The Ninth Circuit Court of Appeals has reversed the approval of a $10 million voucher settlement and a $2.6 million attorneys’ fee award in a class action over increased membership fees charged by Massage Envy franchises. McKinney-Drobnis v. Oreshack, --- F.4th ---, 2021 WL 4890277 (9th Cir. Oct. 20, 2021).

The Sixth Circuit Court of Appeals ruled that a forum selection clause in a franchise agreement was unenforceable. Lakeside Surfaces, Inc. v. Cambria Co., LLC, --- F.4th ---, 2021 WL 4807182 (6th Cir. Apr. 20, 2021).

A federal court in Massachusetts dismissed a franchisee’s declaratory judgment, consumer protection, and fraud claims against a franchisor, two of its employees, and its outside counsel and enforced the arbitration clause in the parties’ franchise agreement. Restuccia v. H&R Block Tax Services LLC, et al. 2021 WL 4658734 (D. Mass. Oct. 7, 2021), Restuccia converted his accounting firm into an H&R Block franchise through a series of agreements he entered into in 2015.

A federal court in New Jersey denied a franchisee defendant’s motion for judgment on the pleadings on franchisor Golden Corral’s breach of contract claims for lost future royalties and marketing fees of $1,168,368. Golden Corral Franchising Systems, Inc. v. Scism, 2021 WL 4490233 (D.N.J. October 1, 2021).

A federal court in California denied a gasoline station and convenience store franchisee’s motion for summary judgment on its claim that there was an unlawful material modification to its franchise agreement under the California Franchise Investment Law (CFIL). BP Prods. N. Am., Inc. v. Grand Petroleum, Inc., 2021 WL 4804275 (N.D. Ca. Oct. 14, 2021).

A federal court in Illinois granted summary judgment to McDonald’s on an ADA claim, finding the franchisor did not “operate” the franchised restaurants. Magee v. McDonald’s USA, LLC, 2021 WL 4552411 (N.D. Ill. Oct. 5, 2021).

A federal Court in Nebraska has recently denied a licensor’s request to enjoin a terminated licensee, concluding that there was no likelihood of irreparable harm where the licensor delayed in seeking injunctive relief. Stone Strong, LLC v. Stone Strong of Texas, LLC, 2021 WL 4710449 (D. Neb. Oct. 28, 2021).

The Global Franchise Regulation Update (GFRU) is a well-known Lathrop GPM Franchise & Distribution publication that is updated and re-published around 3 times annually, most recently on September 30, 2021.

A federal court in California has recently ruled that a group of former 7-Eleven franchisees were not employees of 7-Eleven. Haitayan v. 7-Eleven, Inc., 2021 WL 4078727 (C.D. Cal. Sept. 8, 2021).

A federal court in Georgia denied a franchisee’s motion to dismiss a franchisor’s claim for liquidated damages. Holiday Hosp. Franchising, LLC v. N. Riverfront Marina & Hotel, LLLP, 2021 WL 3798561 (N.D. Ga. Aug. 26, 2021).

A federal court in Illinois denied a franchise developer’s motion for partial summary judgment seeking to dismiss a franchisor’s allegations that he misappropriated trade secrets. JTH Tax LLC v. Grabowski, 2021 WL 3857794 (N.D. Ill. Aug. 30, 2021).

On October 28, 2021, Lathrop GPM will launch its Increasing Diversity in Franchising virtual educational speaker series with a presentation by Dr. Marcia Chatelain, Professor, History and African American Studies, Georgetown, and Pulitzer Prize-winning author of Franchise: The Golden Arches in Black America. Dr. Chatelain will discuss “Diversity in Franchising – Where Are We & How Can We Improve?” Click here to learn more and to register for this important discussion.

A federal court in Indiana recently granted a motion by Steak N Shake to temporarily restrain a former franchisee from operating a competing business.

After a two-day bench trial, a federal court in New Jersey found franchisees breached real estate franchise agreements and awarded the franchisor over $7 million in damages. Coldwell Banker Real Estate, LLC. v. Bellmarc Group LLC, 2021 WL 4129492 (D.N.J. September 9, 2021).

A divided panel of the Second Circuit Court of Appeals has concluded that claims of improper wage deductions and unjust enrichment against a franchisor were properly dismissed because the plaintiffs agreed to deductions in exchange for valuable franchise rights.

A California appellate court affirmed a trial court’s ruling that a third party’s offer to purchase a franchise was not a valid, bona fide offer under the terms of a franchise agreement because the purchase price was contingent on the franchise’s future revenues.

In response to the uncertainty caused by the European Court of Justice questioning whether Standard Contractual Clauses (last amended in 2004) provide sufficient data protections in the “Schrems II” opinion, the European Commission recently adopted new SCCs.

The First Circuit Court of Appeals has affirmed a district court’s confirmation of an arbitration award, concluding that franchisor Toddle Inn Franchising had not waived its contractual right to arbitrate by initially seeking injunctive relief in court.

A federal court in Illinois declined to dismiss franchisor 360 Painting’s claims against franchisee R. Sterling Enterprises for underreporting of gross sales but dismissed its claims for fraudulent misrepresentation.

A federal court in Pennsylvania granted a former franchisee’s motion for reconsideration of its order staying proceedings holding the franchisor’s arbitration agreement invalid. Takiedine v. 7-Eleven, Inc., 2021 WL 3223070 (E.D. Pa. July 29, 2021). In 2017, Azmi Takiedine, a 7-Eleven franchisee for over 40 years, brought suit in district court alleging that 7-Eleven failed its duties regarding vendor negotiating practices as required by the parties’ franchise agreement. The contract included an arbitration agreement requiring disputes arising under the ...

A federal court in Oregon held that plaintiff franchisee employees were bound by the arbitration provision of relevant franchise agreements and could be compelled to arbitrate by affiliates of the franchisor, even though none of them were parties to the franchise agreements.

Two federal courts in Illinois have rejected motions to certify classes of employees who worked in franchised McDonald’s and Jimmy John’s restaurants.

The Eleventh Circuit Court of Appeals recently affirmed a ruling that forklift manufacturer Taylor Group could not be compelled to arbitrate a dispute pursuant to an arbitration provision in an agreement to which it was not a party.

In a terse, per curiam decision, the Eleventh Circuit Court of Appeals upheld a district court’s determination that the preferential treatment given by a distributor to another manufacturer’s products was grounds for termination of the distributor agreements.

A federal court in Minnesota granted a distributor’s motion for a preliminary injunction to prevent a former licensee from continuing to use its trademarks after the distributor terminated the parties’ license agreement.

A federal court in New Jersey applied the New Jersey Franchise Protection Act (NJFPA) and entered judgment in favor of a car manufacturer on a franchisee’s unlawful chargebacks claim.

The Sixth Circuit Court of Appeals affirmed a Michigan federal court’s finding that Michigan was a proper forum and Michigan law applied to dealer agreements between a Michigan manufacturer and a dealer in the Dominican Republic.

A federal court in Wisconsin has recently granted defendant Garmin International’s motion to dismiss a claim under Wisconsin’s dealer law, which it concluded did not apply to the parties’ relationship.

A federal court in Wisconsin has dismissed a dealer’s claim that a supplier fraudulently induced the dealer to enter into a distributor agreement.

A federal court in Missouri recently denied a motion by McDonald’s to dismiss an employment discrimination claim brought against it by a franchisee’s former employee.

A federal court in Arizona recently granted a temporary restraining order for franchisor ReBath against one of its franchisees even though ReBath gave no opportunity to cure the defaults and had previously sent a notice of default with opportunity to cure for a similar issue. 

A federal court in New York has dismissed contract, fraud, and negligent misrepresentation claims brought by a former iLoveKickboxing franchisee. 

A federal court in Colorado found a former franchisee of Core Progression Franchise in contempt and awarded sanctions for violations of the terms of a preliminary injunction.

A federal court in Louisiana granted a preliminary injunction against a former franchisee for breaching post-termination covenants, and the court extended the covenants for 20 months following the date of the injunction.

The Louisiana Court of Appeals affirmed a trial court’s finding that there was a signed franchise agreement between the parties even though the franchisor could not produce the signed original.

A federal court in California granted a franchisor’s motion for a preliminary injunction against a former franchisee alleged to have misappropriated trade secrets and breached a noncompetition provision related to the continued operation of a formerly franchised restaurant. 

A federal court in New Jersey granted the franchisor Jackson Hewitt a preliminary injunction enjoining a franchisee from violating the franchise agreement’s post-termination covenants.

A federal court in Virginia denied a franchisor’s motion to disqualify its former in-house counsel from representing two area developers in a lawsuit that was not “substantially related” to the work the lawyer had performed for the franchisor. 

A franchisee association’s claims against a franchisor, brought on behalf of the association’s franchisee members, were summarily dismissed because the court decided that the association “simply [was] not in as good a position” as the individual franchisees to present the subtleties of the claims. 

A federal court in New Hampshire recently denied franchisor Planet Fitness’s motion for judgment on the pleadings that it did not tortiously interfere with the prospective contracts of one of its franchisees. 

The Eighth Circuit Court of Appeals reversed a district court’s dismissal of a lawsuit against a franchisor based on the doctrine of forum non conveniens. Estate of I.E.H. v. CKE Rests. Holdings, Inc., 2021 WL 1653036 (8th Cir. Apr. 28, 2021).

A federal court in Illinois denied reconsideration of its decision to exclude plaintiff’s expert testimony in connection with a motion seeking class certification.

Please join Lathrop GPM for our annual State of Litigation, being held virtually for the second year. 

A federal court in Minnesota dismissed all claims against a franchise broker because the plaintiff failed to demonstrate that the broker made false statements about past or present facts or circumstances.

A federal court in Michigan has denied a franchisor’s motion to compel arbitration because the court determined that the dispute arose from a service contract that was outside the scope of the arbitration provision in the separate franchise agreements.

A federal court in Illinois dismissed certain putative class action claims related to pandemic closures of Planet Fitness franchises, compelling arbitration against one named plaintiff while dismissing claims of another for failure to name the franchisee.

Similarly, a federal court in Pennsylvania has dismissed a lawsuit brought by 90 hotel franchisees, enforcing the arbitration provisions in their franchise agreements and ordering all 90 franchisees to arbitrate their claims individually.

A federal court in New York recently dismissed a franchisee’s employee’s discrimination claim against a franchisor because the franchisor was not her joint employer.

A federal court in Texas recently denied franchisor Kiddie Academy Domestic Franchising’s motion for summary judgment, rejecting the argument that Kiddie Academy bore no liability under its franchise agreement for the negligence of one of its franchisees.

In another vicarious liability case, a federal court in Tennessee granted summary judgment in favor of Country Inn & Suites By Radisson, dismissing claims that it was liable for the alleged actions of its franchisee’s employee.

A federal court in Illinois denied a motion to temporarily restrain franchisor Seva Beauty from terminating franchise agreements based on the franchisee’s failure to pay weekly royalty payments while a dispute with the franchisor was pending.

The First Circuit Court of Appeals recently affirmed a district court’s denial of John Deere’s post-trial motions for a new trial or for judgment as a matter of law in its favor.

A federal court in New Jersey granted summary judgment to a manufacturer who terminated its distributor for widespread fraud. Mall Chevrolet, Inc. v. General Motors, LLC, 2021 WL 426193 (D.N.J. Feb. 8, 2021).

A state court of appeals in Maryland recently held that the sale of Pabst Brewing’s parent company and a change in Pabst’s corporate structure made neither the new parent nor Pabst a “successor beer manufacturer” such that Pabst could terminate a distributorship agreement without cause under the Maryland Beer Franchise Fair Dealing Act (BFFDA).

The First Circuit Court of Appeals has upheld a finding that an implied contract was formed between a manufacturer and a distributor, and an award of damages to the distributor based on that contract.

A federal court in Michigan recently dismissed a distributor’s four-count complaint alleging that a brewer’s drastic reduction of beer sales was in breach of a requirements contract.

A federal court in California rejected City Beverages’ request to disqualify JAMS from arbitrating its contractual dispute with Monster Energy. Monster Energy Co. v. City Beverages, LLC, 2021 WL 650275 (C.D. Cal. Feb. 17, 2021).

A federal court in Ohio recently held that a distributor adequately alleged the existence of a fiduciary relationship with a manufacturer.

A Texas federal court has granted an injunction to a Bundt cake franchisor seeking to prevent a competitor from using its trademarked frosting pattern on her cake products. Denbra IP Holdings, LLC v. Thornton, 2021 WL 674238 (E.D. Tex. Feb. 22, 2021). Plaintiff Denbra IP Holdings, LLC d/b/a Nothing Bundt Cakes has over 300 franchises around the United States and Canada selling Bundt cakes topped with its trademarked frosting pattern. The frosting pattern consists of long strips of tubular ring-shaped frosting that expands outward from the center of the cake. Twenty-one of its ...

A federal court in Illinois granted Jimmy John’s motion to exclude expert testimony of a putative class seeking certification, while denying the class’s motion to exclude Jimmy John’s expert testimony. Conrad v. Jimmy John's Franchise, LLC, 2021 WL 718320 (S.D. Ill. Feb. 24, 2021). The case against Jimmy John’s is the most procedurally advanced of the class actions filed against various franchisors alleging that employee anti-poaching provisions formerly contained in many franchise agreements constitute an unlawful conspiracy in restraint of trade in violation of ...

A federal court in Illinois has recently concluded that an insurer may have a duty to cover a franchisor’s costs of defending a COVID-19-related injunction. In McDonald’s Corp. v. Austin Mutual Insurance Co., (N.D. Ill. Feb. 22, 2021), McDonald’s claimed that Austin Mutual had a duty to defend McDonald’s in an ancillary case brought by employees of a McDonald’s franchisee alleging McDonald’s was liable for public nuisance and negligence as the result of its decision to allow its franchisee to remain open during the COVID-19 pandemic without enhanced health and safety ...

The Court of Appeals of Kentucky affirmed the dismissal of a Jani-King franchisee owner’s wage and hour, breach of contract, and fraud claims on the basis that the franchisee’s individual owner lacked standing to sue. Mouanda v. Jani-King, 2021 WL 406317 (Ky. Ct. App. Feb. 5, 2021). The plaintiff, Constance Mouanda, was the sole owner of an entity, The Matsoumou’s, LLC. That entity entered into a franchise agreement with Cardinal Franchising, Inc., a master franchisee for the Jani-King janitorial franchise system. In the instant suit, Mouanda alleged a variety of claims ...

A federal court in Michigan granted 7-Eleven’s motion for summary judgment and enforced the franchisor’s right to terminate a franchisee following repeated defaults. 7-Eleven, Inc. v. CJ-Grand, LLC, 2021 WL 429332 (E.D. Mich. Feb. 8, 2021). The franchise agreement at issue permitted immediate termination if 7-Eleven issued four notices of default to its franchisee within a two-year period, regardless of whether any of the defaults were cured. 7-Eleven sought a declaratory judgment from the court vindicating 7-Eleven’s right to terminate its franchise agreement with ...

A federal court in Nevada remanded a class action back to state court after Red Robbin was unable to show that the putative damages exceeded the amount in controversy requirement under the Class Action Fairness Act (CAFA).

A federal court in Connecticut enforced the choice of law provision in a master franchise agreement entered into with the franchisor’s predecessor.

A federal court in California granted in part a franchisor’s motion to dismiss a franchisee’s California Unfair Competition Law (UCL) and business interference claims, while denying the motion as to other aspects of the unfair competition claims and the covenant of good faith and fair dealing claim. Ronald Cohn, Inc. v. Sprouts Farmers Market, Inc., 2021 WL 120896 (S.D. Cal. Jan. 13, 2021). Ronald Cohn entered into a Trademark License Agreement (TLA) with Boney’s Services, Inc. in 1990 and then a second TLA in 1995. Boney’s was subsequently purchased by Sprouts Farmers ...

In another vicarious liability case, a Delaware Superior Court denied franchisor Hand and Stone’s motion to dismiss, allowing vicarious liability claims based on the alleged sexual misconduct of its franchisee’s former employee to go forward. Jane Doe v. Massage Envy Franchising, LLC, 2021 WL 62643 (Del. Super. Ct. Jan. 7, 2021). The plaintiff alleged she was sexually assaulted while receiving a massage by Massage Envy employee, Christopher Dorman. She further alleged that Dorman was previously employed by a franchisee of Hand and Stone, that Dorman had engaged in ...

A federal court in New Jersey has denied a franchisee’s motion for an emergency temporary restraining order. Sat Agiyar, LLC v. 7-Eleven, Inc., 2021 WL 147110 (Jan. 15, 2021). In September 2015, Agiyar signed a franchise agreement to operate a 7-Eleven store 24-hours per day in Princeton, New Jersey. At that time, Princeton prohibited the operation of retail food establishments from 2 a.m. to 5 a.m. The prohibition was set to expire in 2017 unless the city council extended it. To account for the local ordinance, Agiyar and 7-Eleven agreed to permit Agiyar to operate the location for ...

A federal court in New Jersey has dismissed certain state-law claims against the franchisors of Circle K gas stations based upon choice-of-law provisions in the parties’ franchise agreements, but ruled that related lease agreements had narrower choice-of-law language that did not apply to tort claims. Universal Prop. Servs. Inc. v. Lehigh Gas Wholesale Servs., Inc., 2021 WL 118940 (D.N.J. Jan. 13, 2021). Plaintiffs acquired the rights to operate 17 Florida-located gas stations from Defendants Circle K Stores, Inc. and TMC Franchise Corp. Plaintiffs alleged that during ...

A federal court in New Jersey granted the motion for summary judgment filed by Doubletree hotel franchisor, Hilton Franchise Holdings, LLC, and its affiliate (collectively “Hilton”), finding that Hilton was not liable for the tragic accidental drowning of a child in a franchised Doubletree hotel’s pool. Burnet v. Hilton, 2021 WL 118924 (D.N.J. Jan. 13, 2021). The victim’s family claimed that Hilton, the third-party hotel management company, and the Hilton franchisee were all negligent in causing the child’s death. At summary judgment, the family argued that Hilton ...

Laws that just became effective in Belgium and Netherlands may have a major impact on how franchisors conduct business there.

In his first few days in office, President Biden has set out to reverse a number of Trump-era labor policies. One such reversal involves the DOL final rule on independent contractor classification (the “Final Rule”), which was published on January 7, 2021, and would have set new standards for determining when a worker is an employee or an independent contractor under the Fair Labor Standards Act. Notably, the Final Rule implemented a more employer-friendly “economic realities” test, which focused on (1) the nature and degree of the worker’s control over the work, and (2 ...

A federal court in Texas granted in part and denied in part a franchisor’s motion to dismiss a franchisee’s counterclaims under California state law. Jack in the Box Inc. v. San-Tex Rests., Inc., 2021 WL 148058 (W.D. Tex. Jan. 14, 2021). Jack in the Box entered into franchise agreements for 49 Texas restaurant locations with Atour Eyvazian and Anil Yadav, who, on the same day, assigned the franchise agreements to San-Tex Restaurants. The franchise agreements contained a choice of law provision contemplating the application of California law to claims “regarding the making ...

The California Supreme Court has held that its Dynamex decision applies retroactively, answering a question certified to it by the Ninth Circuit in Vazquez v. Jan-Pro Franchising Int’l, Inc., --- P.3d ---, 2021 WL 127201 (Cal. 2021).

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 ...

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 ...

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 ...

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 ...

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 ...

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 ...

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 ...

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 ...

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 ...

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 ...

A federal court in California recently partially granted China-based medical device distributor Belter’s motion to dismiss a complaint by U.S.-based device distributor Meditex Capital, and related parties, for breach of contract and fraud, among other claims. Naghavi v. Belter Health Measurement & Analysis Tech. Co., 2020 WL 6150431 (S.D. Cal. Oct. 20, 2020). In May 2017, Belter and Meditex entered into a distribution agreement that granted Belter certain rights to sell Meditex’s medical devices in China and contained minimum sales requirements. The parties amended the ...

As the year draws to a close, join The Franchise Memo by Lathrop GPM editors Maisa Frank and Richard Landon as they recap some of the most significant decisions and lessons learned in franchise law during the past year.

A federal court in Maryland denied a manufacturer’s motion to dismiss claims for breach of contract and tortious interference brought by a former distributor. KVC Waffles Ltd. v. New Carbon Co., 2020 WL 6204303 (D. Md. Oct. 22, 2020). KVC was the exclusive distributor of New Carbon products in parts of Europe. During the initial term, the parties allegedly executed a revised distribution agreement. During a renewal term of the agreement, New Carbon informed KVC that it could not locate an executed copy of the agreement. New Carbon demanded that KVC agree to certain modifications to ...

A federal court in Michigan has recently granted Whirlpool Corporation’s motion for judgment on the pleadings in a contract dispute with its former licensing agent. Whirlpool Corp. v. Equity Mgmt., Inc., Case No. 1:19-cv-00259 (W.D. Mich. Sept. 30, 2020). Lathrop GPM represented Whirlpool in this dispute. When Whirlpool Corporation acquired the Maytag® brand in 2006, it inherited a third party licensing arrangement with the company Equity Management, Inc. (EMI) in which EMI administered third party licensing agreements with manufacturers using the Maytag® trademark ...

A federal court in Puerto Rico partially granted a manufacturer’s motion for summary judgment, finding a Puerto Rican law that protects local distributors from contract terminations without just cause does not apply to the distributor’s operations outside of Puerto Rico, and that the manufacturer had just cause to terminate the distributorship. M30 Brands, LLC v. Riceland Foods, Inc., 2020 WL 6084138 (D.P.R. Oct. 15, 2020). Riceland, an Arkansas rice manufacturer and exporter, terminated its distribution relationship with M30, a Puerto Rican company that distributed ...

The Second Circuit Court of Appeals recently affirmed a lower court’s dismissal of a distributor’s breach of contract claims because the contract was terminable at will and the manufacturer had no duty to protect the distributor from competition. Compania Embotelladora Del Pacifico, S.A. v. Pepsi Cola Company, 976 F.3d 239 (2d Cir. Sept. 29, 2020). In 1952, PepsiCo and Compania Embotelladora Del Pacifico, S.A. (CEPSA) entered into an exclusive bottler agreement (EBA) granting CEPSA the exclusive right to bottle and distribute Pepsi Cola in a protected territory in parts of ...

A federal court in Wisconsin granted summary judgment to a manufacturer on claims brought against it by its former dealer, holding the claims to be barred by the release language in an assignment agreement the dealer executed when it sold the dealership. Seattle Powersports, LLC v. Harley-Davidson Motor Co., 2020 WL 5531565 (E.D. Wis. Sept. 15, 2020). Plaintiff Seattle Powersports, a former Harley-Davidson dealer, sued Harley for breach of contract and good faith and fair dealing based upon its dissatisfaction with the amount of inventory it was allocated. In response to the ...

A federal court in Wisconsin recently granted a distributor’s motion for a temporary restraining order and a preliminary injunction to enjoin a manufacturer from terminating a longstanding but unwritten exclusive dealership agreement. Keen Edge Co., Inc. v. Wright Mfg., Inc., 2020 WL 4926664 (E.D. Wis. Aug. 21, 2020). For over 20 years, Keen Edge enjoyed exclusive rights to sell Wright’s products in much of the Midwest. Wright’s products accounted for almost 95% of Keen Edge’s sales. After a change in Wright’s leadership, however, Wright required Keen Edge to ...

A federal court in California found that a restaurant does not violate the Americans with Disabilities Act or the California Unruh Civil Rights Act when it provides late-night service exclusively through its “drive-thru.” Szwanek v. Jack in the Box, Inc., 2020 WL 5816752 (N.D. Cal. Sept. 30, 2020). Plaintiffs Judy Szwanek and James Lopez II are California residents and patrons of Jack in the Box fast food restaurants within walking distance of their homes. Visual impairments prevent each from driving. They brought a putative class action against the franchisees who operate the ...

A federal court in Colorado held that entities controlled by former franchisees were bound by the forum selection clauses in the franchisees’ terminated franchise agreements. Fitness Together Franchise, LLC v. EM Fitness, LLC, 2020 WL 6119470 (D. Colo. Oct. 16, 2020). EM Fitness and related franchiseedefendants operated several Fitness Together franchises in Ohio under franchise agreements that contained post-termination noncompetition and Colorado forum selection clauses. The franchiseedefendants negotiated the early termination of their franchise agreements ...

A federal court in Illinois has dismissed three of four counterclaims asserted against Liberty Tax by one of its former area developers and franchisees, David Rocci. JTH Tax LLC v. Grabowski, 2020 WL 6203355 (N.D. Ill. Oct. 22, 2020). Liberty first sued Rocci for allegedly continuing to operate competing businesses using Liberty’s trademarks and other property following the expiration of his area development agreement and the termination of his franchise. Rocci counterclaimed, arguing that Liberty breached the area development agreement because it failed to offer him a ...

A federal court in Missouri granted, in part, a franchisor’s motion for a temporary restraining order against a former licensee. Imo’s Franchising, Inc. v. Kanzoua, Inc., 2020 WL 5534425 (E.D. Mo. Sept. 14, 2020). Imo’s Pizza entered into a licensing agreement with Kanzoua, which allowed Kanzoua to operate an Imo’s Pizza restaurant at its gas station/convenience store location. In July 2020, Imo’s Pizza terminated the agreement. Imo’s Pizza alleged that after termination, Kanzoua continued to sell pizza, hold itself out as an Imo’s-affiliated restaurant, and ...

Wyndham Hotel Group International’s claim for monetary damages against a guarantor of an $850,000 note related to a franchise agreement has survived a motion to dismiss. Wyndham Hotel Grp. Int’l v. Silver Entm’t LLC, 2020 WL 5517519 (S.D.N.Y. Sept. 14, 2020). Wyndham sued its franchisees Silver Entertainment and Veneto Hotel & Casino and was awarded monetary damages for their breach of the franchise agreement. Wyndham then sought to recover against Silverman, the personal guarantor of a note related to the franchise agreement. Silverman moved to dismiss the claims on the ...

A federal court in Ohio denied an area representative’s request to enjoin the nonrenewal or termination of two of its area representative agreements. KAM Development, LLC v. Marco’s Franchising, LLC, 2020 WL 6146482 (N.D. Ohio Oct. 10, 2020). In 2010, Marco’s granted KAM two area representative agreements in which KAM agreed to solicit potential franchisees and service existing franchisees in Charlotte, North Carolina, and Columbia, South Carolina, for ten years. Each agreement provided up to four renewal periods of five years each, so long as KAM satisfied certain ...

In a blow to the franchisor community, a federal court in New York invalidated the joint employer regulation recently issued by the U.S. Department of Labor (DOL). 

Based on evidence of numerous customer complaints regarding the franchisee’s business practices, a federal court in Tennessee recently granted a franchisor summary judgment, rejecting the franchisee’s improper termination claims.

A federal court in Tennessee has held a franchisee in contempt for its failure to deidentify its restaurant after entry of a temporary restraining order and consent permanent injunction.

A federal court in Arizona granted in part and denied in part cross-motions for summary judgment, finding that an unsigned agreement with various omitted terms and handwritten notations was not enforceable under Arizona’s statute of frauds.

A federal court in Tennessee has granted a franchisor’s motion to compel arbitration of all of a franchisee’s claims.

A federal court in California has granted a franchisor’s motion to stay the case pending arbitration.

Since the beginning of 2020, new, comprehensive franchising regulatory schemes have become effective in Belgium, Netherlands, Saudi Arabia, South Korea, and Thailand; Cambodia has adopted a filing requirement; and Brazil, Malaysia, Ontario, Canada, and South Korea have all amended their existing franchise laws.

Lathrop GPM continues to provide clients with alerts, articles, and other resources to help clients navigate important legal information regarding the COVID-19 pandemic.

Lathrop GPM continues to provide clients with alerts, articles, and other resources to help clients navigate important legal information regarding the COVID-19 pandemic. The following may be of particular interest to franchisors and distribution-based businesses:

• Insurance Recovery Alert: Missouri Federal Court Opens Door to COVID-19 Business Interruption Claims by Alexander Brown

This update and resources from Lathrop GPM’s cross-disciplinary team are available at the Lathrop GPM COVID-19 Client Resource website.

A state court in Delaware denied a franchisor’s motion for a preliminary injunction based upon claims that a prospective franchisee misappropriated confidential information and started a competing business despite having signed a non-disclosure agreement. Smash Franchise Partners, LLC v. Kanda Holdings, Inc., 2020 WL 4692287 (Del. Ch. Aug. 13, 2020). Todd Perri was initially interested in potentially becoming a Smash Franchisee. Perri researched information that Smash published online about the company, spoke with franchise brokers about Smash, and participated in a ...

A federal court in Maryland has recently granted franchisor Kiddie Academy’s motion for summary judgment, dismissing franchisee Wonder World Learning’s counterclaim for negligent misrepresentations. Kiddie Academy Domestic Franchising, LLC v. Wonder World Learning, LLC, 2020 WL 4338891 (D. Md. July 27, 2020). Wonder World alleged that Kiddie Academy made various misrepresentations regarding the value of the benefit of the Kiddie Academy curriculum, site selection and construction assistance, and financial performance pro formas, arguing that these ...

A federal court in North Carolina granted in part and denied in part a franchisor’s motion for summary judgment because the franchisee’s owner and her employee-spouse could not demonstrate that they were jointly employed by their franchisor. Elsayed v. Family Fare LLC, 2020 WL 4586788 (M.D.N.C. Aug. 10, 2020). We previously reported on the court’s denial of the franchisor’s motion to dismiss in Issue 251 of The Franchise Memorandum. Family Fare entered into a franchise agreement for a gas station convenience store with Almy, LLC, a company owned by plaintiff Lola Salamah ...

A federal court in Oregon compelled arbitration over the objections of franchisees who claimed they were fraudulently induced to enter franchise agreements because of false representations made by the franchisor’s counsel. Black Rock Coffee Bar, LLC v. BR Coffee, LLC, 2020 WL 4728877 (D. Or. Aug. 14, 2020). Black Rock, a coffee shop franchisor, became embroiled in a dispute over initial franchise fees with a company that had opened three franchised Black Rock coffee shops. In response, Black Rock exercised its option under the territory and franchise agreements to purportedly ...

A federal court in Tennessee recently enjoined from violating a post-termination noncompete a former franchisee, as well as his son and his son’s competing business — neither of which were party to the franchise agreements. AmeriSpec, LLC v. Sutko Real Estate Servs., Inc., 2020 WL 3913584 (W.D. Tenn. July 10, 2020). Lathrop GPM represented AmeriSpec in this case. In May 2020, Sutko Real Estate Services, Inc. (SRESI) and its principal Thomas Sutko agreed with franchisor AmeriSpec to the termination of the franchise agreements for SRESI’s property inspection franchises. As ...

A federal court in Texas reached a different conclusion with regard to enforcement of a noncompete covenant, granting in part and denying in part a franchisor’s motion for preliminary injunction to enforce post-termination obligations against a former franchisee. JTH Tax LLC v. White, 2020 WL 3843691 (W.D. Tex. July 8, 2020). White entered into three franchise agreements with JTH to operate three Liberty Tax franchised businesses, and into another franchise agreement to operate one SiempreTax+ franchised business within a Liberty Tax location. Eventually, White closed the ...

A federal court in New York recently held that a supplier did not have a duty to disclose its business plans to its distribution partners before it changed its distribution system. Aaronson v. Kellogg Co., 2020 WL 2489087 (E.D.N.Y. May 14, 2020). Since 2000, Kellogg, a manufacturer of snack foods, had distributed its products through a Direct Store Delivery Distributor (DSDD) system, which relied on master distributors and sub-distributors for delivery and distribution of its products. In 2017, as part of a costsavings initiative, Kellogg changed its distribution model and ...

A federal court granted a motion to transfer venue of a distributor’s claims from the Eastern District of Michigan to the Central District of California. Complete Med. Sales, Inc. v. Genoray Am., Inc., 2020 WL 4013306 (E.D. Mich. July 16, 2020). Complete Medical Services had entered into a distribution agreement with Genoray America to sell Genoray America’s manufactured medical diagnostic equipment. The parties also entered into a dealer policy which, among other things, specified that “any case of dispute or legal cases will follow the law of the state of California ...

A federal court in New Jersey recently denied antitrust claims brought by a prospective baker and distributor of Dunkin’ Donuts products against an existing distributor. Central Jersey, CML v. Patel, 2020 WL 2840125 (D.N.J. May 31, 2020). Central Jersey, CML sought to open a baking and distribution facility for nearby Dunkin’ Donuts stores. In pursuit of its efforts, it obtained conditional approval for $18.9 million in New Jersey State tax credits. Also in pursuit of its efforts, it sought the financial backing of the defendants — members of another New Jersey-based ...

Lathrop GPM continues to provide clients with alerts, articles, and other resources to help clients navigate important legal information regarding the COVID-19 pandemic. Some of the following may be of particular interest to franchisors and distribution-based businesses:

• IP Alert: USPTO Implements COVID-19 Prioritized Examination Program for Trademarks and Service Marks by Tucker Griffith
• Franchise Alert: Four Key Takeaways from the NASAA & Washington Commentaries on COVID-19 Disclosures by Hannah Holloran Fotsch and Mark Kirsch

These updates and resources from Lathrop ...

The Seventh Circuit Court of Appeals affirmed an Indiana federal court’s decision strictly interpreting a distribution contract according to its terms and limiting the application of the duty of good faith and fair dealing implied into such contracts by the Indiana Commercial Code. Acheron Med. Supply, LLC v. Cook Med. Inc., 958 F.3d 637 (7th Cir. 2020). Cook, a manufacturer of medical devices and products, contracted with Acheron, a distributor experienced in selling to the Veterans Administration and Department of Defense, to serve as Cook’s distributor to those entities ...

In another case from the Third Circuit, the appellate court affirmed a lower court’s decision to grant a franchisor’s motion for summary judgment. Audi of Am. v. Bronsberg & Hughes Pontiac, Inc., 2020 WL 2988888 (3d Cir. June 4, 2020). Audi of America and Wyoming Valley Motors (WVM) were parties to a 1997 franchise agreement that permitted WVM to operate a location-specific Audi dealership. In 2011, Audi unveiled a plan to convert all franchised locations to exclusive dealerships, with a six-year transition period. To comply with these new requirements, WVM purchased real ...

The Third Circuit Court of Appeals reversed a judgment dismissing claims brought by the New Jersey Coalition of Automotive Retailers against Mazda Motor of America under the New Jersey Franchise Practices Act. N.J. Coal. of Auto. Retailers, Inc. v. Mazda Motor of Am., Inc., 957 F.3d 390 (3d Cir. 2020). In the underlying action, the Coalition (a trade association whose members consist of franchised new car dealerships in New Jersey, including 16 Mazda dealers) alleged Mazda’s incentive program for its franchised dealers violates the New Jersey Franchise Practices Act in that it ...

As previously reported in Issue 252 of The Franchise Memorandum, the DOJ’s Antitrust Division and the FTC’s Bureau of Competition recently issued a joint statement regarding review of business collaborations in the fight against COVID-19, announcing a plan to expedite the Business Review Process for potential antitrust risk. A review of the recent opinions issued under this new process, and lessons that can be learned from the enforcement approach in those reviews, can be found here.

A federal court in Washington held that a distributor failed to demonstrate that Wisconsin law, particularly the Wisconsin Fair Dealership Law (WFDL), should apply to a distribution agreement that specified that the agreement is to be governed by the laws of the State of Washington. ACD Distrib., LLC v. Wizards of the Coast, LLC, 2020 WL 3266196 (W.D. Wash. June 17, 2020). ACD, located in Wisconsin, and Wizards of the Coast (WOTC), located in Washington, entered into a distribution agreement that granted ACD the right to distribute WOTC’s gaming products in Wisconsin. At the end of ...

A recent change related to the Coronavirus Aid, Relief, and Economic Security (CARES) Act may increase the number of small business bankruptcy filings in coming months. The Small Business Reorganization Act (SBRA) went into effect on February 19, 2020, aiming to streamline small business reorganizations by modifying or eliminating certain traditional Chapter 11 requirements and creating an easier path for small business debtors to confirm plans of reorganization. Under the SBRA, a small business debtor, whether an individual or legal entity, is the only party permitted to file ...

A federal court in Florida granted a franchisor preliminary injunctive relief for trademark infringement claims, but denied the franchisor’s request to enforce a noncompete against defendants who had not signed a franchise agreement. Interim Healthcare, Inc. v. Interim Healthcare of Se. La., Inc., 2020 WL 3078531 (S.D. Fla. June 10, 2020). Interim is the franchisor of a system that provides nursing, therapy and non-medical home care, hospice, and healthcare staffing. Defendants operated Interim franchises in and around New Orleans and Livingston Parish, Louisiana. The ...

In another case analyzing the amount of control exerted by 7-Eleven over its franchisees, a federal court in Illinois dismissed a franchisee’s putative class action seeking relief under Illinois’ Wage Payment and Collection Act (IWPCA). Patel v. 7-Eleven, Inc., 2020 WL 3303003 (N.D. Ill. June 18, 2020). In his complaint, plaintiff Niral Patel contended that 7-Eleven’s franchise agreements, including the franchise agreement between 7-Eleven and Shanti 11, Inc. (a corporation wholly owned by Patel), constituted agreements to pay wages governed by the IWPCA. Under the ...

A federal court in Michigan has denied a restaurant chain’s motion for preliminary injunction because it failed to demonstrate likelihood of success on its claim that a competing franchisor was infringing trademarks and trade dress. Eastpointe DWC, LLC v. Wing Snob Inc., 2020 WL 3412266 (E.D. Mich. June 22, 2020). Detroit Wing Company has been operating restaurants primarily selling chicken wings since 2015. Wing Snob Inc. subsequently opened its first restaurant and rapidly expanded, opening locations in near proximity to other Detroit Wing Company locations. Detroit Wing ...

A federal Court in New Jersey granted summary judgment after finding that the franchisor did not owe a duty of care to the plaintiff, who was shot in an armed robbery at a 7-Eleven store operated by a franchisee. Boutahli v. 7-Eleven, Inc., 2020 WL 3287127 (D.N.J. June 18, 2020). On January 10, 2014, Boutahli was the only employee working at a 7-Eleven store in Pennsauken, New Jersey. Just after midnight, two men walked into the store, demanded the contents of the cash register, and pistol-whipped and shot Boutahli four times before fleeing the scene. While Boutahli survived the attack, he ...

On June 5, 2020, the President signed the Paycheck Protection Program Flexibility Act of 2020 (Flexibility Act) (Pub. L. 116–142), which changes key provisions of the Paycheck Protection Program (PPP), including provisions relating to the maturity of PPP loans, the deferral of PPP loan payments, and the forgiveness of PPP loans. Section 3(d) of the Flexibility Act provides that the amendments relating to PPP loan forgiveness and extension of the deferral period for PPP loans shall be effective as if included in the CARES Act, which means that they are retroactive to March 27, 2020.

A federal court in Pennsylvania recently transferred a franchise dispute to Delaware pursuant to the franchise agreement’s forum selection clause, even though some defendants were not party to the agreement. Sweet Charlie’s Franchising, LLC v. Sweet Moo’s Rolled Ice Cream, LLC, 2020 WL 3405769 (E.D. Pa. June 19, 2020). Franchisor Sweet Charlie’s brought an action against a franchisee, Peter Aguib, and other third-parties (collectively, “Aguib”), alleging misappropriation of confidential information that Aguib gained while attending a training program for ...

The Sixth Circuit Court of Appeals recently upheld the district court’s grant of Little Caesar’s motion for a preliminary injunction preventing a holdover franchisee from continuing to operate its restaurants. Little Caesar Enters., Inc. v. Miramar Quick Serv. Rest. Corp., Case. No. 19-1860 (6th Cir. June 25, 2020). Lathrop GPM represented Little Caesar in this case. As we previously reported in Issues 244 and 246 of The GPMemorandum, this case involves a franchisee of four Little Caesars franchises in Connecticut and Massachusetts that was terminated for its failure to ...

In another recent decision from the Sixth Circuit Court of Appeals, the court affirmed a ruling that incorporation of the AAA Rules into an arbitration agreement provides the “clear and unmistakable” evidence required under Supreme Court precedent that the parties agreed to arbitrate the question of arbitrability. Blanton v. Domino's Pizza Franchising LLC, 2020 WL 3263002 (6th Cir. June 17, 2020). The AAA Rules provide, in part, that “[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or ...

A federal court in Connecticut has ruled that a franchisor’s successor-in-interest cannot invoke a choice of venue provision in an agreement that refers to its predecessor’s principal place of business. Purugganan v. AFC Franchising, LLC, 2020 WL 2494718 (D. Conn. May 13, 2020). Purugganan entered into the Master Development Agreement with AFC’s predecessor-in-interest, Doctors Express Franchising LLC, to obtain exclusive rights to develop franchises in two New York counties and one county in Connecticut. Purugganan alleged AFC was not honoring the Master ...

In another recent damages case, a federal court in Minnesota has granted in part a franchisee’s motion to add a claim for punitive damages, holding that the Federal Rules of Civil Procedure supersede state rules with respect to a franchisee amending its complaint to assert a claim for punitive damages. JTKB, LLC v. FranChoice, Inc., 2020 WL 2192337 (D. Minn. May 6, 2020). JTKB became a franchisee of ILKB kickboxing studios after engaging the services of franchise broker FranChoice. JTKB filed suit against FranChoice, alleging claims of fraud and misrepresentations regarding the ...

Lathrop GPM continues to provide clients with alerts, articles, and other resources to help clients navigate important legal information regarding the COVID-19 pandemic. Some of the following may be of particular interest to franchisors and distribution-based businesses:

• Restaurant Alert: Guidance for Reopening Restaurants by Thomas Pacheco and Samuel Butler
• Privacy Alert: CCPA Enforcement Remains on Track Despite COVID-19 Pandemic by Tedrick Housh, Michael Cohen, Amanda McAllister and Reid Day | The Franchise Memorandum by Lathrop GPM
• M&A Update: "CorePower Yoga ...

As part of its periodic adjustment for inflation, the Federal Trade Commission has announced in a press release the new monetary thresholds for certain exemptions from disclosure under the FTC’s Franchise Rule. Although the Franchise Rule generally requires a franchisor to disclose key information to a prospective buyer before selling a franchise, 16 C.F.R. § 436.8 contains various exemptions, including three based on monetary thresholds for the sale. As of July 1, 2020, disclosure to a prospective buyer is not required under the Franchise Rule if:

• The buyer pays less than $615 ...

A federal court in Michigan recently entered a default judgement against a former Little Caesars franchisee and its principals, which included contractual liquidated damages in the amount of $474,144.14, as well as all attorneys’ fees and costs requested. Little Caesar Enterprises, Inc., v. Reyes 1, Inc., 2020 WL 2395206 (E.D. Mich. May 11, 2020). After Reyes repeatedly failed to operate its restaurants in accordance with Little Caesar’s standards, Little Caesar terminated its franchise agreements and filed a lawsuit, which quickly resulted in a settlement agreement ...

A federal court in New York has dismissed a claim that Doctor’s Associates LLC, the franchisor of Subway restaurants, violated the Americans with Disabilities Act (ADA) because the plaintiff failed to allege that Doctor’s Associates operated the Subway restaurant at which the discrimination took place. Sullivan v. Doctor’s Assocs. LLC, 2020 WL 2319295 (S.D.N.Y. May 8, 2020). Sullivan, a “profoundly deaf individual,” attempted to order a steak sandwich from a Subway restaurant. He alleged that, while trying to order, a Subway employee became angry with him, using ...

A federal court in Ohio granted in part, and denied in part, a motion for summary judgment filed by hotel franchisor Red Roof Franchising, LLC on certain breach of contract and other claims that Red Roof filed against a former franchisee. Red Roof Franchising, LLC v. Riverside Macon Group, LLC, 2020 WL 2494462 (S.D. Ohio May 14, 2020). Red Roof terminated its franchise agreement with Riverside because the franchisee had failed to pay certain fees when due and failed to make required improvements to the premises of the franchised hotel. Riverside continued to operate the franchised ...

A federal court in Ohio held that an arbitration provision in a franchise agreement was enforceable despite arguments that the agreement was rescinded or that it was contrary to Ohio law. Scarso Enters., Inc. v. Honor Yoga Mgmt., LLC, 2020 WL 2496941 (N.D. Ohio May 14, 2020). Plaintiff Scarso is a former franchisee that operated a yoga studio under the trade name of franchisor Honor Yoga. Scarso entered a development agreement with Honor Yoga to develop three studios and a franchise agreement for the first studio. When that studio underperformed, Scarso sought to renegotiate the ...

The Third Circuit Court of Appeals has held that Coverall franchisees must submit their employee misclassification claims against a subfranchisor to arbitration, but remanded the question of whether the franchisor can invoke the same arbitration provision even though it is not a party to the plaintiffs’ franchise agreements. Richardson v. Coverall N. Am., Inc., 2020 WL 2028523 (3rd Cir. Apr. 28, 2020). Plaintiffs Richardson and Silva signed subfranchise agreements with Sojul, LLC in 2016 and 2005, respectively, to operate Coverall commercial cleaning franchised ...

A federal court in Connecticut has ruled that Subway customers can pursue class action claims against the company for unwanted text messages in violation of the Telephone Consumer Protection Act (TCPA). Soliman v. Subway Franchisee Advertising Fund Trust Ltd., 2020 WL 161328 (D. Conn. Mar. 5, 2020). Named-plaintiff Marina Soliman, along with other Subway customers, alleges that, upon entering a Subway restaurant, a Subway employee informed her of a promotion whereby customers could sign up for text messages to receive discounts and other promotional information from Subway ...

Lathrop GPM continues to provide clients with alerts, articles, and other resources to help clients navigate important legal information regarding the COVID-19 pandemic. Some of the following may be of particular interest to franchisors and distribution-based businesses:

• Employment Alert: Opening for Business? Issues for Employers by Brian Woolley and Megan Anderson
• CARES ACT Update: More Money More Problems? The Sequel: Should My Company Return The Money It Received from the CARES Act? by Susan Gaertner, Jackson Hobbs and Daryn McBeth
• Litigation Alert: COVID-19 Leads to New ...

A federal court in North Carolina has granted a quick-service restaurant franchisor’s motion to dismiss allegations that it violated the Americans with Disabilities Act (ADA). Chapman v. CKE Rests. Holdings, Inc., 2020 WL 1230130 (E.D.N.C. March 12, 2020). Chapman, a quadriplegic, alleged that CKE violated the ADA by denying her full and equal access to one of its restaurants where “she experienced unnecessary difficulty and risk due to excessive slopes in a purportedly accessible parking area.” Chapman alleged that she desires to return to that restaurant in the future ...

A federal court in Washington has granted a preliminary injunction against a terminated tax preparation services franchisee, preventing it from operating a competing business and soliciting the franchisor’s customers. JTH Tax LLC (d/b/a Liberty Tax Service) v. McHugh, 2020 WL 1689731 (W.D. Wash. Apr. 7, 2020). Plaintiffs Liberty Tax Service and SiempreTax+ operate thousands of tax preparation service centers nationally. Defendant Lorraine McHugh entered into a Liberty Tax Franchise Agreement in 2015, and ultimately operated the franchise through her business KVC. By ...

In another putative class action in Connecticut, a federal court declined to dismiss an employee misclassification lawsuit against Coverall North America, Inc., a janitorial services franchisor, but agreed to stay the action and compel arbitration. Bille v. Coverall N. Am., Inc., 2020 WL 1185251 (D. Conn. Mar. 11, 2020). Plaintiffs Caribe Billie and Quincy Reeves, both Coverall franchisees, alleged that Coverall had misclassified them as independent contractors and withheld portions of their wages in violation of Connecticut law. Coverall sought to dismiss the case, in part ...

The Fourth Circuit Court of Appeals has vacated a judgment dismissing claims that Mid-Atlantic Restaurant Corporation (owner of the Smithfield’s Chicken ‘N Bar-B-Q franchise system) interfered with the business relationship between owners of certain of its franchisees. Musselwhite. v. Mid-Atlantic Restaurant Corp., 2020 WL 1873330 (4th Cir. Apr. 15, 2020). In the underlying action, Musselwhite, a part-owner of several Smithfield’s Chicken ‘N Bar-B-Q franchisees, alleged that Mid-Atlantic wrongfully interfered with the business relationship between ...

A federal court in Maryland recently granted a franchisor default judgment and awarded it a permanent injunction and attorneys’ fees under the Lanham Act, against a holdover franchisee that failed to respond to a lawsuit. ICENY USA, LLC v. M&M’s LLC, 2020 WL 1890511 (D. Md. Apr. 16, 2020). ICENY is the franchisor of Thai ice cream roll shops, and M&M was an ICENY franchisee in Yuma, Arizona. ICENY terminated the franchise agreement after M&M failed to pay various required fees. Following termination, M&M did not comply with its post-termination obligations, and ICENY filed suit in ...

A federal court in Michigan recently dismissed a complaint filed by a distributor against its former manufacturer, rejecting the application of Michigan franchise laws and enforcing the choice of a Minnesota forum in the agreements between the parties. Lakeside Surfaces, Inc. v. Cambria Co., 2020 WL 1227047 (W.D. Mich. Mar. 13, 2020). Lakeside is a Michigan countertop distributor; Cambria is a Minnesota manufacturer of countertops. Cambria unilaterally terminated the relationship between the two over a disagreement concerning Lakeside’s offering of non-Cambria ...

A federal court in Missouri has held that a franchisee’s fraud claim cannot be based upon the franchisor’s alleged prediction of future success at a franchise expo, but allowed other fraud claims to be re-pled while questioning the likelihood that the franchisee will successfully demonstrate reasonable reliance. Fabius v. Medinexo USA, LLC, 2020 WL 1666468 (E.D. Mo. April 3, 2020). Fabius, a franchisee of the Medinexo franchise system, alleged that Medinexo made several oral and written financial performance representations outside of the FDD, both at a franchise expo and ...

After Ralph Lauren Corporation terminated a dealer of 14 years, Victoria Card, Card sued Ralph Lauren in California state court for, among other things, breach of contract, breach of the implied covenant of good faith and fair dealing, misrepresentation, intentional interference with economic advantage, unfair competition under California law, violation of the Robinson-Patman Act, and a RICO Act violation. The case was removed to federal court in California, and that court recently ruled on Ralph Lauren’s motion to dismiss Card’s third amended complaint. Card v. Ralph ...

A federal court in Minnesota recently denied General Motors’ motion to dismiss a lawsuit brought by one of its dealers, Lupient Chevrolet. Lupient Chevrolet, Inc. v. General Motors LLC, 2020 WL 335996 (D. Minn. Jan. 21, 2020). Lupient operates a Chevrolet motor vehicle dealership. Under the parties’ dealership agreement, Lupient is required to maintain a certain level of sales performance, which is measured by comparing Lupient’s sales to the sales opportunities within the geographical areas assigned to Lupient. The agreement also prohibits GM from unreasonably ...

The FTC and the DOJ Antitrust Division issued a joint statement that details expedited antitrust procedures and provides guidance for collaborations of businesses working to protect the health and safety of the American people during the COVID-19 pandemic. The full text of the joint statement is available here. The joint statement recognizes that health care facilities may need to work together to provide resources and services to assist patients, consumers, and communities affected by the COVID19 pandemic, and that other businesses may need to temporarily combine production ...

Most franchise registration states (including the exemption notice states of Florida and Utah) have adopted, formally or informally, COVID-19 accommodations relating to franchise and exemption filings, and the offer and sale of franchises.

On March 21, 2020, Indiana’s governor signed into law HB 1049, which amends Indiana’s franchise disclosure law to define changes requiring an amendment to franchise registrations and FDDs. Effective July 1, 2020, franchisors must file amendments to their FDD no later than 30 days after the occurrence of a material change in the information contained in the FDD. The statute enumerates various events that constitute a material change, including: (i) the termination, closing, failure to renew, or reacquisition of 10% of all franchises in a franchisor’s system, or 10% of the ...

Franchisors and distributors across the country are confronting a myriad of challenges and pressures related to the spread of COVID-19.

A putative antitrust class action against a shock absorber manufacturer may proceed in federal court, the Sixth Circuit Court of Appeals recently held, affirming denial of the manufacturer’s motion to compel arbitration. In re: Auto. Parts Antitrust Litig., 951 F.3d 377 (6th Cir. 2020). This dispute arose after retailers of automotive parts brought antitrust claims against KYB Corporation and KYB Americas Corporation. KYB manufactures car parts and distributes them through its subsidiary KYB Americas, which contracts with a network of retailers who then resell the parts to ...

In another case involving the classifications of franchisees, a federal court in California granted a franchisor’s summary judgment motion in part, holding that the franchisees were not entitled to unpaid overtime wages, but allowed claims to proceed based on alleged misclassification of franchisees as independent contractors. Haitayan, v. 7-Eleven, Inc., Case No. CV 17-7454 DSF (C.D. Cal. Feb. 19, 2020). The plaintiffs are 7-Eleven franchisees who claimed that 7-Eleven should have classified them as employees rather than independent contractors. The franchisees ...

A federal court in California has granted a motion for reconsideration in light of recent Ninth Circuit precedent, reversing the district court’s prior decision and dismissing ostensible agency claims alleged against a franchisor. Cruz v. MM869, Inc., 2020 WL 509109 (E.D. Cal. Jan. 31, 2020). Cruz, an employee of the Merry Maids franchisee and representative of a class action group, alleged that the franchisor Merry Maids and its parent organization ServiceMaster were joint employers and were liable for the franchisee’s alleged violation of various wage and hour laws under ...

A hotel guest has sued a Turkish franchisee and several Wyndham entities in Delaware federal court, alleging she was sexually assaulted during her stay at a franchised Wyndham hotel in Istanbul. Roe v. Wyndham Worldwide, Inc., 2020 WL 707371 (D. Del. Feb. 12, 2020). The Wyndham defendants moved to dismiss the negligence and vicarious liability claims against them, arguing both that that the doctrine of forum nonconveniens barred litigation in the United States and that the guest had failed to state a valid claim against them. The court denied both grounds for dismissal.

In evaluating ...

A federal court in Pennsylvania granted summary judgment to a franchisor on a wage and hour putative collective action brought by an employee of its franchisee. DiFlavis v. Choice Hotels Int’l, Inc., 2020 WL 610778 (E.D. Pa. Feb. 6, 2020). Plaintiff Gina DiFlavis worked as a housekeeper for several weeks at a franchisee’s Clarion Hotel. The Clarion brand is franchised by Choice Hotels. DiFlavis alleged that she and other housekeepers at Clarion Hotels nationwide were denied compensation for overtime work performed. Choice moved for summary judgment on the basis that it was not ...

A Wisconsin federal court has dismissed common law misrepresentation claims against a franchisor because the franchisee’s claims were barred by the economic loss doctrine. Falk v. Wheeler, 2020 WL 759180 (E.D. Wis. Feb. 13, 2020). This dispute arose from a franchise relationship between plaintiffs and Indoor War, LLC, a franchisor of laser tag facilities. After purchasing more than $500,000 worth of equipment from Indoor War  much of which failed to arrive  the plaintiffs brought suit to recover the amount they invested in the Indoor War franchise. The plaintiffs alleged ...

A federal court in Illinois held that the Illinois Consumer Fraud and Deceptive Business Practices Act (ICFA) does not apply to a franchise relationship. Hashmi v. 7-Eleven, Inc., 2020 WL 586822 (N.D. Ill. Feb. 2, 2020). Hashmi became a 7-Eleven franchisee in 1997 and quickly increased his involvement in the system, eventually becoming Vice President of the Franchise Coalition. In response to changes 7-Eleven was making, Hashmi began to publicly criticize 7-Eleven. Not long after Hashmi began his public campaign against it, 7-Eleven refused to renew his lease for one of his ...

On February 26, 2020, the National Labor Relations Board issued its final rule defining the standard for a “joint employer” under the National Labor Relations Act. Under the final rule, a business must exert “such substantial direct and immediate control over one or more essential terms or conditions of their employment as would warrant finding that the entity meaningfully affects matters relating to the employment relationship with those employees.” The rule further provides that the “essential terms and conditions” of employment consist solely of the following ...

Elsewhere, a federal court in North Carolina granted in part and denied in part a motion for partial judgment on the pleadings in a case in which the franchisee’s principals asserted that they were employees of the franchisor. Elsayed v. Family Fare LLC, 2020 WL 780701 (M.D.N.C. Feb. 18, 2020). Family Fare entered into a franchise agreement for a gas station convenience store with Almy, LLC, a company owned by plaintiff Elsayed. Family Fare subsequently terminated the agreement based upon allegations that Almy had skimmed proceeds from lottery ticket sales. Elsayed then sued ...

In another joint employer claim against a franchisor, a federal court in California has dismissed without prejudice a discrimination complaint filed by a franchisee’s former employee proceeding pro se against the franchisee, its owners, and the franchisor. Stewart v. Chick-fil-A, 2020 WL 264578 (S.D. Cal. Jan. 17, 2020). Plaintiff Lindsey Stewart is a 62 year-old woman who worked at a Chick-fil-A franchise in California owned by Defendants 3 Little Cows, Inc., Danny Putnam, and Becky Putnam. Stewart’s complaint alleged one count of “corporate failure to supervise their ...

A federal court in New Jersey partially denied franchisor Jackson Hewitt Tax Service’s motion to dismiss, allowing claims to proceed that allege Jackson Hewitt was an employer of certain of its franchisees’ employees. Mardis v. Jackson Hewitt Tax Service, Inc., 2019 WL 7207551 (D.N.J. Dec. 26, 2019). In so holding, the court disagreed with Jackson Hewitt’s arguments that Oklahoma statute § 59-6005(B) and (C) — which expressly states that “[a] franchisor shall not be considered the employer of a franchisee or a franchisee’s employees” — should be applied ...

A federal court in Michigan granted a franchisor, Liberty Tax, a preliminary injunction against the owners of its former franchisee in JTH Tax, Inc. v. Magnotte, 2020 WL 127949 (E.D. Mich. Jan. 10, 2020). On January 16, 2018, after significant defaults, Liberty Tax terminated multiple franchise agreements with franchisee Reliable Income Tax. Liberty’s notice of termination reminded Reliable and its owners, the Magnottes, of their post-termination restrictive covenants regarding noncompetition, nonsolicitation, and return of customer information. Despite this, in ...

A federal court in Florida has held that Tim Hortons had properly terminated a franchise agreement with its former franchisee and was entitled to summary judgment and a permanent injunction against the former franchisee. Tim Hortons USA, Inc. v. Tims Milner LLC, No. 18-cv-24152-DPG (S.D. Fla. Jan. 7, 2020). As previously reported in Issue 243 of The GPMemorandum, Tims Milner entered into franchise and lease agreements with Tim Hortons and its affiliates in 2016 to own and operate seven locations in Michigan. The franchise agreements provided that, if Milner defaulted under a lease ...

A federal court in Missouri has granted in part a franchisee’s motion to enforce a settlement agreement and awarded the franchisee its attorneys’ fees as the “prevailing party.” Biologix Franchise Marketing Corp. v. Kay Logic, 2020 WL 33108 (E.D. Mo. Jan. 2, 2020). Biologix and its former franchisee, Kay Logic, entered into a settlement agreement whereby Kay Logic would make monthly installment payments to Biologix. A portion of each installment payment would serve as a credit toward the purchase of Biologix’s products, which Kay Logic was permitted to sell without ...

A federal court in Ohio has granted a franchisor’s unopposed motion for summary judgment against a former franchisee, awarding damages for the franchisee’s attempt to continue to use Matco’s marks and trade secrets after termination. Matco Tools Corp. v. Urquhart, 2020 WL 364242 (N.D. Ohio Jan. 22, 2020). In July 2014, Urquhart entered into a distributorship agreement with Matco. In March 2019, Urquhart effectively stopped buying tools from Matco, even though his truck still bore the trademarked Matco logos, and he was still servicing the “List of Calls and Potential ...

A federal court in New Jersey has become the latest to deny a franchisor’s motion to dismiss a putative class action complaint based upon a no-poach provision in a franchise agreement. Robinson v. Jackson Hewitt, Inc., 2019 WL 5617512 (D.N.J. Oct. 31, 2019). Jackson Hewitt operates a tax preparation business with franchised and company-owned locations throughout the United States. Its largest franchisee, which owns approximately 20% of all Jackson Hewitt locations, is a co-defendant in the suit. The plaintiffs worked as seasonal tax preparers for franchised and company-owned ...

A federal bankruptcy court in Alabama granted limited relief from the automatic stay to a franchisor that wanted to pursue injunctive relief pursuant to the franchise agreement. In re Mainous, 2019 WL 6245752 (Bankr. S.D. Ala. Nov. 21, 2019). U.S. Lawns, Inc., the franchisor of businesses offering commercial landscape services, and the Mainouses were parties to a franchise agreement that included noncompete provisions. The relationship between the parties deteriorated and the Mainouses assigned their rights and interests in the franchise to a third party. The Mainouses then ...

In another significant development in the area of joint employer law, the Department of Labor (DOL) has released its final joint employer rule to revise and update its regulation interpreting joint employer status under the FLSA. The new rule provides a four-part test asking: whether or not the company can hire or fire the employee; whether it supervises the employee’s work schedule; whether it sets their pay; and if it maintains their employment records. This four-part test returns the standard to its traditional definition. The effective date of the rule is March 16, 2020, and ...

A federal court in New Jersey held that the release contained in an assignment agreement did not violate the New Jersey Franchise Practices Act (NJFPA). Scism v. Golden Corral Corp., 2019 WL 6522738 (D.N.J. Dec. 4, 2019). The NJFPA prohibits a franchisor from requiring that a franchisee assent to a release that would relieve any person of liability imposed by the Act at the time the franchisee enters into a franchise arrangement. The Scisms entered into a franchise agreement dated May 24, 2007. The franchise agreement was later assigned to GC of Vineland, LLC, in which the Scisms are ...

A federal court in Ohio denied G6 Hospitality and Wyndham’s motions to dismiss claims that they are vicariously liable for federal sex trafficking claims brought against their franchisees. H.H. v. G6 Hospitality, LLC, 2019 WL 6682152 (S.D. Ohio Dec. 6, 2019). H.H., the sex trafficking victim, alleged that she was trafficked for a period of five months at various Columbus area hotels within G6 and Wyndham’s franchise systems. H.H. claimed that the hotels were or should have been aware of the sex trafficking after seeing various items or witnessing certain events, and the hotels ...

A federal court in Connecticut concluded that material disputes of fact precluded deciding whether a franchisor had misclassified its franchisees as independent contractors, but nevertheless dismissed the plaintiffs claim for unjust enrichment based on a Connecticut anti-kickback statute. Mujo v. Jani-King Int’l, Inc., 2019 WL 7037794 (D. Conn. Dec. 12, 2019). Mujo, on behalf of a class of over 100 Jani-King franchisees, alleged that Jani-King was unjustly enriched in violation of a Connecticut statute that prohibits employers from demanding any sum of money from any ...

A federal court in New York granted 7-Eleven’s motion to dismiss a franchisee’s employee’s complaint, which alleged that 7-Eleven was his joint employer, for lack of sufficient factual allegations to support the claim. Acharya v. 7-Eleven, Inc., 2019 WL 6830203 (S.D.N.Y. Dec. 13, 2019). Acharya’s complaint alleged that he was unpaid for, among other things, over 2,000 hours of overtime work and that, as a result, 7-Eleven and the franchisee, as his joint employers, had violated the Fair Labor Standards Act (FLSA) and the New York Labor Law.

In granting 7-Eleven’s motion ...

A federal court in Tennessee granted a franchisor’s request for a temporary restraining order, preventing its former franchisee from operating a competing business at its formerly franchised locations and from infringing the franchisor’s trade dress, trademarks, and intellectual property. I Love Juice Bar Franchising, LLC v. ILJB Charlotte Juice, LLC, 2019 WL 6050283 (M.D. Tenn. Nov. 15, 2019). ILJB was a franchisee of Juice Bar with two locations in Charlotte, North Carolina. Upon ILJB’s request for early termination, Juice Bar submitted a termination offer to ILJB ...

An urgent care franchisor can pursue claims against a franchisee who refused to use new trademarks after a federal court in Alabama voided a one-year period of limitations in the parties’ agreement. AFC Franchising, LLC v. Fabbro, 2019 WL 6683781 (N.D. Ala. Dec. 06, 2019). Laura Fabbro entered into a Doctor’s Express franchise agreement in 2009 to operate an urgent care center under the franchisor’s marks, but the contract obligated Fabbro to comply with the franchisor’s directions to modify or discontinue the use of certain trademarks. When AFC Franchising later acquired ...

The National Labor Relations Board (NLRB) has vacated a decision by an administrative law judge (ALJ) denying the settlement agreements that had been proposed to resolve complaints against McDonald’s USA LLC, McDonald’s Restaurants of Illinois, Inc., and 29 McDonald’s franchisees alleging various unfair labor practices violations. McDonald’s USA LLC, 368 NLRB No. 134 (2019). The NLRB’s decision upheld the parties’ settlement agreements even though they do not impose joint employer liability on the franchisor as had been sought in the complaints.

The highly ...

On the other hand, a federal court in Colorado has concluded that amendments to an encroachment protection in the Colorado Dealer Act do apply to dealer agreements in existence before the amendments were enacted. DC Auto., Inc. v. Kia Motors Am., Inc., 2019 WL 4192112 (D. Colo. Sept. 4, 2019). The parties’ dealer agreements, which were entered into in 2003 and 2008, stated that Kia had the right to add new dealers, relocate dealers, or remove dealers from the geographic area, to the extent permitted by applicable law. At the time the parties executed the agreements, the Colorado Dealer ...

In a 2-1 decision, the Eighth Circuit affirmed entry of an order enjoining enforcement of amendments to a North Dakota law governing contracts between dealers and manufacturers, finding that the amendments violated the rarely invoked Contracts Clause of the U.S. Constitution. Ass’n of Equip. Mfrs. v. Burgum, 2019 WL 3520578 (8th Cir. Aug. 2, 2019). The statutory amendments at issue prohibited manufacturers from imposing various contractual obligations, regulating dealership transfers, and imposing new requirements with respect to reimbursements to dealers for warranty ...

The Ninth Circuit has reversed an arbitration award because of the “evident partiality” of an arbitrator who failed to disclose an ownership interest in JAMS. Monster Energy Co. v. City Beverages, LLC, 940 F.3d 1130 (9th Cir. 2019). Monster Energy and a former distributor, Olympic Eagle, commenced an arbitration to resolve a dispute regarding Monster’s termination of Olympic Eagle’s distribution agreement. The parties’ agreement specified that arbitration would be conducted before JAMS Orange County. The parties selected an arbitrator from a list of seven ...

A storm shelter manufacturer’s “vast infringement campaign” against a dealer’s trademarks was an exceptional case that warranted the award of attorneys’ fees under the Lanham Act, the U.S. Court of Appeals for the Seventh Circuit recently held, reversing the district court’s denial and granting attorneys’ fees to the dealer. 4SEMO.com Inc. v. S. Ill. Storm Shelters, Inc., 939 F.3d 905 (7th Cir. 2019). This dispute arose from a dealership agreement between Southern Illinois Storm Shelters (“SISS”) and 4SEMO, which granted 4SEMO the exclusive territorial ...

A federal court in Tennessee granted a manufacturer’s motion to transfer venue under a forum selection clause. C&S Outdoor Power Equip., Inc. v. ODES Indus. LLC, 2019 WL 4197608 (W.D. Tenn. Sept. 4, 2019). ODES manufactured vehicles and entered into an agreement with C&S Outdoor Power Equipment authorizing it as a dealer for ODES’s vehicles. The franchise agreement between ODES and C&S contained a forum selection clause which stated that any litigation relating to the agreement “shall exclusively be filed in a State or District court in (venue) Fort Worth, Texas, and each ...

In the appeal of a case that appeared in Issue 236 of The GPMemorandum, the Third Circuit reversed a lower court and enforced an arbitration clause between a manufacturer and one of its distributors. In re Remicade (Direct Purchaser) Antitrust Litigation, 938 F.3d 515 (3d Cir. 2019). The distributor, Rochester Drug Cooperative (“RDC”), was a direct purchaser and wholesaler of a drug produced by manufacturer Johnson and Johnson (“J&J”) under a distributor agreement. For years, that drug was the only one of its type on the market, but that position was threatened when the FDA ...

A federal court in the Western District of Wisconsin has granted partial summary judgment to a pizza distributor, holding that the Wisconsin Fair Dealership Law (“WFDL”) applies to its relationship with its former manufacturer. A&B Distrib., Inc. v. Heggie's Pizza, LLC, 2019 WL 6118718 (W.D. Wis. Nov. 18, 2019). Plaintiff A&B Distributing is a one-man company that, over the course of 13 ½ years, sold pizzas made by Heggie’s Pizza. Without ever entering into a written agreement, A&B would buy discounted pizzas from Heggie’s and sell them to retail customers in northwest ...

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 ...

Making major changes to employment law in California, AB-5 codifies the holding in Dynamex Operations West, Inc. v. Superior Court, which established the so-called “ABC test” for determining whether a worker is an “employee” or an “independent contractor” in California. The ABC test creates a rebuttable presumption that a worker who performs services for hire in exchange for remuneration is an employee, unless the hiring entity can demonstrate that: (a) the individual is free from the control and direction of the hiring entity in connection with the performance of ...

In the continuation of a case that appeared in Issue 244 of the GPMemorandum, a federal court in Michigan denied the motion of former Little Caesar’s franchisees to stay the enforcement of a preliminary injunction order pending their appeal of the order to the United States Court of Appeals for the Sixth Circuit. Little Caesar Enters., Inc., v. Miramar Quick Serv. Rest. Corp., 2019 WL 3997161 (E.D. Mich. Aug. 23, 2019). As previously reported, in July 2019, the court granted Little Caesar’s motion for a preliminary injunction enforcing its termination of the franchisees’ ...

In another appellate decision interpreting arbitration provisions, the United States Court of Appeals for the Tenth Circuit affirmed the denial of a franchisor’s motion to compel arbitration, finding that the parties had not entered into a “written” agreement to arbitrate the claims at issue as required by the Federal Arbitration Act. Campbell Invs., LLC v. Dickey's Barbecue Rests., Inc., 2019 WL 4235345 (10th Cir. Sept. 6, 2019). Campbell Investments initially signed a Dickey’s development agreement and franchise agreement for a restaurant in Ogden, Utah. Both ...

The United States Court of Appeals for the Eleventh Circuit has held that a franchisee is required to indemnify a franchisor for its litigation defense costs, vacating a district court’s orders of summary judgment in favor of the franchisee. Aaron’s Inc. v. MKW Invs., Inc., 2019 WL 4200260 (11th Cir. Sept. 5, 2019). Aaron’s Inc., a home furnishings retailer and franchisor, entered into a franchise agreement with MKW Investments under which MKW agreed to indemnify Aaron’s for certain expenses incurred as a result of certain conduct by MKW. After a former MKW employee sued both ...

Burger King has prevailed on its motion for summary judgment in a lawsuit related to a slip and fall incident that occurred at a franchised restaurant. Cram v. Burger King Corp., 2019 WL 4095570 (D.N.H. Aug. 29, 2019). The incident occurred when plaintiff Elizabeth Cram’s foot got caught in a child’s highchair improperly placed next to the restroom entrance, causing her to fall and tear her Achilles tendon. Plaintiffs asserted negligence and vicarious liability claims against Burger King because it was the owner and lessor of the restaurant at issue. Burger King filed a motion for ...

Since early 2018, the Washington Attorney General’s Office has been carrying out a campaign to remove antipoaching provisions from franchise agreements nationwide, reaching agreements with 93 franchisors to remove such provisions. When Jersey Mike’s was served with a Civil Investigative Demand from the Attorney General, Jersey Mike’s responded that it did not enforce the provisions and had removed the provision from its standard form franchise agreements. The primary obstacle to resolution between Jersey Mike’s and the Attorney General, however, was the ...

In a closely watched case, the United States Court of Appeals for the Ninth Circuit has affirmed a ruling that McDonald’s is not a joint-employer of its California franchisee’s employees. Salazar v. McDonald’s Corp., 2019 WL 4782760 (9th Cir. Oct. 1, 2019). Guadalupe Salazar and other employees of a McDonald’s franchisee in California filed a class action suit against both the franchisee and McDonald’s alleging that defendants, as joint employers, violated various wage-and-hour statutes. After Salazar entered into a settlement agreement with the franchisee ...

The United States Court of Appeals for the Second Circuit has upheld an arbitration agreement between Doctor’s Associates, Inc. (“DAI”), the franchisor of Subway restaurants, and a prospective franchisee, finding that it was supported by sufficient consideration during the application process. Doctor’s Associates, Inc. v. Alemayehu, 934 F.3d 245 (2d Cir. 2019). In 2016, Alemayehu sought to purchase an existing Subway franchise in Colorado. As part of the application process, Alemayehu checked a box on an online form agreeing to submit any claims arising from the ...

The Washington Supreme Court has answered two certified questions from a federal district court regarding the meaning of the phrase “fair and reasonable price” under Washington’s Franchise Investment Protection Act (“FIPA”). Money Mailer, LLC v. Brewer, 2019 WL 4508353 (Wash. Sept. 19, 2019). FIPA prohibits franchisors from selling to a franchisee any product or service “for more than a fair and reasonable price.” A federal district court certified two questions regarding that prohibition: (1) whether a franchisee may rely on the price at which the franchisor is ...

A federal court in the Western District of Wisconsin has concluded that an automobile manufacturer is not permitted to remove a dealer dispute from the Wisconsin Division of Hearings and Appeals (“DHA”) to federal court. Don Johnson’s Haywood Motors, Inc. v. General Motors LLC, 2019 WL 2141818 (W.D. Wis. May 16, 2019). Twelve Wisconsin-based licensed motor vehicle dealers filed an administrative complaint against GM with the DHA, alleging that a per-vehicle surcharge imposed by GM to offset increased statutory warranty reimbursements owed to dealers violated GM’s ...

A federal court in New Jersey has dismissed claims that an ambulance manufacturer violated the New Jersey Franchise Practices Act (“NJFPA”) and state and federal antitrust laws. First Priority Emergency Vehicles, Inc. v. REV Ambulance Grp. Orlando, Inc., 2019 WL 3423571 (July 30, 2019). First Priority became a party to two distributor agreements with the manufacturer, REV, that both required First Priority to use its “best efforts” to meet or exceed sales goals. On June 30, 2017, REV terminated the agreements based on First Priority’s failure to meet those sales goals ...

The U.S. District Court for the Western District of Louisiana has held that a wholesale distributor’s claims against R.J. Reynolds (“RJR”) under the Louisiana Unfair Trade Practices Act (“LUPTA”) were perempted and time-barred. Caldwell Wholesale Co., L.L.C. v. R.J. Reynolds Tobacco Co., WL 2209165 (W.D. La. May 11, 2018). The wholesaler, Caldwell, alleged that RJR violated the LUPTA by terminating in 2004 Caldwell’s status as a direct purchaser of RJR’s tobacco products (thereby depriving Caldwell of favorable pricing incentives) and denying Caldwell’s ...

The Mississippi Supreme Court has ruled that a terminated automobile dealership has until the effective date of termination to file a complaint challenging the termination, rejecting an argument that the Mississippi Motor Vehicle Commission law requires a dealer to file such a challenge within 60 days of receiving a notice of termination. Nissan N. Am., Inc. v. Tillman, 273 So. 3d 710, 711 (Miss. 2019). Nissan terminated plaintiff Ann C. Tillman’s Natchez, Mississippi car dealership, Great River, because of unsatisfactory sales. Great River’s agreement with Nissan ...

A federal court in New York has granted a distributor’s motion for summary judgment after concluding that the plaintiffs were independent contractors and therefore not entitled to the protections and rights of federal and state labor laws. Franze v. Bimbo Food Bakeries Distrib., LLC, 2019 WL 2866168 (S.D.N.Y. July 2, 2019). Nicholas Franze and George Schrufer signed distribution agreements with Bimbo Food Bakeries to deliver baked goods along designated routes. Franze and Schrufer both filed suit against Bimbo on the premise that Bimbo was their employer and had violated ...

The Seventh Circuit Court of Appeals has affirmed an award of lost profits against a dairy silo manufacturer that breached a promise of exclusivity made to its distributor, even though language in the contract barred such damages. Sanchelima Int'l, Inc. v. Walker Stainless Equip. Co., 920 F.3d 1141 (7th Cir. 2019). Defendant Walker entered into a distribution agreement that gave Sanchelima exclusive rights to distribute Walker’s silos in 13 Latin American countries, and Walker agreed it would not make its own direct sales of silos to customers in those countries. The ...

The Sixth Circuit Court of Appeals has affirmed dismissal of claims against FCA International Operations regarding the termination of a Chrysler distributor in Angola. Union Commercial Servs. Ltd. v. FCA Int’l Operations, LLC, 2019 WL 4011895 (6th Cir. Aug. 26, 2019). FCA as the successor in interest of Chrysler International Corporation, was the grantor of a 2006 nonexclusive distributor agreement with Union Commercial Services, an Angolan private business. In 2009, Chrysler began working with Union’s Angolan competitor, Auto-Star, a company controlled by ...

A federal court in Illinois denied a temporary restraining order to a terminated franchisee that sought to resume operations of its business after its franchise agreement was terminated because it repeatedly failed health audits. H Guys LLC v. The Hallal Guys Franchise, Inc., 2019 WL 3337116 (N.D. Ill. July 25, 2019). The franchisor, The Hallal Guys, conducted several health inspections of Steven Chong’s restaurants in May and July 2019. After finding persistent and worsening food safety and sanitary deficiencies, The Hallal Guys terminated Chong’s franchise agreement ...

In another case involving Little Caesar, a federal district court in Michigan granted the franchisor a preliminary injunction against a former multi-unit franchisee. Little Caesar Enters., Inc. v. Miramar Quick Serv. Rest. Corp., 2019 WL 3219844 (E.D. Mich. July 16, 2019). Gray Plant Mooty also represented Little Caesar in this case. Miramar was a franchisee of four Little Caesars franchises in Connecticut and Massachusetts. The franchise agreements required Miramar to purchase all products and supplies from Little Caesar’s affiliate, Blue Line Foodservice Distribution ...

On the other hand, a federal court in Illinois has allowed a franchisor to continue pursuing its breach of noncompete claims against a former franchisee. Auto Driveaway Franchise Sys., LLC v. Auto Driveaway Richmond, LLC, 2019 WL 3302223 (N.D. Ill. July 23, 2019). Defendant Jeffrey Corbett was an Auto Driveaway franchisee until his three franchise agreements were terminated in September 2018. The agreements had two-year post-termination covenants against competition. Following the termination, however, Corbett and his wife allegedly set up and operated a competing business ...

A federal district court has granted summary judgment in favor of franchisor CK Franchising, Inc. (Comfort Keepers) enforcing the forum-selection clause in the parties’ arbitration agreement. CK Franchising, Inc. v. SAS Servs. Inc., 2019 WL 3006546 (E.D. Ky. July 10, 2019). SAS Services had been a Comfort Keepers franchisee in the Somerset, Kentucky area since 2007. In April 2017, SAS signed a renewal franchise agreement containing forum-selection clauses that closely resembled the ADR provisions in the parties’ 2007 agreement. Specifically, the agreement required ...

In a precedent-setting departure from decisions in other courts, the Eastern District of Michigan has become the first court to dismiss a putative antitrust class action challenging an anti-poaching provision in a franchise agreement under Section 1 of the Sherman Act. Ogden v. Little Caesar Enters., Inc., 2019 WL 3425266 (E.D. Mich. July 29, 2019). According to the complaint, plaintiff Christopher Ogden was employed by a Little Caesar franchisee in Tennessee. The Little Caesar franchise agreement prohibited the hiring of managerial employees of other franchisees without the ...

A federal court in North Carolina granted in part and denied in part the injunctive relief sought by the franchisor, Madvapes, against its former franchisee. AMV Holdings, LLC v. Am. Vapes, Inc., 2019 WL 3406315 (W.D.N.C. July 25, 2019). Madvapes sold a vaping business franchise to American Vapes in 2015. The franchise agreement contained a post-termination noncompete provision that precluded American Vapes, for a period of two years, from entering into a business that would compete anywhere in the same state as the former franchisee or in any state or territory with an existing ...

A federal court in Washington recently granted a motion to compel arbitration pursuant to a forum selection clause in a Party Princess franchise agreement. Taylor v. Rothschild, 2019 WL 3067255 (W.D. Wash. July 12, 2019). The agreement included a broadly worded arbitration clause requiring the parties to submit all disputes arising therefrom to binding arbitration in Denver, Colorado. Party Princess, the franchisor, commenced an arbitration alleging breaches of the franchise agreement. Instead of asserting counterclaims in the arbitration, however, the franchisee ...

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 ...

In the last issue of The GPMemorandum, we covered the “Protect Alabama Small Businesses Act,” the first major state franchise relationship bill to be considered this year. The Alabama State Senate version of the bill (SB129) passed the Alabama Senate on March 16, 2019. The identical House companion bill (HB352) was voted out of committee with a favorable recommendation on April 4, 2019. While a final vote on the bill was expected by many to occur this month, the Alabama Legislature did not take the bill up for final vote before adjourning the 2019 regular session on May 31, 2019.

A federal district court in Massachusetts has denied a motion to dismiss for lack of personal jurisdiction jointly filed by Marriott International, Inc. and franchisee Reluxicorp in a premises liability action brought against them, finding that a franchise agreement between Marriott’s affiliate and Reluxicorp created sufficient contacts with the forum to satisfy specific jurisdiction requirements. Nandjou v. Marriott Int’l, Inc., 2019 WL 1903382 (D. Mass. Apr. 29, 2019). The plaintiff, Chimene Mbague Nandjou, filed wrongful death, vicarious liability, and negligent ...

A federal court in Washington denied a franchisor’s motion to dismiss or compel arbitration of a franchisee’s claims after finding that material questions of fact remained as to whether a valid and enforceable franchise contract existed between the parties. Garrett v. Rothschild, 2019 WL 1957929 (W.D. Wash. May 2, 2019). Morgan Rothschild, the owner of the Party Princess International franchise system, sold a franchise to Sean and Stephanie Taylor that they planned to operate in Washington. Party Princess had filed paperwork to register in Washington as a franchisor but the ...

As reported in the last issue of The GPMemorandum, the Department of Justice Antitrust Division filed statements of interest in three franchise anti-poaching class actions pending in federal court in Washington. The statements urged application of the rule of reason to the Sherman Act claims asserted by the putative class members and explained why per se and quick-look analyses were improper. The cases in which the DOJ filed its statements of interest were settled and dismissed shortly thereafter, but similar class actions remain pending against many other franchisors.

In a ...

A court in the Eastern District of Michigan recently denied a franchisor’s motion to dismiss a franchisee employee’s anti-poaching complaint, finding that the employee had pled sufficient facts to show that the anti-poaching provision of the franchise agreement could be an unlawful restraint of trade. Blanton v. Domino’s Pizza Franchising LLC, 2019 WL 2247731 (E.D. Mich. May 24, 2019). The plaintiff, Harley Blanton, was a former employee of a Florida Domino’s franchisee who alleged that he quit his job after his hours were cut. He filed suit against franchisor Domino’s ...

A federal court in Minnesota recently denied a Wisconsin franchisee’s motion for a temporary restraining order to prevent the termination of its license agreement. Izabella HMC-MF, LLC v. Radisson Hotels Int’l, Inc., 2019 WL 2067141 (D. Minn. May 10, 2019). After learning that Izabella was conducting unapproved renovations at its franchised hotel, Radisson issued a default notice giving Izabella an opportunity to cure. In the default notice, Radisson warned Izabella that if it did not cure the renovation default within 60 days, the license agreement would automatically ...

Meanwhile, the U.S. District Court for the Western District of Kentucky has partially granted a tax preparation franchisor’s motion for a preliminary injunction against a former franchisee operating a competing tax return preparation business. JTH Tax, Inc. v. Freedom Tax, Inc., 2019 WL 2062519 (W.D. Ky. May 9, 2019). JTH Tax, the franchisor of the Liberty Tax Service system, sued the franchisee for, among other things, trademark infringement under the Lanham Act and violation of the Defend Trade Secrets Act. JTH alleged that the former franchisee was using logos and slogans ...

The U.S. Court of Appeals for the Ninth Circuit announced an onerous standard that could potentially make all franchisors liable to California franchisees for wage-and-hour claims in Vazquez v. Jan-Pro Franchising Int'l, Inc., 923 F.3d 575 (9th Cir. 2019). The case arose over a decade ago when unit franchisees claimed that Jan-Pro was their employer and had failed to comply with state wage-and-hour laws. Originally filed as a putative class action in Massachusetts federal court, the claims by California unit-franchisees were severed and transferred to California, while the ...

After ten years of litigation, the U.S. District Court for the Eastern District of Pennsylvania granted a motion for preliminary class action settlement approval in a case against the franchisor of the Jani-King janitorial system alleging violations of Pennsylvania’s Wage Payment and Collection Law. Myers v. Jani-King of Philadelphia, Inc., 2019 WL 2077719 (E.D. Pa. May 10, 2019). Two franchisees had initiated the lawsuit on behalf of themselves and others similarly situated claiming that Jani-King misclassified them as independent contractors and improperly deducted ...

The U.S. Supreme Court has resolved a circuit court split by holding that a bankrupt licensor’s rejection of a trademark license under section 365 of the Bankruptcy Code does not deprive the licensee of its rights to the licensed trademarks. Mission Prod. Holdings, Inc. v. Tempnology, LLC, 587 U.S. ___, 2019 WL 2166392 (May 20, 2019). The decision holds that the licensor’s rejection of the trademark license under bankruptcy law constitutes a breach of the license by the licensor and that the legal effects of that breach on the licensee’s rights to the trademarks are determined ...

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 ...

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 ...

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 ...

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 ...

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 ...

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 ...

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 ...

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 ...

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 ...

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 ...

A federal court in Minnesota denied a motion to dismiss a lawsuit alleging wrongful termination of a sales representative agreement. Hedding v. Pneu Fast Co., 2019 WL 79006 (D. Minn. Jan. 2, 2019). Minnesota resident Curt Hedding was a sales representative for nail and staple manufacturer Pneu Fast. Under the parties’ 2006 agreement, Hedding represented Pneu Fast in selling and distributing products across nine states, including Minnesota and Ohio. In 2018, Pneu Fast terminated the agreement without explanation or an opportunity to cure. Hedding filed suit, alleging the ...

A federal court in Florida recently denied in part a distributor’s motion for summary judgment in a suit brought against it by a dealer. Gulf Coast Turf & Tractor LLC v. Kubota Tractor Corp., 2019 WL 1227776 (M.D. Fla. Mar. 15, 2019). Kubota Tractor distributes agricultural, construction, and outdoor power equipment through a network of dealers throughout the United States. Gulf Coast Turf and Tractor is one of Kubota’s authorized dealers in Florida. In the Kubota system, dealers earn commissions from sales to private customers within their assigned territories. However, when ...

A federal court in Nevada recently dismissed antitrust claims brought by a retailer that claimed it was harmed by a furniture manufacturer’s online sales through Wayfair, but allowed contract claims against the manufacturer to proceed to discovery. Furniture Royal, Inc. v. Schnadig Int’l  Corp., 2018 WL 6574779 (D. Nev. Dec. 13, 2018). Furniture Royal, the retailer, had sold furniture manufactured by Schnadig since 2010. In 2017, while maintaining the relationship with Furniture Royal, Schnadig also began selling its furniture directly to consumers through the Wayfair ...

The Supreme Court of Idaho has upheld a decision in favor of an authorized distributor of business forms who complained of losses related to protected accounts. Thurston Enters. v. Safeguard Bus. Sys., 2019 WL 667966 (Idaho Feb. 19, 2019). Safeguard Business Systems, a supplier of business forms and products, had entered into a distributor agreement granting Thurston Enterprises the exclusive right to commissions on sales within a protected area. If another distributor sold Safeguard Systems products to a customer that had previously purchased products from Thurston ...

In another decision, the Sixth Circuit again affirmed summary judgment in favor of a manufacturer, this time on a dealer’s claims that the manufacturer improperly terminated its distribution agreement. B & S Transp., Inc. v. Bridgestone Ams. Tire Operation, LLC, 2019 WL 581565 (6th Cir. Feb. 13, 2019). The claims arose after Bridgestone terminated its dealership agreement with B & S Transportation, an African-American owned and operated dealer of Firestone tires. The dealership agreement allowed B & S to pursue minority set-aside businesses and, as a result, had unique terms ...

The U.S. Court of Appeals for the Sixth Circuit recently affirmed summary judgment for a medical device manufacturer, Wright Medical Technology, on claims brought by a distributor, Beijing Fito Medical, alleging that Wright breached the distribution agreement between the parties. Beijing Fito Med. Co. v. Wright Med. Tech., Inc., 2019 WL 480410 (6th Cir. Feb. 7, 2019). Wright and Fito entered into an agreement that gave Fito the right to serve as Wright’s exclusive distributor of hip, knee, foot, ankle, and biologics products in China. The agreement permitted Wright to remove ...

The Supreme Court has resolved a split in the federal circuit courts of appeals, holding that the Federal Arbitration Act does not allow a federal court to deny a motion to compel arbitration on the basis that the claim of arbitrability is “wholly groundless.” Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (2019). Archer and White, a dental equipment distributor, sued an equipment manufacturer and Henry Schein, Inc. for various remedies including injunctive relief. Archer and White’s distribution agreement provided that “[a]ny dispute arising under or ...

A Wisconsin federal court recently upheld the termination of two dealer agreements, finding that the agreements were not subject to California and Washington state franchise laws, both of which require good cause for termination of an agreement. PW Stoelting, L.L.C. v. Levine, 2018 WL 6603874 (E.D. Wis. Dec. 17, 2018). This dispute arose after PW Stoelting, a manufacturer of food service and cleaning equipment, terminated, without cause, its agreements with two related dealers based in California and Washington. Although the agreements permitted termination without cause ...

A California appellate court reversed the trial court’s ruling that an arbitration agreement related to a former Papa John’s employee was unconscionable in Spaulding v. PJCA-2 LP, 2019 WL 517667 (Cal. Ct. App. Feb. 11, 2019). Plaintiff Jason Spaulding began working in a restaurant operated by defendant Papa John’s in 2009, and Papa John’s later sold the business to a franchisee, PJCA-2. PJCA-2 offered to continue to employ Spaulding at the restaurant but required him to review and sign a 40-page new hire package, which included a four-page arbitration agreement. Spaulding ...

The United States District Court for the Northern District of Texas has granted in part and denied in part a motion for summary judgment filed by franchisor Pizza Inn in a dispute with one of its area developers. Pizza Inn, Inc. v. Clairday, 2019 WL 499105 (N.D. Tex. Feb. 8, 2019). Pizza Inn entered into two area developer agreements with Clairday that permitted Clairday to promote and develop Pizza Inn franchises in Arkansas. The agreements contained a primary term of 20 years and provided Clairday the option to renew for two additional five-year periods. The parties renewed the ...

A franchise agreement’s arbitration clause was not rendered entirely void under Ohio’s business opportunity laws the Northern District of Ohio recently held, granting the franchisor’s motion to stay the federal court proceedings pending arbitration. Party Princess Toledo, LLC v. Party Princess USA LLC, 2019 WL 524186 (N.D. Ohio Feb. 11, 2019). After an Ohio franchisee sued Party Princess for a variety of claims arising under the parties’ franchise agreement, Party Princess moved to stay the proceedings pursuant to the agreement’s arbitration clause, which ...

The United States District Court for the District of New Jersey recently held that Zevin Curtis Ward, an employee of a franchised automotive repair business, sufficiently alleged that franchisor Cottman Transmission Systems acted as his joint employer. Ward v. Cottman Transmission, 2019 WL 643605 (D.N.J. Feb. 14, 2019). Ward brought claims of workplace discrimination, retaliation, and creation of a hostile work environment under Title VII of the Civil Rights Act of 1964 and the New Jersey Law Against Discrimination, together with allegations of unpaid overtime under the Fair ...