The Franchise Memorandum

A former franchisee’s fraud action against Little Nest Portraits may proceed, a federal court recently held, exposing the photography studio franchisor and its owner to potential punitive damages under Washington’s Franchise Investment Protection Act (“FIPA”). Wagenbrenner v. Little Nest Group, LLC, 2019 WL 2491913 (D. Del. June 14, 2019). This dispute arose after Wagenbrenner - a Washington resident - quit a lucrative career in order to start a Little Nest franchised studio. Wagenbrenner alleged that, prior to entering into the franchise agreement, Little Nest ...

In another case, a Florida federal court granted a preliminary injunction against a former Tim Hortons franchisee who continued to operate under the Tim Hortons marks. Tim Hortons USA, Inc. v. Tims Milner, LLC, 2019 WL 2515006 (S.D. Fla. June 17, 2019). Tims Milner and its codefendants (collectively, “Milner”) entered into franchise and lease agreements with Tim Hortons and its affiliate in 2016 to own and operate seven locations in Michigan. Almost immediately after signing the Agreements, Milner began disputing Tim Hortons’ accounting and billing procedures and refused ...

In response to a request for comment from the Federal Trade Commission on whether its Franchising Trade Regulation Rule should continue or be modified, Gray Plant Mooty has submitted a recommendation that the rule continue without modification. The Commission reviews its rules and guides periodically and solicits public comment to seek information about their costs and benefits, as well as their regulatory and economic impact. The rule makes it an unfair or deceptive act or practice for franchisors to fail to give prospective franchisees an FDD providing specified information ...

A federal court in Missouri granted the motion of H&R Block Tax Services (“Block”) to compel individual arbitration of a putative antitrust class action challenging an antipoaching provision contained in Block’s franchise agreements. Davidow v. H&R Block, Inc., 2019 WL 2090690 (W.D. Mo. May 13, 2019). Plaintiff Janice Davidow’s complaint alleged that the antipoaching provision unreasonably restricted the mobility and suppressed the compensation of employees of Block and its franchisees. That provision prohibited a Block franchisee from soliciting any employee of ...

On May 19, 2019, the North American Securities Administrators Association, Inc. (“NASAA”) adopted new franchise state cover sheet instructions that revise instructions in its 2008 Franchise Registration and Disclosure Guidelines (“NASAA Guidelines”) regarding the information provided in the state cover sheets to a franchise disclosure document. You can access a copy of the new instructions at: https://www.nasaa.org/wp-content/uploads/2019/06/New-Frachise-State-Cover-Sheets-Instructions.pdf. The new instructions are the result of a proposal prepared ...

A federal court recently allowed a franchisor to continue defending against a breach of contract case even though it failed to timely respond to the complaint. In Kyllonen v. GNC Franchising, LLC, 2019 WL 2492272 (D. Nev. June 13, 2019), Craig Kyllonen brought several breach of contract claims against GNC after four franchises he owned failed due to financial distress. Although the parties were engaged in parallel litigation in Pennsylvania, GNC did not timely respond to the complaint. Kyllonen moved for entry of default, which was granted by the clerk. GNC moved to vacate the entry of ...

A federal court in New York granted Doctor’s Associates LLC and Subway IP LLC (collectively, “Subway”) a preliminary injunction prohibiting a former franchisee, Abdul Hai, from using Subway’s marks and materials after Hai’s franchise agreement had been terminated. Doctor’s Assocs. LLC v. Hai, 2019 WL 2385597 (E.D.N.Y. June 4, 2019). Subway commenced an action in April 2019 after Hai’s Subway franchise agreement was terminated, but Hai nonetheless continued operating a sandwich shop using marks and materials that Subway claimed were confusingly similar or ...

Meanwhile, the Northern District of Texas has denied a request for a temporary restraining order against franchisor MMI-CPR, LLC in All Tech Repairs, Inc. v. MMI-CPR, LLC, 2019 WL 2286082 (N.D. Tex. May 5, 2019). MMI-CPR, a franchisor of cell phone and electronic device retail stores, sent a Notice of Termination of the Area Representative Agreement to All Tech Repairs. MMI-CPR wished to terminate the contract due to All Tech’s alleged failures to recruit enough franchisees and to properly support the existing franchisees within its territory. All Tech filed suit to force ...