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The Franchise Memorandum

Posts from March 2018 - Issue 227.
Posted in Damages

A federal court in Ohio recently held that neither IHOP, nor its parent company, DineEquity, Inc., were obligated to indemnify a former employee of IHOP for the legal fees she had accrued during a criminal investigation. Tangas v. Int’l House of Pancakes, LLC, 2018 WL 776857 (N.D. Ohio Feb. 8, 2018). Tangas had been indicted by the FBI due to her alleged involvement with an IHOP franchisee who was charged with an array of criminal conduct, including underreporting sales, money laundering, conspiracy to harbor illegal aliens, and mail fraud. Tangas—who was a Franchise Bureau ...

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A federal court in Alabama recently granted a preliminary injunction ordering a former IHOP franchisee to deidentify and debrand its restaurants. IHOP Rests LLC v. Moeini, 2018 WL 762343 (S.D. Ala. Feb. 7, 2018). IHOP had terminated three franchise agreements with the franchisee, who had failed to operate the restaurants in compliance with IHOP’s standard procedures, polices, and regulations. Following the termination, Moeini continued operating the restaurants as IHOP franchised businesses, so IHOP sued and moved for a preliminary injunction seeking to enforce ...

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Posted in Employment

A federal district court in California has denied in part a plaintiff’s unusual motion for summary judgment on whether a franchisor and its franchisees were joint employers of the franchisees’ delivery drivers. Campanelli v. ImageFIRST Healthcare Laundry Specialists, Inc., 2018 WL 934545 (N.D. Cal. Feb. 16, 2018). ImageFIRST businesses provide industrial laundry service for companies in the healthcare industry. Campanelli brought a putative class action on behalf of ImageFIRST delivery drivers against the franchisor, 17 ImageFIRST franchisees, and another 10 ...

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Posted in Damages

A federal court denied a franchisee’s motion to dismiss its franchisor’s claim for lost future profits in Interim Healthcare Inc. v. Health Care@Home, LLC, 2018 WL 830113 (S.D. Fla. Feb. 12, 2018). The defendant franchisee had operated an Interim Healthcare staffing franchise in Arizona for almost two years before Interim issued a notice of default based on the franchisee’s failure to pay weekly service charges under the agreement. After the franchisee failed to cure its default, Interim terminated the agreement and brought suit for almost $400,000 in past due royalties ...

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In February, the Federal Trade Commission announced its revised regulatory review schedulefor 2018. This year,the FTC intends to begin its initial review of, and solicit public comments on, Disclosure Requirements and Prohibitions Concerning Franchising, 16 C.F.R.Part436, which is more commonly known as the FTC Franchise Rule. The current version of the FTC Franchise Rule became effective on July 1, 2007. This scheduled review aligns with the FTCs intention to review its regulations on a ten- year cycle to ensure that they remain up-to-date. Stay tuned for more information ...

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Posted in Arbitration

The arbitration clause in a franchise agreement is not superseded by an assignment and assumption agreement when the original franchisee transfers its business, the Georgia Court of Appeals has ruled in affirming a trial court’s order compelling arbitration. Samaca, LLC v. Cellairis Franchise, Inc., 2018 WL 1079806 (Ga. Ct. App. Feb. 28, 2018). Samaca, the successor franchisee, took possession of four existing units in 2014, pursuant to an assignment and assumption agreement to take on the franchise agreements, which contained arbitration requirements. The assignment and ...

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Posted in Damages

A franchisee filed a complaint alleging that the franchisor had committed several precontractual torts, including fraud in the inducement, in Sumanth v. Essential Brands, Inc., 2018 WL 558612 (D. Md. Jan. 25, 2018). After franchisor Essential Brands moved to dismiss, Sumanth voluntarily dismissed its complaint, and Essential Brands sought its attorneys’ fees and costs under an attorneys’ fees provision contained in the parties’ franchise agreement. The provision entitled Essential Brands to recover the attorneys’ fees and costs that it incurred in enforcing the ...

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Judges in the United States District Court for the Western District of Missouri recently issued orders in two separate cases enjoining two terminated franchisees from operating competing tax-service businesses within 25 miles of their former franchise territory for a period of two years. H&R Block Tax Serv., LLC v. Thomas, 2018 WL 910170 (W.D. Mo. Feb. 15, 2018); H&R Block Tax Serv. v. Frias, 2018 WL 934901 (W.D. Mo. Feb. 16, 2018). In both cases, the terminated franchisees were operating competing businesses in violation of their franchise agreements’ post-termination ...

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Posted in Employment

On February 26, 2018, the National Labor Relations Board issued an order that vacates its December 14, 2017, joint employer decision in Hy-Brand Industrial Contractors, Ltd. and Brandt Construction Co. As we reported in Issue 225 of The GPMemorandum, Hy-Brand had expressly overruled the expansive joint-employer standard set forth in the Obama-era Browning-Ferris Industries, 362 N.L.R.B. No. 186 (2015). In its recent order, the NLRB accepted its ethics official’s determination that NLRB Member William Emanuel is, and should have been, disqualified from participating in the ...

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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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