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The Franchise Memorandum

Posts from July 2018 - Issue 231.

U.S.-based franchisors and other American businesses were just getting used to compliance with the European Union’s General Data Protection Regulation (GDPR) when, on June 28, 2018, California Governor Jerry Brown signed into law the 2018 California Consumer Privacy Act (CCPA). In its current form, the CCPA applies to any business that collects personal information from California residents and (1) has annual gross revenues of $25 million or more; (2) buys, receives, sells, or shares the personal information of at least 50,000 California residents, households, or devices ...

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Posted in Antitrust

A federal district court in Illinois recently denied McDonald’s motion to dismiss a claim that the anti-raiding provision in its franchise agreement violated Section 1 of the Sherman Act. Deslandes v. McDonald’s USA, LLC, 2018 WL 3105955 (N.D. Ill. June 25, 2018). Until 2017, McDonald’s included a provision in its franchise agreement that prohibited franchisees from hiring workers who were at the time, or had been within the past six months, employed at another McDonald’s restaurant. McDonald’s also applied the policy to its own restaurants. The plaintiff was denied ...

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An Ohio federal court granted a franchisor’s motion to preliminarily enjoin a franchisee from operating a competing business or suggesting any affiliation with the franchisor in Handel’s Enterprises, Inc. v. Schulenburg, 2018 WL 3077756 (N.D. Ohio June 22, 2018). In 2015, Handel’s Enterprises, an ice cream shop franchisor, and Schulenburg entered into a franchise agreement granting Schulenburg a franchise in Encinitas, California, and the option to open a second location in San Diego. The agreement contained a covenant not to compete with Handel’s during the term of ...

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The United States District Court for the Western District of Washington held that a franchisee does not have a direct cause of action against a franchisor for violations of the Washington Franchise Investment Protection Act (FIPA), unless the claim is in connection with the offering or sale of a franchise. Money Mailer, LLC. v. Brewer, 2018 WL 3156901 (W.D. Wash. June 28, 2018). Brewer, a franchisee of Money Mailer, brought an action alleging that the franchisor was charging unreasonable fees in violation of FIPA and the Washington Consumer Protection Act (CPA). During discovery ...

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A South Carolina federal court has denied a franchisee’s motion to dismiss for improper venue, as well as the franchisee’s alternative motion to transfer venue, based on a forum selection clause in the parties’ franchise agreement. ARCpoint Fin. Grp., LLC v. Blue Eyed Bull Inv. Corp. (BEBIC), 2018 WL 2971205 (D.S.C. June 13, 2018). In denying franchisee BEBIC’s motion to dismiss for improper venue, the court held that franchisor ARCpoint had made a prima facie showing that venue was proper because a substantial part of the events giving rise to its claims occurred within the ...

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Posted in Attorneys' Fees

The U.S. District Court for the Western District of Texas has denied a franchisee’s motion for attorneys’ fees after the franchisor voluntarily dismissed its claims without prejudice. Stockade Cos., LLC v. Kelly Rest. Grp., LLC, 2018 WL 3018177 (W.D. Tex. June 15, 2018). Stockade entered into multiple franchise agreements with Kelly Restaurant Group (“KRG”) for KRG to develop various franchised Stockade restaurant concepts. When KRG continued to operate the restaurants following the termination of the franchise agreements, Stockade sued KRG for trademark ...

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Posted in Terminations

The U.S. District Court for the Eastern District of Pennsylvania has dismissed a constructive termination claim against a franchisor because the franchisee was still operating the franchise location. Takiedine v. 7-Eleven, Inc., 2018 WL 3141461 (E.D. Pa. June 27, 2018). The court held that when alleging constructive termination in violation of the duty of good faith and fair dealing, the franchise relationship must actually terminate. In this case, the franchisee alleged that the franchisor tried to force the franchisee out of the relationship through defamatory comments and ...

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Posted in Terminations

In another case from the Northern District of Illinois involving Sears Home Appliances Showrooms, the court dismissed counterclaims brought by a group of franchisees on the grounds that the claims were barred by a one-year contractual limitations provision in their franchise agreements. Sears Home Appliance Showrooms, LLC v. Charlotte Outlet Store, LLC, 2018 WL 3068459 (N.D. Ill. June 21, 2018). The franchisees made a cursory argument that the limitations provision in their agreements was unenforceable as a matter of law because it shortened the 10-year statutory limitations ...

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A federal court in Indiana has granted a franchisor’s motion to dismiss five of the six claims brought against it by a franchisee. Gre-Ter Enters. v. Mgmt. Recruiters Int'l, Inc., 2018 WL 3145572 (S.D. Ind. June 26, 2018). Gray Plant Mooty represents the franchisor in this case. In 1998 and again in 2005, the franchisee, Gre-Ter, entered into franchise agreements with Management Recruiters International (“MRI”), a franchisor of recruiting and contract-staffing businesses. In 2017, Gre-Ter brought suit against MRI, alleging violations of the Indiana Franchise Act and the ...

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On July 9, 2018, in a coordinated action, attorneys general of California, the District of Columbia, Illinois, Maryland, Massachusetts, Minnesota, New Jersey, New York, Oregon, Pennsylvania, and Rhode Island announced that they were seeking information about the antipoaching practices of eight QSR chains. Companies receiving requests for information include Arby’s, Burger King, Dunkin’ Donuts, Five Guys Burgers and Fries, Little Caesar, Panera, Popeyes Louisiana Kitchen, and Wendy’s. In her press release announcing the probe, Massachusetts Attorney General ...

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A federal court in New Mexico recently denied a request for a temporary restraining order made by franchisees of the Wyndham hotel chain that would have reinstated their terminated franchise agreement. Presidential Hospitality, LLC v. Wyndham Hotel Grp., LLC, 2018 WL 2604831 (D.N.M. June 2, 2018). After the franchisees repeatedly defaulted on their obligation to pay royalties, Wyndham terminated their franchise agreement and cut off their access to the Wyndham central reservation system. The franchisees then filed a motion for a temporary restraining order (TRO) to reinstate ...

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Posted in Terminations

A federal court in Illinois recently granted a franchisor’s motion for summary judgment, finding that it properly terminated the defendant’s six franchise agreements. Sears Home Appliances Showrooms, LLC v. Appliance Alliance, LLC, 2018 WL 3208514 (N.D. Ill. June 29, 2018). The franchisor, Sears Home Appliances Showrooms, terminated the agreements after the franchisee, Appliance Alliance, failed to meet several of its obligations, including paying rent and payroll on a timely basis, providing requested financial reports, and observing designated store hours. Sears ...

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On June 21, 2018, the U.S. Supreme Court eliminated the physical presence requirement for sales tax collection. In a 5-4 decision in South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018), the Court overruled its prior decision in Quill Corp. v. North Dakota, 504 U.S. 298 (1992), in which the Court had ruled that a state could require an out-of-state seller to collect sales tax on sales into the state only if that seller has a physical presence in the state. The Court was reviewing South Dakota’s economic nexus statute that imposes a sales tax obligation on out-of-state sellers with at ...

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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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