The Franchise Memorandum

A federal bankruptcy court in Illinois has held that a franchisor’s rights under a franchise agreement’s covenant not to compete was a “claim” within the meaning of the Bankruptcy Code and would thus not be enforced via injunctive relief. In re Roberts, 2019 WL 5079247 (Bankr. N.D. Ill. Oct. 10, 2019). Aire Serv, the franchisor of an HVAC-repair system, and JSR Heating and Cooling were parties to a franchise agreement. After the relationship deteriorated, Aire Serv terminated the franchise agreement and JSR declared bankruptcy. Aire Serv commenced an adversary proceeding ...

A federal court in Florida dismissed a challenge to the validity of the forum selection clause in Burger King Corporation’s franchise agreement. Capital Rest. Grp., LLC v. Burger King Corp., 2019 WL 5102162 (S.D. Fla. Oct. 11, 2019). Plaintiff Capital Restaurant Group brought a declaratory judgment suit against Burger King in federal court, noting that it wished to sue Burger King for a number of state claims in Florida state court, but was prohibited from doing so under the forum selection clause. Capital Restaurant Group asked for a declaration regarding the validity of that ...

A federal court in Michigan denied a franchisor’s motion for a preliminary injunction and temporary restraining order against a former franchisee for violating its post-termination noncompete clause because the franchisor waited too long to file the motion. Detailxperts Franchise Systems LLC v. Deck Inc., 2019 WL 5294354 (E.D. Mich. Oct. 18, 2019). Deck was a franchisee of Detailxperts’ car-detailing franchise system, but Deck sought to rescind the franchise agreement alleging that he was fraudulently induced into signing the agreement. Detailxperts terminated the ...

A Delaware federal court granted Huntington Learning Center’s motion to dismiss a lawsuit brought by a prospective franchisee. Dhade v. Huntington Learning Ctrs., Inc., 2019 WL 5067298 (D. Del. Oct. 9, 2019). Dhade applied to purchase two franchises from Huntington and, in the process of applying, requested information pertaining to financing options offered by Huntington. Huntington informed Dhade that its financing options required Dhade’s spouse to execute a personal guarantee of his obligations as a franchisee. Following a breakdown in negotiations, Dhade withdrew ...

In another recent dismissal for lack of personal jurisdiction, a federal court has dismissed a negligence lawsuit that a hotel guest brought in Pennsylvania rather than either the state where her claims arose or where the defendants are based. Kurz v. Holiday Hosp. Franchising, LLC, 2019 WL 5068646 (E.D. Pa. Oct. 9, 2019). Shirlyn Kurz filed suit in Pennsylvania against Holiday Hospitality Franchising and its Holiday Inn franchisee, Prammish LLC, alleging that because of their negligence, jewelry was stolen from her guestroom at a franchised hotel in Santee, South Carolina ...

In a recent win for franchisors, a Florida federal court dismissed a Telephone Consumer Protection Act (“TCPA”) complaint against Jiffy Lube based upon a lack of personal jurisdiction. Turizo v. Jiffy Lube Int’l, Inc., 2019 WL 4737696 (S.D. Fla. Sept. 24, 2019). The TCPA is a federal statute enacted to protect consumers from unsolicited telemarketing calls and messages, including text messages. Notably, the TCPA imposes harsh penalties for noncompliance, allowing class action plaintiffs to recover as much as $1,500 for each call or message that violates the Act. This has ...

Meanwhile, a federal court in Maryland recently granted in part and denied in part a preliminary injunction sought by a franchisor seeking to prevent its former franchisee from violating its post-termination obligations. ICENY USA, LLC v. M&M’s, LLC, 2019 WL 5082603 (D. Md. Oct. 10, 2019). M&M’s was a franchisee of an ICENY Thai-style ice cream shop in Yuma, Arizona. In April 2019, M&M’s ceased all communication with ICENY and stopped providing sales reports and making franchise fee and royalty payments as required by the franchise agreement. In June 2019, ICENY discovered ...

A federal court in Michigan has granted a franchisor’s motion to compel arbitration and has dismissed the plaintiffs’ antitrust claims. Blanton v. Domino’s Pizza Franchising LLC, 2019 WL 5543027 (E.D. Mich. Oct. 25, 2019). Plaintiffs Blanton and Piersing worked for separate Domino’s franchisees in separate states and signed different arbitration agreements with their respective employers. However, they joined together and brought claims on behalf of themselves, and all others similarly situated, alleging a conspiracy between Domino’s and its franchisees to ...

In the wake of the California legislature’s passage of AB-5 in September, thought leaders continue to examine how the new legislation may impact the franchising industry in California. A few recent cases are likely to have an impact. Each of these cases examines Dynamex Operations West, Inc. v. Superior Court, the California Supreme Court decision that AB-5 is intended to codify, and the “ABC Test” for determining whether a worker is an “employee” or an “independent contractor” that is described therein. First, in Gonzales v. San Gabriel Transit, Inc., a California ...