The Franchise Memorandum

The federal court in Massachusetts has denied a franchisor’s motion to vacate an arbitration award and granted a franchisee’s motion to confirm the award on the grounds that the franchisor failed to show that the arbitrator was partial to the franchisee or that the arbitrator had exceeded her powers. System4, LLC v. Ribeiro, 2017 WL 3461292 (D. Mass. Aug. 11, 2017). In 2010, a state court putative class action was filed against franchisor System4 and master franchisee NECCS, Inc. on behalf of unit franchisee cleaning workers who claimed that System4 and NECCS had misclassified ...

A federal district court in Wisconsin recently granted summary judgment in favor of the franchisor of Dairy Queen® restaurants against a counterclaim alleging that it had improperly interfered with negotiations between a franchisee and its subfranchisee, to which the franchisee was attempting to sell its territory rights. Am. Dairy Queen Corp. v. Universal Inv. Corp., 2017 WL 3701865 (W.D. Wis. Aug. 25, 2017). The subfranchisee, Universal Investment Corp., had operated a Dairy Queen unit in Wisconsin for more than 40 years. Universal’s franchise rights were originally ...

In Money Mailer, LLC v. Brewer, 2017 WL 3017539 (W.D. Wash. July 17, 2017), the United States District Court for the Western District of Washington held that a franchisor had waived its right to compel arbitration under its franchise agreement. Money Mailer’s standard franchise agreement required franchisees to enter into a franchise agreement with the franchisor, Money Mailer Franchise Corporation (“MMFC”), and a separate contract for mailing services with a closely-related entity, Money Mailer, LLC (“MMLLC”). While franchisee Brewer entered into Money ...

Another decision out of the United States District Court for the District of Maryland partially granted, and partially denied, a motion to dismiss filed by franchisor Ledo Pizza Systems in an action involving one of Ledo’s franchisees and the franchisee’s employees. Lora v. Ledo Pizza Sys., Inc., 2017 WL 3189406 (D. Md. July 27, 2017). Among the issues in dispute were claims filed by the employees of the franchised business against both Ledo and the franchisee pursuant to the Fair Labor Standards Act (“FLSA”) and the Age Discrimination in Employment Act of 1967 (“ADEA” ...

In another form of vicarious liability case, a court in Idaho granted summary judgment in favor of a franchisor and its corporate parent, after an employee of a franchised Taco Bell restaurant was accused of giving automatic discounts to white military customers but not to military members of color. McKinnon v. Yum! Brands, Inc., 2017 WL 3659166 (D. Utah Aug. 24, 2017). The plaintiffs, members of the Army National Guard, alleged that they went to the franchised restaurant with a group of other military members that included four Caucasians. Only after the group members had purchased ...

An appellate court in Illinois upheld a trial court’s dismissal of a suit for emotional distress against a franchisor and a franchisee by two of the franchisee’s customers who were filmed in a franchised Planet Fitness gym’s tanning room without their knowledge or consent. C.H. v. Pla-Fit Franchise, LLC, 2017 IL App. 3d 160378 (Ill. App. Ct. Aug. 23, 2017). The court rejected the plaintiffs’ arguments that the franchisor, Pla-Fit, was liable for the tortious acts of the franchisee’s employee based on the special relationship between Pla-Fit and its franchisee and ...

In ServiceMaster of Fairfax, Inc. v. ServiceMaster Residential/Commercial Services, L.P., 2017 WL 3023342 (D. Md. July 17, 2017), a multi-unit franchisee brought suit against ServiceMaster in Maryland state court for, among other things, violations of Maryland's franchise disclosure laws. ServiceMaster removed the case to federal court in Maryland and moved to transfer the case to the United States District Court for the Western District of Tennessee pursuant to the forum selection clause contained in the parties’ franchise agreements. Gray Plant Mooty represented ...

Meanwhile, a federal court in Pennsylvania dismissed an auto repair services franchisor from a sexual harassment and discrimination case brought by a franchisee’s former employee. In Harris v. Midas, 2017 WL 3440693 (W.D. Pa. Aug. 10, 2017), the plaintiff employee of a Midas Auto Service franchisee was allegedly repeatedly sexually, physically, and emotionally harassed, assaulted, and tortured by some of the franchisee’s other employees. In addition to suing the franchisee, the employee sued Midas, alleging joint employer, agency, and vicarious liability.

In moving to ...

Meanwhile, a federal court in New Jersey granted a franchisor’s motion to compel arbitration finding, among other things, that a franchisee’s claims fell within the scope of the parties’ arbitration agreements (as contained in seven franchise agreements), and that any differences between the arbitration provisions could be reconciled. Mitnick v. Yogurtland Franchising, Inc., 2017 WL 3503324 (D.N.J. Aug. 16, 2017). The franchisee had argued that the arbitration provisions contained different language, were in conflict, and did not specify a uniform method of ...

The United States Court of Appeals for the Seventh Circuit has reversed a district court’s decision to certify a class and approve a settlement related to Subway’s “Footlong” sandwiches. In re Subway Footlong Sandwich Mktg. & Sales Practices Litig., 2017 WL 3666635 (7th Cir. Aug. 25, 2017). In 2013, a teenager’s photo revealing his 11-inch Subway Footlong sandwich alongside a tape measure went viral. Plaintiffs’ lawyers across the nation sued Subway under state consumer protection laws, and the cases were consolidated. Initial discovery indicated that the majority ...