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The Franchise Memorandum

Posts from January 2021 - Issue 261.
Posted in Renewals

The Fifth Circuit Court of Appeals has reversed a Texas court’s ruling excusing an area representative’s untimely renewal notice and rendered judgment for the franchisor. Pizza Inn, Inc. v. Clairday, 979 F.3d 1064 (5th Cir. 2020). Clairday and Pizza Inn were parties to two area development agreements under which Clairday held two five-year options to renew. Clairday failed to timely notify Pizza Inn of his intent to exercise the second renewal option. Pizza Inn did not honor the tardy notice of renewal and did not renew. A jury awarded damages after finding that Pizza Inn had ...

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Posted in Encroachment

A federal court in Colorado has denied a motion to dismiss a franchisee’s claim that the franchisor breached the implied duty of good faith and fair dealing. Kazi v. KFC US, LLC, 2020 WL 6680361 (D. Colo. Nov. 12, 2020). The franchise agreement in question stated that KFC would not operate, or permit a third party to operate, another KFC within a one-and-a-half mile radius of Kazi’s restaurant. In March 2019, after execution of the franchise agreement, KFC issued a policy allowing franchisees to request an impact study if KFC intended to permit the development of a new location within ...

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As a part of its decennial review of the Franchise Rule, which is required by a series of executive orders, the FTC invited interested parties to participate in a Virtual Public Workshop on November 10, 2020 to discuss potential changes to the Rule. Lathrop GPM was one of nine law firms and independent lawyers asked to comment on proposed changes, in particular, changes to the FDD format. While acknowledging that current FDD requirements do result in long documents, and applauding efforts by the FTC and NASAA to make the document easier to navigate and understand, Lathrop GPM cited ...

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Posted in Employment

In another case involving joint employer allegations, a federal court in Massachusetts denied a motion to dismiss brought by Enterprise Holdings, Inc. (Enterprise), finding that the plaintiff Mamadou Bah plausibly alleged Enterprise was his joint employer. Bah v. Enter. Rent-A-Car Co. of Bos., LLC, 2020 WL 6701324 (D. Mass. Nov. 13, 2020). Plaintiff was an assistant manager employed by Enterprise-Boston, an independent regional subsidiary of Enterprise, and alleged that Enterprise-Boston and Enterprise violated the Fair Labor Standards Act and the Massachusetts Overtime ...

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A federal court in Michigan has relied upon contractual disclaimers to reject most of the fraud-related claims asserted by a failed massage franchisee, but did award damages amounting to the initial franchisee fee based upon the franchisor’s misrepresentations in its FDD regarding the number of closed units. MTR Capital, LLC v. LaVida Massage Franchise Dev., Inc., 2020 WL 6536954 (E.D. Mich. Nov. 6, 2020). MTR Capital brought common law and statutory claims against LaVida based upon allegedly false financial performance representations. Although no Item 19 disclosures were ...

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Posted in Contracts

The Missouri Court of Appeals reversed an award of attorneys’ fees to a franchisor made by the trial court, finding that the franchisor’s recovery was barred by a settlement agreement, and even if not barred, would have been limited to success on only breach of contract claims under the franchise agreement. AEFC, Inc. v. Vietti, 2020 WL 7381536 (Mo. Ct. App. Dec. 16, 2020). Plaintiff AEFC licenses the “Adam & Eve” brand to franchisees who use it to sell lingerie and adult-themed novelty products. Following the deterioration of AEFC’s relationship with franchisee Vietti ...

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Posted in Trademarks

A federal court in Missouri partially granted franchisees’ motion to dismiss a franchisor’s Lanham Act claims and stayed the proceedings on the surviving claims pending the resolution of parallel proceedings in North Carolina state court. Window World Int’l, LLC v. O’Toole, 2020 WL 7041814 (E.D. Mo. Nov. 30, 2020). Window World, a franchisor of home remodeling products, was sued by dozens of its franchisees in North Carolina state court for various claims, some of which related to the franchisees’ rights to use Window World’s trademarks. Window World later sued three ...

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Meanwhile, a federal court in North Carolina granted motions for summary judgment filed by a franchisor and its owners on claims for fraud, misrepresentation, breach of the duty of good faith and fair dealing, breach of fiduciary duty, and a violation of North Carolina's Unfair and Deceptive Trade Practices Act. Trident Atlanta, LLC v. Charlie Graingers Franchising, LLC, 2020 WL 6889208 (E.D.N.C. Nov. 23, 2020). The lawsuit was filed by former franchisees and area representatives of the Charlie Graingers restaurant system based on allegedly misleading statements that the ...

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Posted in Employment

A federal court in Pennsylvania dismissed all claims against a franchisor because the plaintiff failed to plausibly allege that the franchisor and its franchisee were joint employers. Doe v. McDonald’s USA, LLC, 2020 WL 7133517 (E.D. Pa. Dec. 3, 2020). Sixteen-year-old Jane Doe brought claims for discrimination, hostile work environment, and intentional infliction of emotional distress against McDonald’s and its franchisee, alleging McDonald’s and the franchisee were joint employers and thus jointly liable for the franchisee’s manager’s misconduct ...

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Posted in Terminations

The Sixth Circuit Court of Appeals recently affirmed a Michigan federal court’s grant of summary judgment enforcing Little Caesar’s termination of franchise agreements for related multi-unit franchisees based on nonpayment and repeat defaults. Little Caesar Enters., Inc. v. Little Caesars ASF Corp., 2021 WL 37544 (6th Cir. Jan. 5, 2021). Lathrop GPM represented Little Caesar in the case. Little Caesar terminated the franchise agreements after the franchisees accrued more than $200,000 in debt for, among other things, unpaid royalties, and failed to cure their defaults ...

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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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