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The Franchise Memorandum

Posts from November 2018 - Issue 235.
Posted in Contracts

Meanwhile, a federal court in Colorado has denied in part a franchisor’s motion to dismiss counterclaims brought by a franchisee, including a claim for breach of contract based on the implied covenant of good faith and fair dealing. E&I Holdings, Inc. v. Coral Springs Eggs & I, LLC, 2018 WL 4680339 (D. Colo. Sept. 28, 2018). The dispute arose when E&I Holdings, a franchisor of various restaurants including the Egg & I, terminated two franchise agreements with Coral Springs after it failed to comply with the agreed upon store development schedule. E&I sued for damages and injunctive ...

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A Connecticut federal court recently allowed a plaintiff to continue with his claim that Allstate violated state franchise laws by terminating him without good cause. In Kollar v. Allstate Ins. Co., 2018 WL 4688301 (D. Conn. Sept. 28, 2018), Kollar alleged a violation of the Connecticut Franchise Act after Allstate terminated his longtime position as an insurance agent without cause in 2014. Allstate disputed that a franchise relationship existed, noting that Connecticut already had extensive legislation governing the relationship between insurance companies and their ...

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Posted in Bankruptcy

Ruling on cross motions for summary judgment, the U.S. Bankruptcy Court for the District of Delaware found that a franchisor had failed to provide clear and unambiguous notice of its intention to terminate in notices it gave to the franchisee, so that no termination occurred prior to the filing of the franchisee’s bankruptcy petition. In re RMH Franchise Holdings, Inc., 2018 WL 4637456 (Bankr. D. Del. Sept. 25, 2018). RMH Franchise Holdings and its affiliates are the second-largest franchisee of Applebee’s Neighborhood Bar & Grill restaurants, operating 160 restaurants in ...

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The U.S. District Court for the District of New Jersey granted in part and denied in part franchisor Meineke Car Care Center’s motion to dismiss several counterclaims lodged against it by franchisee JNMVR Enterprises. Meineke Car Care Ctrs., LLC v. Juliano, 2018 WL 4629517 (D.N.J. Sept. 26, 2018). The parties’ franchise agreement required JNMVR to obtain Meineke’s approval before relocating or selling the franchised business. The agreement also contained a territorial protection clause prohibiting Meineke from granting others the right to operate another Meineke ...

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On November 5, 2018, the Financial Accounting Standards Board (FASB) published a staff memo addressing franchise-specific questions surrounding the implementation of the revenue recognition accounting rules set to be applicable to private companies beginning in 2019. Under the previous accounting rules, franchisors recognized the entire initial fee as income when a franchised business opened. Under the new rules and FASB guidance, initial franchise fees must be amortized over the term of a franchise agreement. However, the FASB memo allows franchisors to accelerate their ...

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Posted in Contracts

A federal district court in New Jersey granted a franchisor’s motion to dismiss a franchisee’s complaint because it failed to sufficiently plead facts in support of each claim it alleged. Khorchid v. 7-Eleven, Inc., 2018 WL 5149643 (D.N.J. Oct. 22, 2018). The parties entered into a franchise agreement in 2009, and then executed a revised franchise agreement in 2016. Khorchid filed a lawsuit against 7-Eleven that included claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and violations of the New Jersey Franchise Practices Act (NJFPA ...

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Posted in Discovery

A North Carolina state court recently denied in part and granted in part a franchisor’s motion to compel various categories of information from a group of franchisees. Window World of Baton Rouge, LLC v. Window World, Inc., 2018 WL 4649493 (N.C. Super. Ct. Sept. 26, 2018). A group of Window World franchisees sued the franchisor asserting contract, fraud, and statutory causes of action based on allegations that the franchisor knowingly and intentionally withheld information that they were entitled to receive under federal franchise law, failed to provide them access to the best ...

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National real estate firm RE/MAX may be held vicariously liable for the fraudulent conduct of its former broker, a Delaware court recently held, finding that the plaintiffs adequately pled that the former broker acted as an apparent agent of RE/MAX. Patel v. Sunvest Realty Corp., 2018 WL 4961392 (Del. Super. Ct. Oct. 15, 2018). The dispute arose when a real estate broker formerly employed by a franchised branch of RE/MAX allegedly embezzled funds from a group of promissory note holders. After the former broker declared bankruptcy, the investors brought claims of vicarious ...

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In a notice published in the Federal Register on October 29, 2018, the Federal Trade Commission announced that, by December 2018, it will begin its decennial review of Disclosure Requirements and Prohibitions Concerning Franchising, 16 C.F.R. Part 436, commonly known as the FTC Franchise Rule. The agency will review the rule and seek public comments. We will await guidance from the FTC as to the extent of the review, and will report as we learn more.

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Posted in Employment

The United States Court of Appeals for the Tenth Circuit recently revived a Department of Labor lawsuit alleging that the franchisor Jani-King failed to maintain proper employee records regarding its franchisees as required under the Fair Labor Standards Act. Acosta v. Jani-King of Okla., Inc., 905 F.3d 1156 (10th Cir. 2018). The DOL alleged that the franchise owners—some of whom were individuals and others of which were corporate entities owned by one or two individuals—were actually employees of the franchisor, misclassified as independent contractors, under the Tenth ...

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The U.S. District Court for the Eastern District of Texas has granted a franchisee’s motion to remand a case back to state court after finding that its complaint did not raise a substantial issue of federal law. KMCC Enters., LLC v. Savvy Chic Mgmt. Inc., 2018 WL 5295812 (E.D. Tex. Oct. 25, 2018). KMCC Enterprises entered into a franchise agreement with Savvy Chic to operate a nonsurgical weight loss franchise. KMCC later sued Savvy Chic under the Texas Business Opportunities Act (TBOA) alleging that Savvy Chic induced KMCC to enter into the franchise agreement with false ...

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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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