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The Franchise Memorandum

Posts from July 2017 - Issue 219.
Posted in Damages

A South Dakota federal court granted in part and denied in part a franchisor’s motion for summary judgment arising out of nonpayment of fees in Days Inns Worldwide, Inc. v. Miller, 2017 WL 2829810 (D.S.D. June 29, 2017). After the franchisee failed to pay fees required by the parties’ franchise agreement, the franchisor terminated the agreement and filed suit for breach of contract. The franchise agreement contained a liquidated damages provision, but an addendum to the agreement replaced that provision with a provision making the franchisee responsible for “any and all ...

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Posted in Contracts

An appellate court in California recently reversed a grant of summary judgment to a franchisor, finding that the franchisor did not provide sufficient evidence to establish that a landlord was not assigned the rights to one of its restaurant franchises. Cha La Mirada, LLC, v. Red Robin Int’l, Inc., 2017 WL 2691576 (Cal. Ct. App. June 22, 2017). The dispute involved a franchise agreement between Red Robin and La Mirada Restaurant Group (“LMRG”) for the rights to operate a Red Robin restaurant in a hotel. Red Robin, LMRG, and the landlord for the property also signed a consent ...

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Posted in Class Actions

The United States District Court for the Northern District of California recently denied class certification to a group of plaintiffs alleging that they were misclassified as franchisees rather than employees. Soares v. Flowers Foods, Inc., 2017 WL 2793807 (N.D. Cal. June 28, 2017). The plaintiffs were all distributors who delivered, or hired their own subcontractors to deliver, baked goods for Flowers Foods and its network of subsidiaries. Flowers had classified the plaintiffs as franchisees rather than employees, as expressed in each plaintiff’s distributor agreement ...

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A federal district court in New York denied a franchisee’s motion for a preliminary injunction that would have prevented its franchisor from installing a new software system in its stores. JDS Grp Ltd. v. Metal Supermarkets Franchising Am., Inc., 2017 WL 2643667 (W.D.N.Y. June 20, 2017). The dispute arose when the franchisor, Metal Supermarkets Franchising America (“MSFA”), developed and began installing an upgraded software platform in its franchise system. The franchisee, JDS Group, brought suit against MSFA, arguing that the requirement to utilize the new software ...

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Posted in Arbitration

The Superior Court of New Jersey, Appellate Division, has upheld a lower court’s decision to enforce the arbitration provision in a franchise agreement between Angel Tips and its franchisee. Glamorous Inc. v. Angel Tips, Inc., 2017 WL 2705412 (N.J. Super. Ct. App. Div. June 23, 2017). In doing so, the appellate court noted that the parties’ franchise agreement called for arbitration of “all controversies disputes or claims between them,” with only a few exceptions, including any claims made by the franchisor against the franchisee for money owed. The court held that a ...

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The United States Court of Appeals for the Ninth Circuit has affirmed the dismissal of a franchisee’s complaint alleging that franchisor Charter Practices International (“CPI”) improperly refused to renew his franchise. Robinson v. Charter Practices Int’l, LLC, 2017 WL 2684122 (9th Cir. June 21, 2017). The franchisee had purchased a veterinary hospital from CPI and at the same time also owned and operated independent veterinary clinics that were not part of his CPI franchise. Initially, CPI had not enforced a noncompetition covenant contained in the parties’ ...

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The Texas Court of Appeals recently held, in part, that a settlement agreement between a franchisor and franchisee containing “best efforts” and “reasonable assurances” clauses did not create heightened duties of candor, loyalty, and good faith in their subsequent dealings. Whataburger, Inc. v. Whataburger of Alice, Ltd., 2017 WL 2664437 (Tex. App. June 21, 2017). The franchisor, Whataburger, and the franchisee, Whataburger of Alice (“WOA”), were parties to various franchise agreements. They later entered into a settlement agreement under which Whataburger ...

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Meanwhile, the Sixth Circuit recently affirmed the dismissal of a prospective franchisee’s consumer fraud claims against a franchisor, holding that the plaintiff failed to state a claim upon which relief could be granted. 859 Boutique Fitness, LLC v. CycleBar Franchising, LLC, 2017 WL 2731311 (6th Cir. June 26, 2017). The prospective franchisee, 859 Boutique Fitness, and the franchisor, CycleBar Franchising, participated in negotiations for a cycle-studio franchise. During a closing call, CycleBar executives indicated that the terms and conditions of the franchise ...

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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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