to purchase a Le Macaron pastry franchise on several misrepresentations by Le Macaron, including oral representations regarding, among other things, the franchisee’s “huge profit potential,” and false ...

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Posted in Antitrust

The White House last month announced a broad series of new administrative steps “calling for actions that enhance competition” in employment practices. One aspect of the new antitrust focus on employment matters may intentionally or unintentionally also affect franchise agreements. That possibility involves terms in many franchise agreements that prohibit franchisees from soliciting employees away from other franchisees or from the franchisor itself. Under the new emphasis, such “anti-poaching” agreements could be deemed illegal—or at least subject to ...

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Posted in Employment

The Appellate Division of the New York Supreme Court recently affirmed rulings by New York’s Unemployment Appeal Board that the Jan-Pro Cleaning Systems franchisor was the employer of some of its franchisees for unemployment tax purposes. The case, In re Baez, 2016 WL 6270685 (N.Y. App. Div. Oct. 27, 2016), is an important reminder of the continued need for franchisors to carefully structure their relationships with franchisees to minimize employee misclassification risks.

Following an unemployment insurance tax audit of Jan-Pro, the New York Department of Labor determined ...

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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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