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The Franchise Memorandum

Posts from May 2019 - Issue 241.

The Alabama Legislature recently introduced two companion bills in the House of Representatives (HB134) and State Senate (SB129) to create “The Protect Alabama Small Businesses Act,” the first major state franchise relationship bill to be seriously considered this year. The bill, which purports to promote fair business relationships between franchisors and franchisees, contains some of the most expansive relationship law requirements seen in recent legislation. It requires good cause for termination and nonrenewal, and governs sales, transfers, or assignment of ...

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Posted in Contracts

A federal court in South Carolina has granted summary judgment to a franchisor after finding no material question of fact regarding whether a contract ever existed between the parties. Theo’s Pizza, LLC v. Integrity Brands, LLC, 2019 WL 1282325 (D.S.C. Mar. 20, 2019). Ted and Marcia Contos began communicating with Integrity Brands, LLC (“IBL”) with the hope of developing an Uncle Maddio’s Pizza Joint franchised restaurant. The Contoses created two limited liability companies: (i) Thea and Theo, LLC to develop the premises for the restaurant, and (ii) Theo’s Pizza, LLC ...

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Posted in Employment

The U.S. Department of Labor has proposed a rule to revise and clarify when two entities will be considered joint employers for purposes of wage and hour liability under the Fair Labor Standards Act. The proposal contains specific limitations on joint employer status in the franchising context, and is intended to “ensure employers and joint employers clearly understand their responsibilities” under the FLSA. It is important to note that this proposal is distinct from, and different than, the proposed joint employer rule currently under consideration by the National Labor ...

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Posted in Damages

The Georgia Court of Appeals has ruled that a trial court erred in denying a motion for directed verdict on a claim for unpaid advertising fees. Legacy Acad., Inc. v. PACU Enters., Inc., 2019 WL 1146664 (Ga. Ct. App. Mar. 13, 2019). PACU had been a Legacy Academy franchisee since 2002. In addition to royalties, PACU’s franchise agreement required it to pay advertising fees of one percent of PACU’s gross monthly revenue. In December 2010, PACU abandoned its franchised daycare and stopped paying fees. Legacy filed suit, seeking past and future royalties and advertising fees. The case ...

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The Court of Appeals of Texas recently affirmed a trial court’s decision to grant Eskimo Hut Worldwide’s request for a preliminary injunction against one of its franchisees due to the franchisee’s failure to comply with systemwide standards. South Plains Sno, Inc. v. Eskimo Hut Worldwide, Ltd., 2019 WL 1591994 (Tex. App. Apr. 12, 2019). Worldwide franchises Eskimo Hut convenience stores that sell frozen beverages to consumers and provides franchisees with a “base mix” and particular instructions on how to use that mix. When South Plains sued Worldwide for alleged ...

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Posted in Employment

The U.S. Court of Appeals for the Ninth Circuit vacated a judgment on the pleadings that had dismissed a claim by 7-Eleven franchisees that they had been misclassified as independent contractors rather than employees for purposes of federal and state labor laws. Haitayan v. 7- Eleven, Inc., 2019 WL 968927 (9th Cir. Feb. 27, 2019). In the same opinion, the Ninth Circuit vacated and remanded the lower court’s denial in a related case of the franchisees’ request for a preliminary injunction preventing 7-Eleven from refusing to renew their franchise agreements unless they released ...

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A franchisor’s years-long battle to enforce a consent injunction against a terminated franchisee finally ended after a New Jersey federal court reissued sanctions for the franchisee’s breach of the injunction’s covenant against competition. Lawn Doctor, Inc. v. Rizzo, 2019 WL 1299671 (D.N.J. Mar. 21, 2019). As previously reported in The GPMemorandum, this matter began in 2012, when the Rizzos, former franchisees of the Lawn Doctor system, failed to adhere to the terms of their franchise agreement’s noncompete provision. The district court ultimately entered a ...

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Posted in Trademarks

The U.S. Court of Appeals for the Sixth Circuit recently affirmed a district court’s grant of summary judgment dismissing multiple counterclaims brought by a former franchisee against the plaintiff-franchisor, Buffalo Wild Wings (“BWW”). Buffalo Wild Wings, Inc. v. BW-3 of Akron, Inc., 2019 WL 994040 (6th Cir. Mar. 1, 2019). The parties had entered into a license agreement that authorized BW-3 to operate a Buffalo Wild Wings restaurant in Akron, Ohio. The agreement required BW-3 to operate the restaurant in conformance with the system developed by BWW and to maintain ...

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Posted in Antitrust

Three parallel anti-poaching cases brought by private parties in the U.S. District Court for the Eastern District of Washington have settled following the filing of statements of interest by the U.S. Department of Justice and amicus briefs by the Washington State Attorney General’s Office. As reported in Issue 238 of The GPMemorandum, the DOJ had announced its intent to file a statement of interest in each of the three putative class action lawsuits. All three cases involved challenges to no-poaching provisions included in franchise agreements, provisions which restricted the ...

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The Washington Legislature recently passed HB1450, a bill that will codify certain limits on the enforceability of noncompetition agreements and outlaw anti-poaching agreements in Washington. It is anticipated that Governor Jay Inslee will sign the bill into law soon, and once enacted, it will take effect on January 1, 2020. HB1450 applies to any noncompetition agreement by which an employee or independent contractor is prohibited or restrained from engaging in a lawful profession, trade, or business of any kind. It does not include: (i) nonsolicitation agreements; (ii ...

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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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