The Franchise Memorandum

Baskin-Robbins charges its designated supplier a fee for the right to manufacture and sell Baskin’s proprietary ice cream products to Baskin’s franchisees. The supplier includes an amount equal to the fee in the price that it charges Baskin’s franchisees for those products. In Association of Independent BR Franchise Owners v. Baskin-Robbins Franchising, LLC, 2017 WL 4314607 (D. Mass. Sept. 27, 2017), an association of Baskin-Robbins franchisees sought a declaration that the price component paid by its members that was attributable to the fee paid by the supplier to Baskin was, in fact, an unauthorized fee imposed by Baskin on its franchisees. Following a “case stated” proceeding—a proceeding tantamount to a bench trial on cross-motions for summary judgment and closing argument alone—the United States District Court for the District of Massachusetts entered judgment in favor of Baskin-Robbins, holding that the derivative price component was not an unauthorized fee. Gray Plant Mooty represented Baskin-Robbins in this case.

The court first found that Baskin’s franchisees pay a “price” for products that they purchase, not a “fee.” In reaching that finding, the court relied on the Black’s Law Dictionary definitions of “fee” and “price” and the fact that Baskin franchisees pay a single amount to the supplier, not Baskin, for products. Next, the court considered whether Baskin’s franchise agreement prohibited the supplier from including an amount equal to the fee that it must pay Baskin in the price that the supplier charges franchisees. The court found that the only relevant provisions of the franchise agreement required franchisees to purchase products from Baskin’s designated supplier, at the supplier’s price. The court further observed that “pass-through costs and charges along the supply chain is a standard industry practice.” Finally, the court held that even if it were to find ambiguity in the language of the franchise agreement and extend its analysis beyond the agreement’s four corners, the parties’ course of dealing further demonstrated that the supplier’s practice of passing along its cost to franchisees was not prohibited under the franchise agreement. Specifically, the court observed that the practice had been in place for many years with franchisees’ knowledge and without their objection and that Baskin expressly advised franchisees in their disclosure documents that Baskin received revenue from franchisees’ purchase of products from Baskin’s designated supplier.