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The Franchise Memorandum

Posts from November 2017 - Issue 223.

The United States District Court for the Central District of California dismissed a putative class action complaint against franchisor Jackson Hewitt Tax Service on the grounds that the plaintiff had not sufficiently pled claims for fraud and vicarious liability against Jackson Hewitt for fraudulent conduct that was done by a rogue employee of the franchisee. Lomeli vs. Jackson Hewitt, Inc., 2017 WL 4773099 (C.D. Cal. Oct. 19, 2017). The aggrieved customer of the franchisee alleged, in part, that the franchisee submitted returns to the IRS without the customer’s permission ...

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Posted in Noncompetes

A federal court in Michigan recently applied the “rule of reason” doctrine in enforcing a covenant not to compete contained in a Little Caesar franchise agreement. Little Caesar Enters., Inc. v. Creative Rests., Inc., 2017 WL 4778721 (E.D. Mich. Oct. 23, 2017). The noncompete provision restricted the former franchisee from engaging in certain competitive conduct for a one-year period within any “Designated Market Area“ and for a two-year period within the Designated Market Area where the franchise at issue was located. The former franchisee moved for partial summary ...

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The United States District Court for the Northern District of Texas granted summary judgment to franchisor Jani-King Franchising, Inc. in a contract dispute it had with its regional franchisee in Great Britain, Jani-King GB Ltd. (“JKGB”), and JKGB’s majority shareholder and director, Ian Thomas (“Thomas”). Jani-King Franchising, Inc. v. Jani-King (GB) Ltd., 2017 WL 4758673 (N.D. Tex. Oct. 20, 2017). When the parties executed a franchise agreement to extend their existing relationship, Thomas signed a personal guaranty (governed by English law) promising to pay ...

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The United States District Court for the District of Colorado dismissed a trademark infringement action for lack of personal jurisdiction, finding that discussions between a franchisor and an out-of-state potential franchisee were not sufficient to confer personal jurisdiction over the potential franchisee. Rocky Mountain Chocolate Factory v. Arellano, 2017 WL 4697503 (D. Colo. Oct. 19, 2017). The dispute began when the Coloradobased franchisor, Rocky Mountain Chocolate Factory (“RMCF”), and Timothy Arellano pursued negotiations to transfer an existing RMCF ...

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Franchisor World of Beer Franchising, Inc. (“WOB”) recently lost an appeal of the district court’s denial of its motion for a preliminary injunction. World of Beer Franchising, Inc. v. MWB Development I, LLC, 2017 WL 4618565 (11th Cir. Oct. 16, 2017). WOB and three franchisee entities owned and operated by Evan Matz were parties to three franchise agreements to operate World of Beer restaurants. After mutual termination of the agreements, Matz began operating competing businesses. WOB sought to enjoin Matz from using its marks, confidential information, and trade dress and ...

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Posted in Employment

The Oregon Court of Appeals recently affirmed rulings by the Oregon Employment Department and an administrative law judge that National Maintenance Contractors (“NMC”), a maintenance services franchisor, owed $138,029.69 in unemployment insurance taxes because its franchisees were not independent contractors but its employees. Nat’l Maintenance Contractors, LLC v. Employment Dep’t, 2017 WL 4675106 (Or. Ct. App. Oct. 18, 2017). NMC had argued that it was exempt from unemployment insurance taxes because, as its franchise agreements stated, its franchisees were ...

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On October 13, 2017, the SBA announced a revision to its requirements for franchisors to qualify their franchisees for SBA financing programs. As of January 1, 2018 any franchise listed on the SBA Franchise Directory will be deemed to meet SBA’s “affiliation,” “business eligibility,” and “franchise” definitional requirements. The Directory may be found at SBA does not charge for a Directory listing. The Directory is simple, laid out in seven columns, providing the following information, about which SBA writes either “Yes” or ...

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The Virginia State Corporation Commission issued an Order to Take Notice on October 11, 2017, stating that the Virginia Division of Securities and Retail Franchising has recommended certain revisions to Chapter 110 of Title 21 of the Virginia Administrative Code entitled “Retail Franchising Act Rules.” The proposed amendment provides an exemption from Virginia’s franchise registration law for franchisors that offer or sell a single unit franchise in which the actual minimum initial investment exceeds $5 million. The proposed exemption does not exempt franchisors from ...

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Posted in Terminations

A franchisee’s failure to pay royalties and other fees constitutes a material breach of contract justifying termination—even if the franchisee had expressed a willingness to pay—according to a Florida federal district court. Tim Hortons USA, Inc. v. Singh, 2017 WL 4837552 (S.D. Fla. Oct. 25, 2017). Following a bench trial, the court upheld Tim Hortons’ decision to terminate Singh for failure to pay monies owed and ordered Singh to pay all past-due amounts. The court did deny Tim Hortons its lost future royalties because the testimony of its senior finance manager regarding ...

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A federal court in Texas has denied a franchisor’s motion to enjoin a former franchisee from using confidential information, misappropriating trade secrets, and infringing on trade dress in the post-termination operation of competing buffet restaurants. Stockade Cos., LLC, v. Kelly Rest. Grp., LLC, 2017 WL 4640443 (W.D. Tex. Oct. 16, 2017). Earlier in the case, the court had entered an order requiring the franchisee to de-identify its formerly franchised buffet restaurants. Subsequently, the franchisee rebranded and began operating the restaurants as a competing ...

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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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