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The Franchise Memorandum

The Franchise Memorandum

Posted in Patents

The Federal Circuit Court of Appeals reversed a preliminary injunction granted as to franchisor Urban Air’s patent and trade dress infringement claims against Kangaroo, LLC. UATP IP, LLC v. Kangaroo, LLC, 2024 WL 658205 (Fed. Cir. Feb. 16, 2024).

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Posted in Settlement

The Eleventh Circuit Court of Appeals recently upheld a settlement agreement between a franchisor and former franchisee that the franchisee alleged was obtained under the threat of criminal prosecution. Sewalk v. Valpak Direct Mktg. Sys., LLC, 2024 WL 767619 (11th Cir. Feb. 26, 2024).

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Posted in Trade Secrets

A Virginia federal court recently granted a motion to dismiss all six counts of a franchisor's complaint against a competing former franchisee for failure to plead with specificity under the Defend Trade Secrets Act of 2016 (DTSA), Plaintiff's sole basis for federal jurisdiction. JTH Tax LLC v. Cortorreal, 2024 WL 897605 (E.D. Va. Mar. 1, 2024).

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A federal court in Pennsylvania granted in part and denied in part a licensee’s motion to dismiss the licensor’s breach of contract, fraud, and Lanham Acts claims. Westbrook Monster Mix Co. v. Easy Gardener Prods., Inc., 2024 WL 816243 (E.D. Pa. Feb. 27, 2024).

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Posted in Damages

An appellate court in California has affirmed a trial court’s rejection of more than $4 million in lost business profits, which appellant Glen Suh alleged in a breach of contract action against franchisor Boba Time, Inc. Suh v. Pak, 2024 WL 768839 (Cal. App. Feb. 26, 2024).

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Posted in Contracts

A federal court in Illinois recently dismissed a former franchisee’s counterclaims for alleged fraudulent misrepresentation, breach of contract regarding the franchisor’s advertising fund, and breach of contract and implied contract for failure to certify a franchisee’s SBA loan. Chicago Franchise Sys., Inc. v. Dominque, 2024 WL 756806 (N.D. Ill. Feb. 23, 2024).

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Posted in Employment

In a recent client alert, Lathrop GPM attorneys Michael Gray and David Archer wrote about the recent decision from a Texas federal court striking down the National Labor Relations Board’s new 2023 joint employer rule, which was set to go into effect March 11, 2024. The court’s order restored the previous 2020 Rule, holding that the NLRB’s decision to rescind the 2020 Rule was “arbitrary and capricious.”

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A federal court in Arizona recently granted franchisor LeTip World Franchise’s motion to temporarily restrain and preliminarily enjoin a former franchisee from operating a competing business. LeTip World Franchise, LLC v. Long Island Social Media Group LLC, WL 380985 (D. Ariz. Feb. 1, 2024).

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A federal court in Florida recently granted in part and denied in part a former franchisee’s motion to dismiss claims for breaching a post-termination noncompete agreement, trademark infringement, and unfair competition. CHHJ Franchising LLC v. Spaulding, 2024 WL 229406 (M.D. Fla. Jan. 22, 2024).

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Posted in Antitrust

Real estate brokerage franchisor Keller Williams has agreed to a settle claims related to the ongoing broker commission antitrust litigation. Burnett v. National Ass’n of Realtors, Case No. 4:19-CV-00332 (W.D. Mo.),

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Posted in Attorneys' Fees

A federal court in Connecticut reduced attorneys’ fees and costs sought by a sales representative after the court raised concerns about several issues with the sales representative’s trial strategy. Trade Links, LLC v. Bi-Qem SA de CV, 2024 WL 198024 (D. Conn. Jan. 18, 2024).

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A federal court in Illinois recently granted partial summary judgment to LMLC Franchising, LLC (LMLC-F), LMLC Management, LLC (LMLC-M), and Todd Barnhardt on claims brought by John Doe and Aylin & Ramtin, LLC (A&R) for breach of fiduciary duty and violating the Illinois Franchise Disclosure Act (IFDA), among others. Aylin & Ramtin, LLC v. Barnhardt, 2024 WL 325384 (N.D. Ill. Jan. 29, 2024).

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A federal court in Georgia recently dismissed the claims of an alleged human trafficking victim against hotel franchisor G6 Hospitality, while allowing some claims to proceed against the hotel franchisee. Doe (K.B.) v. G6 Hosp., LLC, 2023 WL 8650785 (N.D. Ga. Dec. 14, 2023).

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Posted in Arbitration

A federal court in North Carolina has held that considerations of judicial economy required that litigation of nonarbitrable claims should be stayed pending completion of a related arbitration. Medical Search Consultants, LLC v. Pasture Gate Holdings, Inc., 2023 WL 8532400 (W.D.N.C. Dec. 8, 2023).

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Posted in Arbitration

A state appellate court in California reversed a superior court’s denial of a massage franchisor’s motion to compel arbitration. Jane Doe #1 (I.G.) v. Massage Envy Franchising, LLC, 2023 WL 8801517 (Cal. Ct. App. Dec. 20, 2023).

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Posted in Antitrust

A federal court in California denied a franchisor’s motion to dismiss a consumer’s claims for a violation of the unfair-practices prong of California’s Unfair Competition Law (UCL) and unjust enrichment. Torres v. Botanic Tonics, LLC, 2023 WL 8852754 (N.D. Cal. Dec. 21, 2023).

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Posted in Noncompetes

The Eleventh Circuit Court of Appeals recently affirmed in part, and vacated in part, a district court’s issuance of an injunction preventing a franchisor’s enforcement of a noncompete covenant as written but allowing enforcement of the covenant as modified, or “blue penciled,” by the court. Baldwin v. Express Oil Change, LLC, 87 F.4th 1292 (11th Cir. 2023).

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A federal court in Maryland recently granted a motion for class certification by consumers who brought negligence, breach of contract, and consumer protection claims against hotel franchisor Marriott International and data security company Accenture. In re Marriott Int'l Customer Data Sec. Breach Litig., 2023 WL 8247865 (D. Md. Nov. 29, 2023).

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Posted in Diversity

As part of Lathrop GPM’s Increasing Diversity in Franchising initiative, we have explored various facets of increasing diversity in franchising, including access to capital, educational initiatives that focus on business in general and franchising specifically, franchise issues for prospective franchisees, outreach through diverse professional organizations, and franchisor DEI goals and programs. We want to drill down and focus on individual franchisors and their brand-specific DEI initiatives. Let’s turn to real estate brokerage franchise Keller Williams.

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Posted in Antitrust

The Eleventh Circuit Court of Appeals has recently affirmed a summary judgment order dismissing all claims by an importer of new Chinese construction equipment alleging a conspiracy to boycott and tortious interference with contractual relations against three Caterpillar dealers. Int’l Const. Prods., LLC v. Ring Power Corp., 2023 WL 7127515 (11th Cir. Oct. 30, 2023).

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Posted in Contracts

The Seventh Circuit Court of Appeals affirmed an Indiana court's order dismissing a claim by inventor Thomas Russell that his exclusive distributor, Zimmer, Inc., failed to use commercially reasonable efforts to sell Russell’s products. Russell v. Zimmer, Inc., 82 F.4th 564 (7th Cir. 2023).

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A federal court in Washington denied the State of Washington’s motion to dismiss an out-of-state distiller’s constitutional challenge to Washington’s distillery regulatory scheme. Shady Knoll Orchards & Distillery LLC v. Postman, 2023 WL 7004422 (E.D. Wash. Oct. 24, 2023).

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A federal court in Puerto Rico denied a distributor’s motion for a preliminary injunction, finding that justice would not be served by reinstating the relationship between the parties after it was effectively terminated. Nilo Watch Parts. Inc. v. Rado Watch Co., Ltd., 2023 WL 5814264 (D.P.R. Sept. 7, 2023).

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A federal court in Wisconsin recently denied a manufacturer’s motion to amend a previously issued injunction in which the manufacturer sought permission to sell products via Amazon.com. Brava Salon Specialists, LLC v. REF N.A., Inc., 2023 WL 7709310 (W.D. Wis. Nov. 15, 2023).

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Posted in Diversity

Franchisors may consider establishing an ESG (environmental, social and governance) policy to increase diversity and enhance diversity efforts within their franchise system.

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A federal court in Virginia denied a franchisor’s motion for preliminary injunction against a former franchisee violating the franchise agreement’s post-termination noncompete. JTH Tax, LLC v. Younan, 2023 WL 6304865 (E.D. Va. Sept. 27, 2023).

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Posted in Arbitration

The Eighth Circuit Court of Appeals has affirmed the denial of a motion to stay pending arbitration because the claims of the franchisor, Breadeaux’s Pisa, did not fall within the mandatory stay provision of the Federal Arbitration Act (FAA). Breadeaux’s Pisa, LLC v. Beckman Bros. Ltd., 2023 WL 6801149 (8th Cir. Oct. 16, 2023).

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Posted in Arbitration

A federal court in Florida rejected a franchisee’s motion to vacate an arbitration award entered against it despite its arguments it did not have notice of the arbitration hearing. Your CBD Stores Franchising, LLC v. Buckwalter, 2023 WL 6676671 (M.D. Fla. Oct. 12, 2023).

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Posted in Arbitration

A federal court in Tennessee recently granted a franchisor’s motion to compel arbitration, including as to questions of arbitrability, in response to a 15 count complaint brought by 54 separate franchisees. Anthony v. Van Over, 2023 WL 6317685 (E.D. Tenn. Sept. 27, 2023).

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Posted in Arbitration

A federal court in New Jersey recently declined to issue an order invalidating the class action waiver and arbitration provision used by franchisor The UPS Store, Inc. and certain TUPSS franchisees’ (collectively, TUPSS) and it would not bar TUPSS from soliciting such waivers from their customers going forward. Tripicchio v. UPS Store, Inc., 2023 WL 6307528 (D.N.J. Sept. 28, 2023).

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Posted in Diversity

As franchisors implement and expand their DEI initiatives, each brand may undertake slightly different paths, or may focus resources in different ways to increase diversity throughout their systems. Franchise Times recently published an article describing some of these approaches, as well as challenges facing franchisors.

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The Fifth Circuit Court of Appeals recently affirmed the enforcement of a jury trial waiver against a franchisee. Pizza Hut L.L.C. v. Pandya, 79 F.4th 535 (5th Cir. Aug. 22, 2023).

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Posted in Employment

The First Circuit Court of Appeals recently certified to the Massachusetts Supreme Court the question of whether franchisee plaintiffs in an ongoing case pass the threshold inquiry under the state’s three-prong employee classification test, which requires a finding that the putative employee is “performing any service.” Patel v. 7-Eleven, Inc., 2023 WL 5542778 (1st Cir. Aug. 29, 2023).

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Posted in Antitrust

Refusing to rubber-stamp a proposed $5 million anti-poaching class action settlement, a federal court in Kentucky has directed the plaintiff to provide additional information to allow proper consideration of the factors specified in Fed. R. Civ. P. 23. In re Papa John’s Employee and Franchisee Employment Antitrust Litig., 2023 WL 5227294 (D. Ky. Sep. 15, 2023).

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A federal court in Pennsylvania granted in part and denied in part a former franchisee’s motion to dismiss a franchisor’s allegation that she misappropriated trade secrets and breached the franchise agreement. JTH Tax, LLC v. Foster, 2023 WL 5938983 (W.D. Pa. Sept. 12, 2023).

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Posted in Arbitration

In Munoz, v. Earthgrains Distribution, LLC, 2023 WL 5986129 (S.D. Cal. Sept. 13, 2023),

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A federal court in Massachusetts has dismissed franchise claims brought against a manufacturer, concluding that the distributor had failed to identify a franchise fee that would qualify it for protection from non-renewal under state law. Cognex Corp. v. Air Hydro Power, LLC, 2023 WL 5833112 (D. Mass. Sept. 8, 2023).

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Posted in Diversity

Dallas Startup Week (DSW) takes place in September every year; this year’s event was hosted by University of North Texas on September 10-14.

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Posted in Antitrust

In an important case of first impression that drew amicus participation from the Department of Justice, the Federal Trade Commission, and the International Franchise Association, the Seventh Circuit reversed a judgment in favor of McDonald’s and revived a potential employee class action which alleges that the anti-poaching provision formerly found in McDonald’s franchise agreements violates the Sherman Act.

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The Tenth Circuit has ruled in favor of KFC in a dispute with a franchisee alleging a breach of the implied covenant of good faith and fair dealing. Kazi v. KFC US, LLC, 2023 WL 4983119 (10th Cir. Aug. 4, 2023).

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An appellate court in Illinois upheld a trial court’s dismissal of claims that franchisor was vicariously liable for the alleged actions of its franchisees. Shavers v. The UPS Store, Inc., 2023 IL App (1st) 221407-U (Ill. App. Ct. Aug. 7, 2023).

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A federal court in North Carolina recently dismissed a complaint brought by Bigelow Corporation against its franchisor Hound Town USA because the claims were time barred. Bigelow Corporation v. Hounds Town USA, LLC, 2023 WL 4939386 (W.D.N.C. Aug. 2, 2023).

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Posted in Contracts

A federal court in Michigan granted Little Caesar Pizza Enterprises, Inc.’s motion for summary judgment seeking to enforce its termination of the franchise agreements between it and franchisee S&S Pizza Enterprises, Inc. Little Caesar Enters., Inc. v. S&S Pizza Enters., Inc., 2023 WL 5489021 (E.D. Mich. Aug. 24, 2023).

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Posted in Trade Secrets

A federal court in Utah denied a requested injunction in a dispute between competitors in the gourmet cookie market. Crumbl LLC v. Dirty Dough LLC, (D. Utah Aug. 11, 2023).

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Posted in Diversity

In this month’s Increasing Diversity in Franchising article, Iris Rosario, Senior Counsel of Franchise for Choice Hotels International, stands as an admirable example of one who never forgets her roots.

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A Louisiana Federal court recently dismissed a complaint brought by Tesla against the Louisiana Automobile Dealers Association (LADA) and other associated dealerships and commissioners for various competition and constitutional claims stemming from Louisiana’s ban on direct sales of automobiles. Tesla, Inc. v. Louisiana Automobile Dealers Assoc., 2023 WL 4053438 (E.D. La. June 16, 2023).

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Posted in Contracts

A federal court in Tennessee determined that a binding contract existed between a sales representative and CWS Powder Coatings Company governing the percentage of commissions to be paid to the representative for sales to Premier, a CWS customer. The court also concluded, however, that there was no binding agreement requiring payment of commissions on sales to Carrier, a prospective customer at the time the alleged agreement was formed, who began purchasing from CWS nine years later. Reaves v. CWS Powder Coatings Co., No. 3:22-cv-0158 (M.D. Tenn. May 24, 2023).

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Posted in Contracts

The Fifth Circuit Court of Appeals affirmed a Texas federal court’s (i) dismissal of a distributor’s fraud claims against an automobile-product manufacturer and (ii) grant of summary judgment in favor of the manufacturer on the distributor’s breach of contract claim. Wesdem, LLC  v. Illinois Tool Works, Inc., 70 F.4th 285 (5th Cir. 2023).

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Posted in Contracts

The Fifth Circuit Court of Appeals recently affirmed a federal district court’s ruling in a breach of contract action brought by Shenzen Synergy Digital, a China based manufacturer and exporter, against Mingtel, a Texas based importer. Shenzen Synergy Digital Co., Ltd. v. Mingtel, Inc., 2023 WL 4573552 (5th Cir. July 18, 2023).

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Posted in Arbitration

The California Court of Appeals for the Second District, creating a split of authority among California’s appellate courts, held that Ford Motor Co. did not have the right to enforce an arbitration provision in a sales contract between its dealership and a downstream purchaser. Montemayor v. Ford Motor Co., 92 Cal. App. 5th 958 (2023).

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Posted in Diversity

As part of Lathrop GPM’s Increasing Diversity in Franchising initiative, we have explored and conducted webinars on various facets of increasing diversity in franchising, including access to capital, educational initiatives that focus on business in general and franchising specifically, franchise issues for prospective franchisees, outreach through diverse professional organizations, and franchisor DEI goals and programs.  We now want to drill down and focus on individual franchisors and their brand-specific DEI initiatives. First up: Ben & Jerry’s.

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Posted in Discovery

A federal court in Kansas recently granted Defendant Sandvik Mining and Construction’s motion to quash a deposition subpoena of its in-house counsel. Roadbuilders Machinery and Supply Co., Inc. v. Sandvik Mining and Construction USA, LLC, 2023 WL 3790691 (D. Kan. June 2, 2023).

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Posted in Employment

A federal court in Maine granted a franchisor’s motion to dismiss claims asserting that a franchisor was liable for its franchisee’s alleged age discrimination in employment. Goodwill v. Anywhere Real Est., 2023 WL 4034372 (D. Me. June 15, 2023).

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Posted in Arbitration

A federal court in Tennessee recently compelled arbitration for parties in a franchise disclosure dispute. B&P Glass Mirror, LLC v. Clozetivity Franchising, LLC, 2023 WL 3484205 (M.D. Tenn. May 16, 2023).

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Posted in Diversity

Diverse perspectives enrich business environments through varied ideas and understanding of different clientele. Franchising is no exception. By engaging with diverse franchisees and franchisors, investing in franchises in diverse communities, and deploying organizational strategies to enhance diversity, equity, and inclusion, the franchising industry becomes more accessible, collaborative, and innovative.

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Posted in Arbitration

A federal court in Tennessee granted franchisor Frost Shades’ motion to compel arbitration of franchisee Lunt’s fraudulent inducement of contract claims, but the court also granted in part franchisee Lunt’s request for a preliminary injunction preventing Frost Shades’ enforcement of noncompete restrictions under the franchise agreement while that arbitration was pending. Lunt v. Frost Shades Franchising, LLC, 2023 WL 3484202 (M.D. Tenn. May 16, 2023).

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Posted in Employment

A federal court in Michigan recently denied a franchisor’s motion to dismiss claims alleging that it was liable as a joint employer for claims under Title VII of the Elliott-Larsen Civil Rights Act, Michigan’s state counterpart to Title VII. Acuff v. Dy N Fly, LLC, 2023 WL 3293278 (E.D. Mich. May 5, 2023).

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Posted in Bankruptcy

A Minnesota bankruptcy court granted Fantastic Sams summary judgment and enjoined a former franchisee from violating the post-termination noncompete in its franchise agreements after the franchisee rejected the agreements in bankruptcy. EllDan Corp. v. Fantastic Sams Franchise Corp., 2023 WL 3394917 (Bankr. Minn. May 11, 2023).

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A federal court in Florida recently dismissed a franchisee’s lawsuit sua sponte pursuant to the forum-selection clause in the parties’ franchise agreements, finding the clause valid, mandatory, and enforceable. Kava Culture Franchise Grp. Corp. v. Dar-Jkta Enters. LLC, 2023 WL 3568598 (M.D. Fla. May 18, 2023).

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A federal court in Michigan granted a motion to dismiss claims that franchisor Bateel International, LLC had violated the Michigan Franchise Investment Law and the Texas Business Opportunity Act. Luxury Concepts, Inc. v. Bateel Int’l LLC, 2023 WL 3606649 (E.D. Mich. May 23, 2023).

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Posted in Contracts

A federal court in Ohio recently denied in part a franchisor’s motion for summary judgment related to a dispute over the renewal of two area representative agreements. KAM Dev., LLC v. Marco’s Franchising, LLC, 2023 WL 3251216 (N.D. Ohio May 4, 2023).

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Reflecting a shifting national landscape on restrictive covenants, the Minnesota Legislature recently adopted legislation that prohibits franchisors from placing certain nonsolicitation and no-poach restrictions in franchise agreements.

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Posted in Diversity

Lathrop GPM’s Increasing Diversity in Franchising initiative was launched in October 2021 to help increase ownership and participation in franchising within underrepresented racial and ethnic groups.

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Posted in Upcoming Event

Join Lathrop GPM attorneys Rachel L. O’Connor and Carlos L. White at 11:30 CT on Wednesday, June 21, for a discussion on the benefits, challenges, and strategies for developing and implementing ESG Standards into a franchise system.

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Posted in Employment

A federal court in Tennessee recently granted a franchisor’s motion to dismiss claims alleging that a franchisor was liable for a workplace mass shooting by a franchisee. Fernald v. JFE Franchising, Inc., 2023 WL 2938312 (W.D. Tenn. April 13, 2023).

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Posted in Bankruptcy

A federal bankruptcy court in Delaware has dismissed time-barred claims that a Chapter 7 Trustee alleged on behalf of a bankrupt franchisor, AVF Franchising, LLC, against several of its franchisees. In re Start Man Furniture, LLC., 2023 WL 2717662 (Bankr. D. Del. Mar. 30, 2023).

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A federal court in Oklahoma granted franchisor Pizza Inn, Inc.’s motion for preliminary injunction preventing two former Pizza Inn franchisees – Odetallah and Allen’s Dynamic Food – from operating competing pizza restaurants in the same location as each of their former Pizza Inn franchises. Pizza Inn, Inc. v. Allen's Dynamic Food, Inc., 2023 WL 3015297 (W.D. Okla. Apr. 19, 2023).

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A federal court in California denied a subfranchisor’s motion to transfer venue, holding that its Operator Agreement constituted a franchise agreement, thus making its forum-selection clause void under the California Franchise Relations Act (CFRA). Singh v. Wireless Vision, LLC, 2023 WL 2752584 (E.D. Cal. Mar. 31, 2023).

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Posted in Contracts

A federal court in New Jersey recently granted salon franchisor Fantastic Sams summary judgment against former franchisees that failed to make payments required under a previous settlement agreement. Fantastic Sams Franchise Corp. v. Weekes, 2023 WL 2696595 (D.N.J. Mar. 29, 2023).

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On May 11, 2023, the United States Small Business Administration will eliminate the SBA Franchise Directory, a move that may impact evaluation of franchise loans by some lenders. The change comes from the SBA’s revision of “affiliation” and “control” standards in its lending rules for small business loans, including those administered under the 7(a) and 504 Loan Programs often utilized by franchisees. With these changes in the SBA rules, there is no longer any need for the SBA Franchise Directory.

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Posted in Diversity

In 2021, Lathrop GPM launched a speaker series and initiative designed to increase franchise ownership by underrepresented racial and ethnic groups – as both franchisees and franchisors. In this month’s content, we shine the spotlight on Carlos White, one of the leaders of our Diversity in Franchising efforts.

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A federal court in New Jersey granted summary judgment to a car manufacturer, holding that a retailer coalition cannot state a claim on behalf of its members under the New Jersey Franchise Practices Act (NJFPA). N.J. Coal. of Auto. Retailers v. Mazda Motor of Am., 2023 WL 2263741 (D.N.J. Feb. 28, 2023).

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Posted in Terminations

A federal court in Tennessee denied a manufacturer’s motion to dismiss claims that it acted in bad faith and constructively terminated a dealership when it denied the dealer’s proposed relocation sites. Hyundai Subaru of Nashville v. Hyundai Motor Am., 2023 WL 2201015 (M.D. Tenn. Feb. 24, 2023).

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Posted in Nonrenewal

A federal court in Tennessee denied a dealer’s motion to dismiss a supplier’s declaratory judgment action because it was unclear whether a CEO’s departure was a “substantial” change in ownership that would establish good cause for nonrenewal. Wirtgen Am. v. Hayden-Murphy Equip., 2023 WL 123499 (M.D. Tenn. Jan. 6, 2023).

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Posted in Arbitration

A federal court in New York recently upheld an arbitration award, rejecting an argument that the arbitrator had improperly applied Puerto Rico law. Conmed Corp. v. First Choice Prosthetic & Orthopedic Serv., 2023 WL 157957 (N.D.N.Y. Jan. 11, 2023).

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Posted in Bankruptcy

A federal court in Ohio denied a distributor’s motion for a preliminary injunction, holding that it failed to demonstrate a likelihood of success on the merits of its claims against a beer importer who chose a different distributor following the bankruptcy of a previous importer. Cavalier Distrib. Co. v. Lime Ventures, 2023 WL 2384440 (S.D. Ohio Mar. 7, 2023).

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Posted in Diversity

In 2021, Lathrop GPM launched a speaker series and initiative designed to increase franchise ownership by underrepresented racial and ethnic groups – as both franchisees and franchisors. Our professionals are passionate about the industry and believe encouraging and educating franchisors and potential franchisees from diverse communities will help them capitalize on business opportunities they may not otherwise explore.

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Posted in Noncompetes

A federal court in Arizona recently denied preliminary relief enforcing franchisees’ noncompete provisions against nonsignatories to the franchise agreement because the franchisor failed to present sufficient evidence that the franchisees were acting in concert with the nonsignatory companies. JTH Tax v. Anderson, 2023 WL 2072496 (D. Ariz. Feb. 17, 2023).

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Posted in Renewals

A federal court in Virginia recently enforced an alleged “scrivener’s error” that extended the term of a development agreement for one developer, while enforcing notice requirements to uphold a nonrenewal for another developer. Road King Dev. v. JTH Tax, 2023 WL 2090280 (E.D. Va. Feb. 17, 2023).

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Posted in Renewals

A federal court in Ohio recently declined to dismiss a franchisee’s claims of breach of contract, rejecting the franchisor’s argument that the claims were barred by general releases included in the parties’ agreement. SC Am. v. Marco’s Franchising, 2023 WL 2229654 (N.D. Ohio Feb. 23, 2023).

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Posted in Contracts

A state appellate court in New York recently held a franchisor was not entitled to unpaid royalty fees because of its own breach of a franchise agreement reinstated by preliminary injunction. Integrity Real Estate Consultants v. Re/Max of New York, 2023 WL 2000464 (N.Y. App. Div. Feb. 15, 2023).

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Posted in Arbitration

In a case involving an unorthodox procedural posture, a federal court in Oregon determined that nonsignatory franchisee owners are not subject to a franchise agreement arbitration provision. Goergen v. Black Rock Coffee B., 2023 WL 1777980 (D. Or. Feb. 6, 2023).

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A federal court in Maryland granted a foreign hotel franchisee’s motion to dismiss for lack of personal jurisdiction but denied a forum non conveniens motion in a personal injury case naming both franchisor and franchisee as defendants. Sant v. Marriott Int’l, 2023 WL 2213926 (D. Md. Feb. 24, 2023).

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Posted in Diversity

In 2021, Lathrop GPM launched a speaker series and initiative designed to increase ownership in franchising by underrepresented racial and ethnic groups – as both franchisees and franchisors.

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A federal court in Nevada recently transferred a franchisor’s trademark infringement lawsuit to Illinois, the location of the franchise, declining to rule on the franchisor’s motion for preliminary injunction. Hofbräuhaus of Am., LLC v. Oak Tree Mgmt. Servs., 2023 WL 24179 (D. Nev. Jan. 3, 2023).

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A federal court in New York has denied a franchisor’s motion for preliminary injunction aimed at preventing a former franchisee from operating a competing business in the same location as its former franchised business because the franchisor did not establish that it would suffer irreparable harm absent an injunction. Doctor's Assocs. LLC v. Khononov, 2023 WL 184389 (E.D.N.Y. Jan. 13, 2023).

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Posted in Arbitration

A federal court in New Jersey has denied a motion to compel arbitration in a dispute over alleged breach of a franchise agreement. Passion for Restaurants, Inc. v. Villa Pizza, LLC, 2022 WL 18024209 (D.N.J. Dec. 30, 2022).

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A federal court in Minnesota has dismissed a claim under the Minnesota Franchise Act (MFA), holding that a franchisor’s consent to the assignment of a franchise does not constitute a sale or an offer to sell under the Act. LG2, LLC, v. Am. Dairy Queen Corp., 2023 WL 171792 (D. Minn. Jan. 12, 2023).

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Posted in Contracts

A federal court in New Jersey has denied a franchisor’s motion for summary judgment on its claim for breach of contract by its franchisee, finding that the franchisee raised issues of material fact regarding whether it had been fraudulently induced to sign its franchise agreement based on an oral promise. Travelodge Hotels, Inc. v. Durga, LLC, 2023 WL 314313 (D.N.J. Jan. 19, 2023).

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Posted in Attorneys' Fees

A federal court in Massachusetts has denied a franchisor’s summary judgment motion which sought attorneys’ fees related its defense of previously dismissed claims. Patel v. 7-Eleven, 2023 WL 35357 (D. Mass Jan. 4, 2023).

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Posted in Employment

The Ninth Circuit Court of Appeals recently affirmed a decision that a group of franchisees are not employees of their franchisor, even though the trial court failed to apply the correct test. Haitayan v. 7-Eleven, Inc., 2022 WL17547805 (9th Cir. Dec. 9, 2022).

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An appellate court in Louisiana recently affirmed summary judgment in favor of a franchisor, dismissing negligence and premises liability claims asserted by a customer was injured on unauthorized exercise equipment. Flynn v. Anytime Fitness, 2022 WL 17982922 (La. App. Dec. 29, 2022).

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A federal court in Connecticut denied a franchisee’s motion for a temporary restraining order permitting it to operate until the court could hear a preliminary injunction motion. A.B. Corp. v. Dunkin' Donuts Franchising, LLC, 2022 WL 17337756 (D. Conn. Nov. 30, 2022).

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Posted in Arbitration

A California appellate court recently affirmed a trial court’s ruling that a customer had not agreed to arbitrate claims against a franchisor when she was presented with a “Terms of Use Agreement” at a franchised location. Doe v. Massage Envy Franchising, LLC, 2022 WL 17984107 (Cal. Ct. App. Dec. 29, 2022).

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Posted in Antitrust

A federal court in Missouri recently ruled that antitrust claims against four real estate broker franchisors and a trade association may proceed to trial based on evidence that the association’s code of ethics may inflate broker commissions. Burnett v. Nat’l Ass’n Of Realtors, 2022 WL 17741708 (W.D. Mo. Dec. 16, 2022).

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Posted in Contracts

A federal court in Florida recently granted a franchisor’s motion to dismiss a franchisee’s claim for breach of the implied covenant of good faith and fair dealing, but allowed a claim for breach of contract to proceed. Pinnacle Foods of Cal. v. Popeyes La. Kitchen, 2022 WL 17736190 (S.D. Fla. Dec. 16, 2022).

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Posted in Advertising

Towards the end of December, without conducting any outreach to industry groups or consumer organizations, the Federal Trade Commission issued a new guidance document, Health Products Compliance Guidance.

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This year new and amended privacy laws are going into effect in several states, including California, Virginia, Connecticut, Colorado, and Utah. Read more about the laws in Lathrop GPM’s client alert.

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A federal court in Illinois granted a manufacturer’s motion to dismiss in a dispute over the nonrenewal of a distribution agreement. Fluid Power Engr. Co. v. Cognex Corp., 2022 WL 16856395 (N.D. Ill. Nov. 10, 2022).

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A Delaware trial court recently affirmed an administrative decision denying Tesla a dealer license because the Motor Vehicle Franchising Practices Act prohibits manufacturers from serving as dealers. Tesla v. Del. Div. of Motor Vehicles, 2022 WL 4483222 (Del. Super. Ct. Sept. 23, 2022).

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Posted in Choice of Law

A federal court in Illinois recently enforced a provision designating Illinois law for the interpretation of a distributor agreement between an Illinois manufacturer and a distributor in the Dominican Republic. Wahl Clipper Corp. v. Plaza Lama, 2022 WL 16744282 (N.D. Ill. Nov. 7, 2022).

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Posted in Contracts

A federal court in Michigan granted partial summary judgment to a steel supplier defending claims for breach of an oral contract and violation of Michigan’s Sales Representatives Commission Act. L.V. Nagle & Assocs. v. Tubular Steel, 2022 WL 3568574 (E.D. Mich. Aug. 18, 2022).

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A federal court in New Jersey denied a motion for preliminary injunction because of the franchisor’s delay in seeking relief. H-1 Auto Care, LLC v. Lasher, 2022 WL 13003468 (D.N.J. Oct. 21, 2022).

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Posted in Employment

A federal court in Massachusetts granted a franchisor’s motion for summary judgment, determining that the franchisor did not employ its franchisees because they did not perform services for the franchisor. Patel v. 7-Eleven, 2022 WL 4540981 (D. Mass. Sept. 28, 2022).

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A federal court in New Jersey refused a motion for default judgment where a franchisor plaintiff and the franchisee defendant were both Canadian citizens. Wyndham Hotel Group Canada, v. Ostrander, 2022 WL 16552817 (D.N.J. Oct. 31, 2022).

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A federal court in Missouri recently granted a franchisor’s motion to dismiss and enforced the franchise agreement’s forum selection provision. Fogle Enters. v. CiCi Enters., 2022 WL 5246446 (W.D. Mo. Oct. 6, 2022).

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Posted in Terminations

A federal court in New York recently denied a franchisor’s motion for summary judgment on claims related to its termination of a lease and dealer agreement. BP Prods. N. Am. Inv. v. Blue Hills Fuels, 2022 WL 16540804 (S.D.N.Y. Oct. 28, 2022).

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Last week, the Governor of California signed AB 676, which includes several significant amendments to the California Franchise Relations Act and Franchise Investment Law.

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Back in January 2022, the Franchise Memorandum reported on the North American Securities Administrators Association’s proposal to eliminate the use of acknowledgments and questionnaires that franchisors usually incorporate into their franchise sales closing process.

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A federal court in Virginia held void a franchise agreement’s forum selection provision and granted a franchisee’s motion to transfer the case to California. JTH Tax, LLC v. Leggat, 2022 WL 3970197 (E.D. Va. Aug. 31, 2022).

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A federal court in Ohio recently enjoyed a former franchisee from violating the post-term obligations of its franchise agreement, including the post-term covenant not to compete. H.H Fran. Sys., Inc. v. CareSmart Sols., Inc., 2022 WL 4274278 (S.D. Ohio Sept. 15, 2022).

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A federal court in Nevada recently denied a franchisee’s motion for preliminary relief in a dispute over renewal of a franchise. Terrier, LLC v. HCAFranchise Corp., 2022 WL 4280251 (D. Nev. Sept. 15, 2022).

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Posted in Damages

A federal court in Texas awarded a defendants’ profits, the franchisor’s lost royalty fees, treble damages, and attorneys’ fees and costs following summary judgment. Choice Hotels Int’l, Inc. v. Gosla Fam. Tr., 2022 WL 4295362 (W.D. Tex. Sept. 16, 2022).

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Posted in Contracts

A federal court in Ohio has awarded a franchisor the attorneys’ fees incurred in dismissing its former franchisees’ fraud-based claims, even though breach of contract claims remained to be litigated. CajunLand Pizza, LLC v. Marco’s Franchising, LLC, 2022 WL 3960574 (N.D. Ohio Aug. 31, 2022).

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Posted in Antitrust

The Eleventh Circuit Court of Appeals reversed a decision dismissing an anti-poaching class action against Burger King, holding that the franchisor and its franchisees are independent actors capable of concerted action in violation of Section 1 of the Sherman Act. Arrington v. Burger King Worldwide, Inc., --- F.4th ----, 2022 WL 3931471 (11th Cir. Aug. 31, 2022).

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The Eleventh Circuit Court of Appeals recently reversed a lower court’s dismissal for lack of jurisdiction, upholding a floating forum selection clause in a franchise agreement. AFC Franchising, LLC v. Purugganan, 43 F.4th 1285 (11th Cir. 2022).

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A federal court in Illinois granted a motion to dismiss a Biometric Information Privacy Act (BIPA) claim against a franchisor brought by a franchisee employee. Stauffer v. Innovative Heights Fairview Heights, LLC, 2022 WL 3139507 (S.D. Ill. Aug. 5, 2022).

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Posted in Transfers

A federal court in Wisconsin recently held that a franchisor’s contractual right to approve or deny the transfer of a franchise includes the right to condition approval on the transferee’s signing the current form of franchise agreement. Am. Dairy Queen v. Wineinger, 2022 WL 3027004 (W.D. Wis. Aug. 1, 2022).

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Posted in Bankruptcy

A federal bankruptcy court in Texas held that a former franchisor can seek continued enforcement of its nondisclosure and nondisparagement agreements with a debtor and former franchisee, even following the franchisee’s bankruptcy. In re Lager, 2022 WL 3330421 (Bankr. N.D. Tex. Aug. 11, 2022).

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A federal court in Florida overruled a former franchisee’s objections to a magistrate judge’s report and recommendation, granting in full a franchisor’s request for preliminary relief enforcing the covenant not to compete contained in the franchise agreements. JTH Tax, LLC v. Gilbert, 2022 WL 3098407 (M.D. Fla. Aug. 4, 2022).

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A federal court in Oklahoma preliminarily enjoined a former franchisee from using the franchisor’s marks and from violating its post-term noncompete following termination. Sonic Indus. LLC v. Olympia Cascade Drive Ins LLC, 2022 WL 3654748 (W.D. Okla. Aug. 24, 2022).

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Posted in Employment

A federal court in Pennsylvania recently granted summary judgment to McDonald’s on a joint employer claim brought by a former franchisee employee. Bosley v. Rawden Joint Ventures Corp., 2022 WL 3701171 (E.D. Pa. Aug. 26, 2022).

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The Texas Supreme Court, answering a certified question from the Fifth Circuit Court of Appeals, held that the application of a state dealer law to an agreement entered into before the law’s passage did not violate the Texas Constitution. Fire Protection Serv., Inc. v. Survitec Survival Prods., Inc., 2022 WL 1815046 (Tex. June 3, 2022).

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The Seventh Circuit Court of Appeals recently affirmed the dismissal of a retailer’s complaint that a manufacturer violated the Wisconsin Fair Dealership Law by terminating it as an authorized retailer without cause or sufficient notice. Watch Co., Inc. v. Citizen Watch Co. of Am., Inc., 2022 WL 1535262 (7th Cir. May 16, 2022).

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A federal court in Illinois denied a motion to dismiss a beverage distributor’s claims for alleged violations of the Illinois Franchise Disclosure Act. Rhine Enters. LLC v. Refresco Beverage US, Inc., 2022 WL 2439966 (S.D. Ill. July 5, 2022).

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Posted in Antitrust

Subject to court approval, franchisors Jiffy Lube and Papa John’s have agreed to settle separate putative civil class actions alleging that anti-poaching provisions previously included in their franchise agreements violated antitrust law. In re: Papa John’s Employee and Franchisee Employee Antitrust Litig., No 3:18-cv-00825-BB-RSE (W.D. Ken. July 27, 2022); Fuentes v. Jiffy Lube Int’l, Inc., No. 2:18-cv-05174-AB (E.D. Pa. July 22, 2022).

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Posted in Attorneys' Fees

The Eleventh Circuit Court of Appeals recently affirmed an award of fees incurred in seeking confirmation of an arbitral preliminary injunction. Vital Pharm. v. Pepsico, Inc., 2022 WL 2066406 (11th Cir. Jun. 8, 2022).

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Posted in Noncompetes

A federal court in Maryland recently entered an order requiring a former franchisee to comply with the post-term covenant against competition and awarding liquidated damages to the franchisor following the termination of the franchise agreement. The Cleaning Authority v. Hunsberger Enters., 2022 WL 2344169 (D. Md. June 29, 2022).

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Posted in Noncompetes

A federal court in New Jersey recently granted a preliminary injunction against a former franchisee, as well as associates that were nonsignatories to the franchise agreement. HouseMaster SPV LLC v. Burke, 2022 WL 2373874 (D.N.J. June 30, 2022).

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Posted in Discovery

A federal court in New York recently granted a motion to exclude one expert report as untimely filed, but denied a motion to exclude another equally untimely report. Rekor Sys., Inc. v. Loughlin, 2022 WL 2063857 (S.D.N.Y. June 8, 2022).

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Posted in Settlement

In an unpublished opinion, a Utah appellate court affirmed the enforcement of a settlement agreement related to a dispute over a terminated franchise agreement. Park Prop. Mgmt. LLC v. G6 Hosp. Franchising LLC, 2022 WL 2165335 (Utah Ct. App. June 16, 2022).

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A federal court in New York denied in part a motion to dismiss a franchisee’s fraud and negligent representation claims. Gould v. ILKB, LLC, 2022 WL 2079652 (E.D.N.Y. June 9, 2022).

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The Tenth Circuit Court of Appeals recently upheld a preliminary injunction awarded to fitness chain franchisor Core Progression, enforcing a post-termination noncompete against a former franchisee in North Carolina. Core Progression Franchise LLC v. O’Hare, 2022 WL 1741836 (10th Cir. May 31, 2022).

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A federal court in New York denied a franchisor’s preliminary injunction motion where it did not establish a likelihood of success on the merits or irreparable harm. JTH Tax LLC v. Agnant, 2022 WL 1556656 (E.D.N.Y. May 17, 2022).

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A federal court in New Jersey recently held that a contractual disclaimer of reliance did not bar the franchisee’s claim for fraudulent inducement. TSMA Franchise Sys., Ind., v. TS of Kings Highway Inc., 2022 WL 1602137 (D.N.J. May 20, 2022).

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A federal court in Oklahoma denied a motion to dismiss a franchisee’s fraud counterclaims. Pizza Inn, Inc. v. Odetallah, 2022 WL 1671122 (W.D. Okla. May 25, 2022).

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A federal court in New Jersey recently entered a $357,917.22 default judgment in favor of a franchisor. Americinn Int'l, LLC v. Mataj12 Corp., 2022 WL 1773779 (D.N.J. June 1, 2022).

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Posted in Class Actions

Over the last three months, McDonald’s, Burger King, and Cava Grill have been subject to a wave of consumer-product class actions involving a group of chemicals known as per- and polyfluoroalkyl substances or “PFAS.” Plaintiffs in the lawsuits Hussain v. Burger King (N.D. Cal. Apr. 11, 2022); McDowell v. McDonald’s (N.D. Ill. Mar. 31, 2022); Clark v. McDonald’s (S.D. Ill. Mar. 28, 2022); and Hamman v. Cava Group (S.D. Cal. Apr. 27, 2022), bring similar causes of action and seek similar remedies.

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Posted in Employment

After denying a motion to dismiss, a federal court in New Jersey has now refused to grant summary judgment to a franchisor on racial discrimination and other employment-related claims asserted by its franchisee’s employee. Ward v. Cottman Transmission Sys., LLC, 2022 WL 909637 (D.N.J. Mar. 29, 2022).

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Posted in Employment

A federal court in Illinois recently dismissed a franchisee employee’s Title VII hostile work environment and related Illinois state-law claims against the franchisor. Budzyn v. KFC Corp., 2022 WL 952746 (N.D. Ill., Mar. 30, 2022).

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Posted in Employment

A federal court in Illinois denied Subway’s motion to dismiss a claim that it violated the Illinois Biometric Information Privacy Act (BIPA) by failing to obtain a franchisee’s employee’s consent for the collection and possession of the employee’s fingerprints. Ronquillo v. Doctor’s Assocs., LLC, 2022 WL 1016600 (N.D. Ill. Apr. 4, 2022).

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A state court in Connecticut recently granted summary judgment to Days Inns Worldwide, Inc. in a slip and fall case. Lacertosa v. Days Inns Worldwide, Inc., 2022 WL 1051147 (Sup. Ct. Conn. Mar. 30, 2022).

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A federal court in New York recently granted Yum! Brands’ motion to dismiss ADA and New York State Human Rights Law claims brought against it by a customer of a Kentucky Fried Chicken franchise. Zuchengno v. FQSR, LLC, 2022 WL 1214406 (W.D.N.Y. Apr. 25, 2022).

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Posted in Contracts

A federal court in Florida looked to the explicit terms of the agreements when a franchisee alleged that a franchisor’s failure to provide ongoing support and assistance was in breach of contract. Show Me Hospitality, LLC v. Tim Hortons USA, Inc., 2022 WL 1182896 (S.D. Fla. Apr. 21, 2022).

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A Federal Court in Tennessee recently denied a franchisor’s motion for preliminary injunction and dissolved a temporary restraining order that had previously been put in place, because the franchisor could not demonstrate a likelihood of success on the merits of its claims, did not establish irreparable harm, and the customers of the defendant would be substantially harmed if the preliminary injunction were ordered. Freedom Franchise Sys., LLC v. CHOTO Boat Club LLC, 2022 WL 1206569 (E.D. Tenn. Apr. 21, 2022).

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Posted in Patents

The Federal Circuit Court of Appeals recently reversed a district court’s ruling that dealership agreements were sufficient to establish jurisdiction over car manufacturers in a patent dispute. In re Volkswagen Grp. of Am., Inc., --- F.4th ---, 2022 WL 697526 (Fed. Cir. Mar. 9, 2022).

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A federal court in Minnesota recently granted summary judgment to a manufacturer on all claims brought against it by its distributor, holding that optional equipment purchases cannot constitute a franchise fee under the Minnesota Franchise Act. Louis DeGidio, Inc. v. Indus. Combustion, Inc., 2021 WL 6127865 (D. Minn. Dec. 28, 2021).

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A federal court in Missouri recently denied a medical device manufacturer’s motion for summary judgment on its distributor’s counterclaims for breach of contract and declaratory relief, finding factual disputes remained as to nearly every significant issue. MWG Enters., LLC v. ETS Wound Care, LLC, 2022 WL 503727 (E.D. Mo. Feb. 18, 2022).

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Posted in Transfers

A federal court in Georgia denied a manufacturer’s motion for summary judgment related to its withholding of consent to a proposed transfer of a car dealer location. Savannah Motorcars, LLC v. Volkswagen Grp. Of Am., Inc., 2022 WL 866342 (S.D. Ga. Mar. 22, 2022).

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Posted in Trademarks

A federal court in Mississippi recently denied motions to dismiss filed by various wholesalers of Pepsi and Dr. Pepper products, challenging tortious interference and unfair competition claims brought against them by Brown Bottling Group, a bottler, seller, and distributor of Pepsi and Dr. Pepper products. Brown Bottling Group, Inc. v. Imperial Trading Co., LLC, 2022 WL 667780 (S.D. Miss. March 4, 2022).

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A federal court in Missouri recently granted summary judgment to the franchisor of the Hardee’s restaurant system, its parent company, and an affiliate on claims that they were vicariously liable for the fatal electrocution of a child on the playground of a franchised restaurant in Amman, Jordan. Hersh v. CKE Rest. Holding’s Inc., 2022 WL 407124 (E.D. Mo. Feb. 10, 2022).

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Posted in Employment

A federal court in New York recently denied judgment on the pleadings for two franchisors in a wage and hour putative class action involving franchisee employees. McArdle-Bracelin v. Congress Hotel, LLC, 2022 WL 486805 (N.D.N.Y. Feb. 17, 2022).

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Posted in Employment

A federal district court in New York granted franchisor Just Salad’s motion for summary judgment on all claims against it and against various franchisees who never employed the plaintiffs. Tecocoatzi-Ortiz, v. Just Salad, LLC, 2022 WL 596831 (S.D.N.Y. Feb. 25, 2022).

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Posted in Discovery

A Pennsylvania appellate court affirmed a grant of summary judgment in favor of franchisor DrPhoneFix USA, LLC due to the franchisee’s breach of a franchise agreement and sublease. DrPhoneFix USA, LLC v. Mitchell Enterpriser, LLC, 2022 WL 278840 (Pa. Super Ct. Jan 31, 2022).

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A federal court in New Jersey recently denied a hotel franchisor’s motion for summary judgment that sought damages due to a franchisee’s unapproved transfer of the hotel. Travelodge Hotels, Inc. v. Huber Hotels, 2022 WL 44634 (D.N.J. Jan. 5, 2022).

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An appellate court in Texas recently affirmed an award of damages to a franchisor on its claims to recover unpaid amounts under a franchise agreement and sublease. Beach Street Foods, Inc. v. Grandy’s, LLC, 2022 WL 187988 (Tex. Ct. App. Jan. 20, 2022).

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A federal court in New Jersey refused to dismiss a counterclaim filed in violation of a contractual forum selection provision because, even though the provision was mandatory and enforceable, the plaintiff’s filing of the initial complaint waived the right to enforce it. The Indian Express Private Ltd. v. Hali, 2022 WL 154354 (D.N.J. Jan. 18, 2022).

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A federal court in Tennessee denied a motion to dismiss a franchisee’s allegations of fraud in Item 19 of an FDD. Sugarlips Bakery, LLC v. A&G Franchising, LLC, 2022 WL 210135 (M.D. Tenn. Jan. 24, 2022).

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A federal court in California recently denied a motion for a temporary restraining order against a franchisee of a pizza restaurant, concluding that there was not evidence that the franchisor would be irreparably harmed by a franchisee’s refusal to transfer its store back to the franchisor. Mountain Mike’s Pizza, LLC v. SV Adventures, Inc., 2021 WL 6136178 (E.D. Cal. Dec. 29, 2021).

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An appellate court in Tennessee affirmed denial of a “Motion to Correct Misnomer,” which resulted in dismissal of a premises liability action for injuries allegedly sustained in a fall at a Long John Silver’s restaurant. Bodine v. Long John Silver’s LLC, 2022 WL 128473 (Tenn. Ct. App. Jan. 14, 2022).

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Posted in Transfers

A federal court in Ohio recently transferred to Georgia a class action alleging that a franchisor violated federal antitrust laws and breached license agreements by requiring its franchisees to use certain vendors and suppliers. Synergy Hotels, LLC v. Holiday Hosp. Franchising, LLC, 2021 WL 5979297 (S.D. Ohio Dec. 17, 2021).

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A federal court in California enjoined the brother of a former franchisee from continuing to use marks similar to the franchisor’s—even though the franchisor’s application to register the mark was denied, and even though the restaurant was in Miami while the franchisor’s system otherwise consists of a single forthcoming restaurant in California. Shawarma Stackz LLC v. Jawad, 2021 WL 5827066 (S.D. Cal. Dec. 8, 2021).

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A federal court in South Carolina granted franchisor Petland, Inc.’s motion to dismiss based on the court’s lack of personal jurisdiction. Madden v. Petland Summerville, 2021 WL 5770294 (D.S.C. Dec. 6, 2021).

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Posted in Encroachment

A federal court in Colorado recently denied franchisor KFC’s motions to set aside a jury award for damages resulting from KFC’s breach of its duty of good faith and fair dealing. Kazi v. KFC US, LLC, 2021 WL 6081832 (D. Colo. Dec. 22, 2021).

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A federal court in Georgia refused to dismiss a franchisee’s counterclaim alleging a breach of a franchise termination agreement between the parties. JTH Tax LLC v. Robertson, 2021 WL 5449215 (N.D. Ga. Nov. 22, 2021).

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Posted in Arbitration

A federal district court in Maine recently relied on the express terms of the franchise agreement between the parties and awarded the franchisor the attorneys’ fees and costs it incurred enforcing and collecting on an arbitration award and defending the franchisee’s appeal of the judgment. Toddle Inn Franchising, LLC v. KPJ Assocs. LLC, 2021 WL 5828029 (D. Me. Dec. 8, 2021).

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Without previous notice that it was even under consideration, on December 6, 2021, the NASAA Franchise Project Group requested comments by January 5, 2022, on a comprehensive proposal to eliminate the use of the acknowledgments and questionnaires (“A&Qs”) franchisors usually incorporate into their franchise sales closing processes.

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In a dispute between Audi and two dealers, the Third Circuit Court of Appeals affirmed the district court’s conclusion that one dealer’s obligation in a consent decree to “forever quit” its interest in purchasing an Audi dealership survived termination of the litigation and the dissolution of a preliminary injunction and was enforceable. Audi of Am., Inc. v. Bronsberg & Hughes Pontiac, Inc., No. 20-2940, 2021 WL 5320848 (3d Cir. Nov. 16, 2021) (designated as non-precedential).

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Posted in Contracts

The Sixth Circuit Court of Appeals recently affirmed judgment on the pleadings in a contract dispute between Whirlpool Corporation and its former licensing agent. Whirlpool Corp. v. Equity Management, Inc., No. 20-2062, 2021 WL 5133177 (6th Cir. Nov. 4, 2021).

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Posted in Contracts

A federal court in Illinois recently dismissed a distributor’s claim that a competitor committed tortious interference by encroaching on the distributor’s exclusive distribution territory because the distributor failed to demonstrate—through draft agreements and other communications with the manufacturer—valid exclusive distribution rights. Midland Distrib., Inc. v. Zest US Wholesale, Inc., 2021 WL 4745265 (N.D. Ill. Oct. 12, 2021).

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Posted in Contracts

A federal court in New York granted a franchisor summary judgment, invalidating its purported supply agreement with a food manufacturer and wholesaler. Bonchon v. LKRG Provisions & Holdings, LLC d/b/a Frontier Food Group, 2021 WL 5042858 (S.D.N.Y. Oct. 29, 2021).

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Posted in Contracts

A federal court in Michigan stuck to the explicit contractual requirements in deciding whether purchase order agreements were formed between a boat manufacturer and its dealer. S2 Yachts, Inc. v. ERH Marine Corp., No. 1:18-CV-389 (W.D. Mich. Nov. 16, 2021).

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A federal court in California recently granted summary judgment against a distributor that alleged that her agreement with Ralph Lauren permitted her to resell Ralph Lauren furniture in perpetuity. Card v. Ralph Lauren Corp., 2021 WL 4427433 (N.D. Cal. Sept. 27, 2021).

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Posted in Class Actions

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).

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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).

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Posted in Arbitration

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.

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Posted in Damages

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).

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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).

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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).

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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).

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Posted in International

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.

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Posted in Employment

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).

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Posted in Damages

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).

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Posted in Trade Secrets

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).

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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.

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

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Posted in Damages

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).

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Posted in Employment

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.

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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.

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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.

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Posted in Arbitration

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.

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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.

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Posted in Arbitration

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 ...

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Posted in Arbitration

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.

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Posted in Antitrust

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

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Posted in Arbitration

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.

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Posted in Terminations

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.

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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.

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Posted in Terminations

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.

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Posted in Choice of Law

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.

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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.

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

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Posted in Employment

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.

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Posted in Terminations

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. 

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

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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.

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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.

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Posted in Contracts

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.

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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. 

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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.

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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. 

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Posted in Standing

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. 

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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. 

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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).

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Posted in Antitrust

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

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

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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.

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Posted in Arbitration

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.

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Posted in Arbitration

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.

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Posted in Arbitration

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.

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Posted in Employment

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.

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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.

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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.

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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.

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Posted in Terminations

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.

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Posted in Terminations

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).

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Posted in Terminations

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).

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Posted in Contracts

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.

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Posted in Contracts

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.

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Posted in Arbitration

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).

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Posted in Fiduciary Duty

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

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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 ...

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Posted in Antitrust

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 ...

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Posted in Insurance

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 ...

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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 ...

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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 ...

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Posted in Class Actions

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).

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Posted in Choice of Law

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

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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 ...

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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 ...

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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 ...

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Posted in Choice of Law

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 ...

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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 ...

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

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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 ...

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Posted in Choice of Law

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 ...

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Posted in Employment

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).

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Posted in Renewals

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

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Posted in Encroachment

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

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

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Posted in Employment

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

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

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Posted in Contracts

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

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Posted in Trademarks

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

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

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Posted in Employment

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

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Posted in Terminations

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

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Posted in Contracts

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 ...

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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.

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Posted in Contracts

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 ...

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Posted in Contracts

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 ...

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Posted in Terminations

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 ...

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Posted in Contracts

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 ...

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Posted in Contracts

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 ...

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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 ...

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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 ...

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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 ...

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Posted in Renewals

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 ...

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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 ...

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Posted in Contracts

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 ...

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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 ...

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Posted in Employment

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). 

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Posted in Terminations

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.

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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.

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Posted in Contracts

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.

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Posted in Arbitration

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

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Posted in Arbitration

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

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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.

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

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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:

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

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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 ...

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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 ...

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Posted in Employment

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 ...

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Posted in Arbitration

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 ...

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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 ...

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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 ...

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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 ...

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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 ...

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Posted in Antitrust

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 ...

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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:

These updates and resources from Lathrop ...

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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 ...

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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 ...

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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 ...

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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.

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Posted in Choice of Law

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 ...

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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 ...

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Posted in Trademarks

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 ...

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Posted in Employment

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 ...

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Posted in Trademarks

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 ...

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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 ...

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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.

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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 ...

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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 ...

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Posted in Arbitration

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 ...

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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 ...

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Posted in Damages

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 ...

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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:

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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 ...
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Posted in Damages

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 ...

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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 ...

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Posted in Contracts

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 ...

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Posted in Arbitration

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 ...

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Posted in Arbitration

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 ...

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Posted in Arbitration

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 ...

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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:

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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 ...

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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 ...

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Posted in Arbitration

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 ...

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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 ...

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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 ...

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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 ...

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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 ...

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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 ...

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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 ...

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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 ...

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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.

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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 ...

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

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Posted in Arbitration

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 ...

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Posted in Employment

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 ...

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Posted in Employment

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 ...

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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 ...

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Posted in Employment

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 ...

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Posted in Damages

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 ...

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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 ...

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Posted in Employment

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 ...

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Posted in Employment

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 ...

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Posted in Employment

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 ...

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Posted in Employment

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 ...

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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 ...

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Posted in Terminations

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 ...

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Posted in Settlement

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 ...

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Posted in Damages

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 ...

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Posted in Antitrust

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 ...

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Posted in Bankruptcy

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 ...

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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 ...

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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 ...

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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 ...

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Posted in Employment

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 ...

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Posted in Employment

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 ...

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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 ...

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Posted in Choice of Law

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 ...

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Posted in Employment

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 ...

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Posted in Encroachment

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 ...

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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 ...

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Posted in Arbitration

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 ...

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Posted in Trademarks

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 ...

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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 ...

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Posted in Arbitration

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 ...

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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 ...

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Posted in Bankruptcy

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 ...

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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 ...

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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 ...

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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 ...

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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 ...

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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 ...

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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 ...

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Posted in Arbitration

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 ...

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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 ...

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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 ...

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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’ ...

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Posted in Arbitration

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 ...

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Posted in Contracts

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 ...

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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 ...

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Posted in Antitrust

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 ...

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Posted in Class Actions

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 ...

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Posted in Arbitration

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 ...

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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 ...

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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 ...

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Posted in Antitrust

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 ...

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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 ...

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Posted in Terminations

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 ...

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Posted in Employment

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 ...

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Posted in Damages

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 ...

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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 ...

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Posted in Terminations

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 ...

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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 ...

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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 ...

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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 ...

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Posted in Antitrust

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 ...

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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 ...

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Posted in Arbitration

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 ...

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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 ...

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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 ...

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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 ...

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Posted in Arbitration

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 ...

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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 ...

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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 ...

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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 ...

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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 ...

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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.

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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 ...

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Posted in Arbitration

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 ...

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Posted in Antitrust

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 ...

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Posted in Antitrust

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 ...

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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 ...

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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 ...

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Posted in Employment

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 ...

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Posted in Class Actions

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 ...

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Posted in Trademarks

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 ...

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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 ...

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Posted in Contracts

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 ...

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Posted in Employment

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 ...

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Posted in Damages

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 ...

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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 ...

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Posted in Employment

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 ...

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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 ...

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Posted in Trademarks

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 ...

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Posted in Antitrust

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 ...

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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 ...

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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 ...

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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 ...

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Posted in Antitrust

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 ...

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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 ...

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Posted in Discrimination

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 ...

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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 ...

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Posted in Arbitration

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 ...

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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 ...

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Posted in Arbitration

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 ...

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Posted in Contracts

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 ...

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Posted in Arbitration

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 ...

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Posted in Employment

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 ...

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Ruling on a motion to dismiss in a consolidated action, a federal district court in North Carolina held that several Charlie Graingers area representatives alleged sufficient facts to permit fraud and tort-based claims and other similar claims to proceed against franchisor Charlie Graingers and its individual officers. Trident Atlanta, LLC v. Charlie Grangers Franchising, LLC, 2019 WL 441187 (E.D. N.C. Feb. 4, 2019). The area representatives claimed that prior to signing their franchise agreements, Charlie Graingers’ officers made multiple representations outside of the ...

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The North Carolina Court of Appeals affirmed a lower court’s dismissal of claims against Family Fare, LLC for violations of the North Carolina Unfair and Deceptive Trade Practices Act and for rescission, fraud, misrepresentation, and breach of the duty of good faith and fair dealing on the grounds that the one-year contractual limitations period contained in the franchise agreements at issue expired prior to the franchisees’ filing suit. Sanghrajka v. Family Fare, LLC, 822 S.E.2d 789 (N.C. Ct. App. 2019). Sanghrajka operated a convenience store under the ownership and ...

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Posted in Employment

A federal court in California granted a franchisor’s motion for summary judgment on all but one claim brought by a franchisee’s employees, holding that there was a fact question on the reasonableness of the employees’ belief that the franchisee was operating as an agent of the franchisor. Cruz v. MM 879, Inc., 2019 WL 266458 (E.D. Cal. Jan. 18, 2019). The plaintiffs are a class, which the court certified in a separate order on the same day, of approximately 181 current and former employees of MM 879, a California-based Merry Maids franchisee. They alleged that several of MM 879’s ...

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The U.S. District Court for the Northern District of California granted a dealer’s motion for a preliminary injunction to halt the termination of its franchise in S.A. Mission Corp. v. BP West Coast Products LLC, 2019 WL 99042 (N.D. Cal. Jan. 3, 2019). S.A. Mission owned and operated a gas station as part of its franchise agreements with BP. The franchise agreements contained an “image standards” provision, under which S.A. Mission would need to conform to certain standards and its station would be subject to periodic inspections. S.A. Mission failed six consecutive ...

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Posted in Employment

Meanwhile, the federal court in Connecticut has granted a motion for class certification, allowing the lead plaintiffs to pursue employee misclassification claims on behalf of all Connecticut franchisees of the Jani-King system. Mujo v. Jani-King Int’l, Inc., 2019 WL 145524 (D. Conn. Jan. 9, 2019). The plaintiffs alleged that franchisees had been misclassified as independent contractors under their franchise agreements with Jani-King and were actually employees of the franchisor, citing operational standards and their dependence on Jani-King for work assignments. They ...

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Posted in Arbitration

A New York federal district court upheld an arbitral award that denied attorneys’ fees to Benihana in a dispute with its licensee, Benihana of Tokyo (“BOT”). Benihana Inc. v. Benihana of Tokyo, LLC, 2019 WL 251729 (S.D.N.Y. Jan. 17, 2019). BOT had initiated an arbitration against Benihana for breach of the parties’ license agreement, and Benihana counterclaimed for breach of the agreement and requested that the arbitrator uphold its earlier termination of the agreement. In conjunction with its counterclaim, Benihana sought to recover attorneys’ fees pursuant to the ...

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Posted in Antitrust

The U.S. Department of Justice recently announced its intent to file a statement of interest in three pending class action lawsuits, which each challenge no-poaching agreements, filed against franchisors in federal court in Washington. In its notice, the DOJ stated that “[a] no-poaching agreement between a franchisor and a franchisee, within the same franchise system, . . . merits rule of reason analysis at the proper procedural stage.” In so writing, the DOJ made clear its disagreement with the plaintiffs’ arguments in these cases that the less rigorous per se or quicklook ...

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An Illinois federal court ruled in favor of franchisor BrightStar Franchising, LLC, holding former franchisee Northern Nevada Care and its owners Stephen and Teresa Neff in contempt for failing to comply with the terms of a preliminary injunction. BrightStar Franchising, LLC v. N. Nevada Care, Inc., 2019 WL 194369 (N.D. Ill. Jan. 15, 2019). The Neffs previously operated a franchised BrightStar agency offering at-home personal care and medical services in Carson City, Nevada. BrightStar filed an action alleging a violation of the parties’ franchise agreement and sought ...

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Posted in Settlement

The Appellate Division of the New Jersey Superior Court recently held that a former Gulf Oil franchisee must comply with the terms of a settlement agreement and affirmed the denial of the franchisee’s motion to vacate the agreement. S&M Gulf Inc. v. Gulf Oil, LP, 2019 WL 333055 (N.J. Super. Ct. App. Div. Jan. 28, 2019). The dispute initially arose after the franchisee, Gulf Express, sued to enforce its right to purchase the franchise premises pursuant to a right of first refusal clause in its franchise agreement with Gulf Oil. The parties then entered into a settlement agreement ...

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Posted in Employment

The National Labor Relations Board has overruled its 2014 decision in FedEx Home Delivery, 361 NLRB No. 610 (2014), finding that FedEx improperly limited the significance of a worker’s “entrepreneurial opportunity for gain or loss” when evaluating whether a party is an independent contractor or an employee. SuperShuttle DFW, Inc., 367 NLRB No. 75 (Jan. 25, 2019). In SuperShuttle, the NLRB considered whether SuperShuttle franchisees, who operate shared-ride vans to and from the airport, were employees for purposes of the National Labor Relations Act, or whether the ...

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Posted in Employment

A federal court in Ohio recently approved a class action settlement of a wage and hour lawsuit brought on behalf of a class of pizza delivery drivers against a Domino’s franchisee and various Domino’s corporate entities, including the franchisor of the Domino’s system. Mullins v. S. Ohio Pizza, Inc., 2019 WL 275711 (S.D. Ohio Jan. 18, 2019). The plaintiff, a pizza delivery driver for Southern Ohio Pizza, a 19-unit Domino’s franchisee, alleged that the franchisee and Domino’s were his joint employers, and that as such they under-reimbursed him and similarly situated ...

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The U.S. District Court for the Southern District of Ohio had no trouble preliminarily enjoining a franchisee and its principals (“Pivotal”) from violating a one-year covenant against competition, when Pivotal’s principals formed a competing company, hired Pivotal’s employees for the same roles in the new business, sent notices to industry contacts that Pivotal was “rebranding,” and declared the franchise agreement terminated. Relo Franchise Servs., Inc. v. Gilman, 2019 WL 324215 (S.D. Ohio Jan. 25, 2019). Pivotal attempted to avoid the injunction by arguing ...

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Posted in Employment

In three consolidated actions, the U.S. District Court for the Southern District of New York  granted summary judgment in favor of franchisor Domino’s Pizza, Inc. and certain related entities (the “Domino’s defendants”), holding that they were not joint employers of current and former employees of several Domino’s Pizza franchisees and therefore could not be held liable for alleged wage violations under the Fair Labor Standards Act and the New York Labor Law. In re Domino’s Pizza, Inc., 2018 WL 475944 (S.D.N.Y. Sept. 30, 2018). To make this determination, the court ...

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Posted in Antitrust

A federal district court in the Western District of Washington denied a motion to dismiss a putative class action lawsuit alleging that anti‐poaching clauses in Cinnabon franchise agreements violated the Sherman Act and Washington’s Unfair Business Practices Act. Yi v. SK Bakeries, LLC, No. 3:18‐cv‐05627 (W.D. Wash. Nov. 13, 2018). The lead plaintiff, Kyla Yi, was a former employee at a Cinnabon franchised bakery in Washington. Franchise agreements for Cinnabon bakeries prohibited franchisees from hiring or soliciting Cinnabon’s and other franchisees’ ...

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Posted in Employment

The long‐awaited decision of the D.C. Circuit Court of Appeals in an appeal challenging the controversial joint employer test adopted by the National Labor Relations Board in Browning‐Ferris Industries, 362 NLRB No. 186 (2015), was released on December 28, 2018. Browning‐Ferris Indus. of Cal., Inc. v. NLRB, 2018 WL 6816542 (D.C. Cir. Dec. 28, 2018). Although the D.C. Circuit’s decision was expected to either clarify or reject the NLRB’s August 2015 decision holding that a company could be a joint employer if it had an unexercised right to directly or indirectly control an ...

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On the other hand, a federal district court in Illinois granted in part and denied in part a franchisor’s motion for a preliminary injunction against a recently terminated franchisee who established a competing business. Auto Driveaway Franchise Sys., LLC v. Corbett, Bus. Franchise Guide (CCH) ¶ 16,300 (N.D. Ill Oct. 26, 2018). Auto Driveaway—a business offering vehicle transportation and shipping management services—sought a preliminary injunction and temporary restraining order against Corbett, the owner of the franchise at issue, seeking to enforce a noncompete ...

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Posted in Arbitration

The federal court in Maine also recently granted a motion to compel arbitration filed by daycare center franchisor Toddle Inn Franchising, holding that the arbitration provision included in its franchise agreement with franchisee KPJ Associates survived the expiration of the agreement. Toddle Inn Franchising, LLC v. KPJ Assocs., LLC, 2018 WL 6515129 (D. Me. Dec. 11, 2018). The dispute arose when, after operating for two years under an expired franchise agreement, KPJ notified Toddle Inn that it intended to open a competing daycare center at its Toddle Inn franchised business ...

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The U.S. District Court for the Western District of Wisconsin has denied a franchisor’s renewed motion for a preliminary injunction against its former franchisee, holding that the franchisor failed to show that its trade dress was entitled to protection or that the ex‐franchisee’s potential violation of the noncompete provision in its franchise agreement posed a threat of irreparable harm to the franchisor. E&G Fran. Sys., Inc. v. Janik, 2018 WL 5630589 (W.D. Wis. Oct. 31, 2018). E&G Franchise Systems operates and licenses others to operate Erbert and Gerbert’s Sandwich ...

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Posted in Arbitration

A Louisiana federal court dismissed a franchisee’s attempt to avoid arbitrating a dispute that was arbitrable by agreement between the parties in Kirksey v. Doctor’s Associates Inc., 2018 WL 66510121 (E.D. La. Dec. 19, 2018). Doctor’s Associates Inc., franchisor of the Subway brand, and Kirksey were parties to a franchise agreement containing an arbitration clause that required them to arbitrate their disputes in Connecticut. On the eve of an arbitration hearing between the parties in Connecticut, Kirksey filed suit against Subway in Louisiana state court seeking a ...

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A Michigan federal court denied a motion by the defendant franchisees to dismiss or, in the alternative, transfer venue in an action brought by Little Caesar to enforce the termination of the parties’ franchise agreements. Little Caesar Enters., Inc. v. Miramar Quick Service Rest. Corp., 2018 WL 6002511 (E.D. Mich. Nov. 15, 2018). Gray Plant Mooty represents Little Caesar in this matter. In their motion, the Massachusetts‐ and Connecticut‐based franchisees argued that a Michigan venue was either improper or overwhelmingly inconvenient because the events giving rise to ...

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Posted in Choice of Law

A federal court in Texas has upheld a franchise agreement’s choice of Tennessee law but declined to dismiss counterclaims based on other states’ franchise laws. Gigi’s Cupcakes, LLC v. 4 Box LLC, 2018 WL 6068817 (N.D. Tex. Nov. 19, 2018). Gigi’s Cupcakes filed suit against various franchisees for enforcement and declaratory relief related to their franchise agreements. In response, the franchisees counterclaimed for breach of contract, fraud, and other claims under the franchise laws of their respective states. In denying the franchisees’ original motion to ...

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Posted in Antitrust

A federal court denied a distributor’s motion for a preliminary injunction and dismissed its antitrust claims against a competitor, holding that the distributor failed to adequately plead its claims under either Section 1 or Section 2 of the Sherman Act. Nicolosi Distrib., Inc. v. FinishMaster, Inc., 2018 WL 4904918 (N.D. Cal. Oct. 9, 2018). Plaintiff Nicolosi Distributing is a small distributor of automotive paints and supplies that sells to auto body shops in the San Francisco Bay Area. It sued FinishMaster and its Canadian parent company, alleging that FinishMaster entered ...

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Posted in Arbitration

The United States District Court for the Eastern District of Pennsylvania has denied a drug manufacturer’s motion to compel arbitration of a putative class member’s antitrust claim. In re Remicade Antitrust Litig., 2018 WL 5314775 (E.D. Pa. Oct. 26, 2018). The plaintiff at issue was an authorized distributor, pursuant to a distributor agreement, of an infliximab medication called Remicade. The distributor alleged the drug manufacturer monopolized the infliximab market and artificially inflated prices by entering into third-party contracts and imposing rebate ...

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In another case involving the Wisconsin dealership statute, a federal court granted a manufacturer’s motion for summary judgment after finding that a distributor was not a “dealership” under the Wisconsin Fair Dealership Law (WFDL). PMT Machinery Sales, Inc. v. Yama Seiki USA, Inc., 2018 WL 5775919 (E.D. Wis. Nov. 2, 2018). In October 2015, PMT was incorporated to sell Yama Seiki machines and immediately contacted Yama Seiki seeking to become an exclusive distributor in eastern Wisconsin. The general manager of Yama Seiki sent PMT an “exclusive letter of dealership,” ...

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Posted in Procedure

A federal court in California granted in part and denied in part a dealer’s motion to amend its complaint against Ralph Lauren Corp. and related entities. Card v. Ralph Lauren Corp , 2018 WL 4109082 (N.D. Cal. Aug. 29, 2018). Card was an approved dealer of Ralph Lauren Home products. Following termination of the relationship by Ralph Lauren Home, Card filed suit alleging breach of implied contract, breach of the implied covenant of good faith and fair dealing, violations of the Robinson-Patman Act, and a variety of other tort-based and statutory claims. Ralph Lauren moved to dismiss ...

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In Arena Restaurant & Lounge LLC v. Southern Glazer’s Wine & Spirits, LLC, 2018 WL 4334631 (N.D. Cal. Sept. 10, 2018), a federal court in Northern California granted Southern Glazer’s motion to dismiss a putative class action lawsuit brought by plaintiffs who purchased liquor from Southern Glazer, an international wine and spirits distributor. The plaintiffs alleged that Southern Glazer engaged in various unlawful and unfair business practices, including violations of California’s Unfair Practices Act consisting of (1) below-cost sales, (2) loss-leader sales, (3 ...

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A federal court in Minnesota recently ruled that a manufacturer was not liable under Minnesota or Wisconsin dealer statutes when its five-year relationship with a dealer ended over disputes about the noncompete obligation in a new form of annual contract. In Tri-State Bobcat Inc. v. FINN Corp., 2018 WL 4268898 (D. Minn. Sept. 6, 2018), Tri-State Bobcat brought suit against FINN Corp., a manufacturer of hydroseeders and other landscaping equipment, after the parties failed to agree on terms for a 2016 dealer agreement. While the parties were negotiating terms for the new contract ...

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Posted in Antitrust

A federal court in North Carolina recently denied Hyundai’s request to dismiss federal antitrust counterclaims brought against it in a trademark infringement lawsuit. Hyundai Motor Am., Inc. v. Direct Techs. Int’l, Inc., 2018 WL 4110544 (W.D.N.C. Aug. 29, 2018). Hyundai sued Direct Technologies International (DTI) for trademark infringement, false advertising, dilution, unfair competition, intentional interference, and unfair and deceptive trade practices, alleging that DTI imported and sold Hyundai-branded parts through an unauthorized distributor. In ...

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Posted in Choice of Law

A manufacturer represented by Gray Plant Mooty recently obtained an important victory when a federal court in Iowa enforced a choice of law provision to preclude application of California’s unfair competition statute. Quality Office Furnishings, Inc. v. Allsteel, Inc., No. 3:17-CV-00041- JEG (S.D. Iowa Sept. 11, 2018). This dispute arose after Allsteel, a nationwide manufacturer of office furniture headquartered in Iowa, declined to renew its agreement with a California-based dealer. Although the dealer agreement designated Iowa’s courts as the exclusive forum and ...

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Posted in Antitrust

The United States District Court for the District of Kansas has granted in part and denied in part motions by the distributor and supplier of EpiPen® products (“Mylan” and “Pfizer,” respectively) to dismiss a class action lawsuit initiated by the products’ consumers. In re EpiPen Mktg., Sales Practices, & Antitrust Litig., 2018 WL 3973153 (D. Kan. Aug. 20, 2018). The consumers’ 1,400-paragraph complaint alleges that Mylan and Pfizer have devised an unlawful scheme to establish a monopoly over the epinephrine auto-injector products market. It claims Mylan and ...

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The United States Court of Appeals for the Seventh Circuit has affirmed a district court’s determination that a distributor’s claims were stale under the applicable statute of limitations. Heiman v. Bimbo Foods Bakeries Distrib. Co., 902 F.3d 715 (7th Cir. Aug. 30, 2018). Heiman’s company, JTE, distributed products for defendant Bimbo Foods under a distribution agreement that did not have a fixed duration and could be terminated in the event of a noncurable or untimely cured breach by one of the parties. The agreement also specified that New York law would govern all claims and ...

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Posted in Defamation

In a dispute between a mattress retailer and a bedding manufacturer, the United States Court of Appeals for the Second Circuit has ruled that statements made to representatives of the retailer may have constituted slander. Sleepy’s LLC v. Select Comfort Wholesale Corp., 2018 WL 6174650 (2d Cir. Nov. 27, 2018). Sleepy’s, a mattress and bedding retailer, entered into a dealer agreement with Select Comfort pursuant to which Sleepy’s acquired the right to sell Select Comfort’s ‘‘Personal Preference” line of “Sleep Number” beds in Sleepy’s stores. Select ...

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Posted in Contracts

Meanwhile, a federal court in Colorado has denied in part a franchisor’s motion to dismiss counterclaims brought by a franchisee, including a claim for breach of contract based on the implied covenant of good faith and fair dealing. E&I Holdings, Inc. v. Coral Springs Eggs & I, LLC, 2018 WL 4680339 (D. Colo. Sept. 28, 2018). The dispute arose when E&I Holdings, a franchisor of various restaurants including the Egg & I, terminated two franchise agreements with Coral Springs after it failed to comply with the agreed upon store development schedule. E&I sued for damages and injunctive ...

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A Connecticut federal court recently allowed a plaintiff to continue with his claim that Allstate violated state franchise laws by terminating him without good cause. In Kollar v. Allstate Ins. Co., 2018 WL 4688301 (D. Conn. Sept. 28, 2018), Kollar alleged a violation of the Connecticut Franchise Act after Allstate terminated his longtime position as an insurance agent without cause in 2014. Allstate disputed that a franchise relationship existed, noting that Connecticut already had extensive legislation governing the relationship between insurance companies and their ...

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Posted in Bankruptcy

Ruling on cross motions for summary judgment, the U.S. Bankruptcy Court for the District of Delaware found that a franchisor had failed to provide clear and unambiguous notice of its intention to terminate in notices it gave to the franchisee, so that no termination occurred prior to the filing of the franchisee’s bankruptcy petition. In re RMH Franchise Holdings, Inc., 2018 WL 4637456 (Bankr. D. Del. Sept. 25, 2018). RMH Franchise Holdings and its affiliates are the second-largest franchisee of Applebee’s Neighborhood Bar & Grill restaurants, operating 160 restaurants in ...

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The U.S. District Court for the District of New Jersey granted in part and denied in part franchisor Meineke Car Care Center’s motion to dismiss several counterclaims lodged against it by franchisee JNMVR Enterprises. Meineke Car Care Ctrs., LLC v. Juliano, 2018 WL 4629517 (D.N.J. Sept. 26, 2018). The parties’ franchise agreement required JNMVR to obtain Meineke’s approval before relocating or selling the franchised business. The agreement also contained a territorial protection clause prohibiting Meineke from granting others the right to operate another Meineke ...

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On November 5, 2018, the Financial Accounting Standards Board (FASB) published a staff memo addressing franchise-specific questions surrounding the implementation of the revenue recognition accounting rules set to be applicable to private companies beginning in 2019. Under the previous accounting rules, franchisors recognized the entire initial fee as income when a franchised business opened. Under the new rules and FASB guidance, initial franchise fees must be amortized over the term of a franchise agreement. However, the FASB memo allows franchisors to accelerate their ...

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Posted in Contracts

A federal district court in New Jersey granted a franchisor’s motion to dismiss a franchisee’s complaint because it failed to sufficiently plead facts in support of each claim it alleged. Khorchid v. 7-Eleven, Inc., 2018 WL 5149643 (D.N.J. Oct. 22, 2018). The parties entered into a franchise agreement in 2009, and then executed a revised franchise agreement in 2016. Khorchid filed a lawsuit against 7-Eleven that included claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and violations of the New Jersey Franchise Practices Act (NJFPA ...

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Posted in Discovery

A North Carolina state court recently denied in part and granted in part a franchisor’s motion to compel various categories of information from a group of franchisees. Window World of Baton Rouge, LLC v. Window World, Inc., 2018 WL 4649493 (N.C. Super. Ct. Sept. 26, 2018). A group of Window World franchisees sued the franchisor asserting contract, fraud, and statutory causes of action based on allegations that the franchisor knowingly and intentionally withheld information that they were entitled to receive under federal franchise law, failed to provide them access to the best ...

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National real estate firm RE/MAX may be held vicariously liable for the fraudulent conduct of its former broker, a Delaware court recently held, finding that the plaintiffs adequately pled that the former broker acted as an apparent agent of RE/MAX. Patel v. Sunvest Realty Corp., 2018 WL 4961392 (Del. Super. Ct. Oct. 15, 2018). The dispute arose when a real estate broker formerly employed by a franchised branch of RE/MAX allegedly embezzled funds from a group of promissory note holders. After the former broker declared bankruptcy, the investors brought claims of vicarious ...

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In a notice published in the Federal Register on October 29, 2018, the Federal Trade Commission announced that, by December 2018, it will begin its decennial review of Disclosure Requirements and Prohibitions Concerning Franchising, 16 C.F.R. Part 436, commonly known as the FTC Franchise Rule. The agency will review the rule and seek public comments. We will await guidance from the FTC as to the extent of the review, and will report as we learn more.

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Posted in Employment

The United States Court of Appeals for the Tenth Circuit recently revived a Department of Labor lawsuit alleging that the franchisor Jani-King failed to maintain proper employee records regarding its franchisees as required under the Fair Labor Standards Act. Acosta v. Jani-King of Okla., Inc., 905 F.3d 1156 (10th Cir. 2018). The DOL alleged that the franchise owners—some of whom were individuals and others of which were corporate entities owned by one or two individuals—were actually employees of the franchisor, misclassified as independent contractors, under the Tenth ...

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The U.S. District Court for the Eastern District of Texas has granted a franchisee’s motion to remand a case back to state court after finding that its complaint did not raise a substantial issue of federal law. KMCC Enters., LLC v. Savvy Chic Mgmt. Inc., 2018 WL 5295812 (E.D. Tex. Oct. 25, 2018). KMCC Enterprises entered into a franchise agreement with Savvy Chic to operate a nonsurgical weight loss franchise. KMCC later sued Savvy Chic under the Texas Business Opportunities Act (TBOA) alleging that Savvy Chic induced KMCC to enter into the franchise agreement with false ...

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A federal district court in Nevada transferred a franchisee’s lawsuit against a franchisor to another district court in which the franchisor had filed suit against the franchisee just hours earlier. Khutob v. L.A. Ins. Agency Franchising, LLC, 2018 WL 4286171 (D. Nev. Sept. 8, 2018). When a dispute arose between the parties and settlement negotiations broke down, the franchisor, L.A. Insurance Agency (LAIA), filed suit against the franchisee, Khutob, in the U.S. District Court for the Eastern District of Michigan. Later that same day, Khutob filed a parallel lawsuit against ...

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Posted in Trademarks

A Massachusetts federal court recently granted summary judgment to the defendants in a trademark dispute that stemmed from their development of restaurants under the plaintiff’s trademarks. Xiao Wei Yang Catering Linkage In Inner Mongolia Co. v. Inner Mongolia Xiao Wei Yang USA, Inc., 2018 WL 4516682 (D. Mass. Sept. 20, 2018). Linkage entered into a five-year cooperation agreement with the defendants to support the defendants’ promotion and development of a franchise market under trademarks owned by Linkage, including the federally registered trademark LITTLE LAMB. The ...

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Posted in Damages

A federal court in Washington granted a franchisor’s motion for summary judgment enforcing the liquidated damages provision in the parties’ franchise agreement. Red Lion Hotels Franchising, Inc. v. First Capital Real Estate Invs., LLC, 2018 WL 4259241 (E.D. Wash. Sept. 6, 2018). Red Lion brought a breach of contract action against three former franchisees who defaulted under their agreements, seeking liquidated damages and past due fees. The franchisees conceded that the license agreements were enforceable contracts and that Red Lion lawfully terminated the agreements ...

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A federal court in California has denied a franchisor’s motion to dismiss a claim that it violated California’s disclosure law because it failed to redisclose a prospective franchisee with, among other things, the franchisor’s then-effective amended FDD. Schulenburg v. Handel’s Enters., Inc., 2018 WL 4282637 (S.D. Cal. Sept. 7, 2018). Handel’s provided its FDD to the prospective franchisee, Schulenburg, in October 2015. In December 2015, Schulenburg sent a small deposit of the initial franchise fee to Handel’s, without signing the franchise agreement. On ...

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An Illinois federal court recently granted a franchisor’s motion for a preliminary injunction and two motions to compel arbitration against its former franchisee. BrightStar Franchising, LLC v. Northern Nevada Care, Inc., 2018 WL 4224454 (N.D. Ill. Sept. 4, 2018). BrightStar, a franchisor of home-based health services, entered into a franchise agreement with Northern Nevada Care (NNC) pursuant to which NNC had the right to provide in-home medical care in the Carson City, Nevada area. After BrightStar learned that NNC was providing services to a customer living in another ...

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After finding a group of terminated franchisees in contempt of court for violating a preliminary injunction enforcing their covenant against solicitation, the U.S. District Court for the Western District of North Carolina awarded a franchisor nearly $100,000 in attorneys’ fees and costs and extended the nonsolicitation covenant for an additional year. Atl. Pinstriping LLC v. Atl. Pinstriping Triad, LLC, 2018 WL 4265564 (W.D.N.C. Sept. 6, 2018). Atlantic terminated the parties’ franchise agreements and then filed a motion for a temporary restraining order seeking to ...

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Following a franchisor’s motion to dismiss and motion for summary judgment, the United States District Court for the Southern District of New York has dismissed a franchisee’s fraud claims based on actions that occurred after it entered the parties’ franchise agreement. Safe Step Walk In Tub Co. v. CKH Indus., Inc., 2018 WL 4539656 (S.D.N.Y. Sept. 20, 2018). Under the franchise agreement, Safe Step permitted CKH to use Safe Step’s trademarks when marketing, selling, and installing its walk-in bathtubs in the Mid-Atlantic and New England areas. Safe Step brought suit ...

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Posted in Employment

An administrative law judge has denied motions to approve proposed “informal” settlements in the National Labor Relations Board joint employer litigation against the franchisor of the McDonald’s system. McDonald’s USA, LLC & Fast Food Workers Comm., N.L.R.B. Case Nos. 02‐ CA‐093893 (July 17, 2018). The litigation arose out of alleged retaliation against franchisees’ employees who participated in Fight for $15 demonstrations demanding higher pay for fast food workers. The litigation was commenced under the Obama Administration for the stated purpose of ...

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Posted in State Taxation

The New Mexico Court of Appeals affirmed a decision by an administrative hearing officer that a franchisor’s receipt of royalty fees under a franchise agreement were subject to gross receipts tax pursuant to New Mexico’s Gross Receipts and Compensating Tax Act. A&W Rests., Inc. v. Taxation & Revenue Dep’t, 2018 WL 4024741 (N.M. Ct. App. Aug. 22, 2018). In 2007, the state legislature amended the Act so that the definition of taxable “gross receipts” included the amount of money received “from granting a right to use a franchise employed in New Mexico,” and so that the ...

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Posted in Antitrust

A federal court in Illinois has allowed a former Jimmy John’s employee to proceed with antitrust claims targeted at an anti‐poaching requirement in Jimmy John’s franchise agreements. Butler v. Jimmy John’s Franchise, LLC, 2018 WL 3631577 (S.D. Ill. July 31, 2018). Jimmy John’s had included in its franchise agreements a prohibition on franchisees recruiting or hiring any employee that has worked at another Jimmy John’s in the prior year. According to the plaintiff, this requirement was enforced by franchisees through noncompete provisions in their employment ...

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Posted in Damages

The United States Court of Appeals for the Fourth Circuit vacated part of a district court’s order that had awarded lost profits to a franchisee in connection with his attempt to repurchase his franchised businesses. JTH Tax, Inc. v. Aime, 2018 WL 3770028 (4th Cir. Aug. 8, 2018). The franchisee, Aime, operated nine tax preparation businesses pursuant to franchise agreements with JTH. When the IRS suspended Aime’s electronic filing number, JTH purchased and assumed control over the businesses. The purchase agreement included an option for Aime to buy back the franchises if he ...

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The U.S. District Court for the District of Maine recently denied a franchisor’s motion for a temporary restraining order to stop its former franchisee from operating a new business following the expiration of the parties’ franchise agreement. Toddle Inn Franchising, LLC v. KPJ Assocs. LLC, 2018 WL 3676826 (D. Me. Aug. 2, 2018). The parties had entered into a franchise agreement that permitted KPJ to open and operate a Toddle Inn childcare center. When the franchise agreement expired in July 2016, the parties did not renew the contract. Nonetheless, KPJ continued to operate as a ...

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On June 12, 2018, the Franchise Project Group of the North American Securities Administrators Association, Inc. (NASAA) sought public comments on a proposal (the “Proposal”) to revise instructions in its 2008 Franchise Registration and Disclosure Guidelines (“NASAA Guidelines”) regarding the information provided in the state cover sheets to franchise disclosure documents (FDDs). If the Proposal is adopted as currently written, three new state cover sheets titled “How to Use this Franchise Disclosure Document,” “What You Need to Know About Franchising ...

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Posted in Employment

Wendy’s could be liable as a joint employer under Title VII, a federal court recently held, allowing the plaintiff to proceed with her hostile work environment claims against Wendy’s and one of its franchisees. A.H. v. Wendy’s Co., 2018 WL 4002856 (M.D. Pa. Aug. 22, 2018). The plaintiff, a former employee of the franchisee, filed suit alleging that she was sexually harassed by a supervisor and that Wendy’s was jointly liable for the hostile work environment under either a joint employer or agency theory. Wendy’s moved to dismiss, arguing that the plaintiff failed to plead ...

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Posted in Contracts

The Wyoming Supreme Court affirmed a lower‐court decision approving the termination of two executives following their pursuit of a franchise opportunity with another system. James v. Taco John’s Int’l, Inc., 2018 WL 4011633 (Wyo. Aug. 22, 2018). In 2013, Taco John’s International (TJI) hired a new Chief Development Officer and a Vice President of Operations at the behest of its recently hired President and CEO. The pair’s employment agreements required them to “devote all of [their] time, attention, knowledge, and skills solely to the business and interest of ...

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A federal court in the Eastern District of New York has granted a franchisor’s request for a preliminary injunction against a franchisee who continued to use the franchisor’s trademarks after moving to an unauthorized location. Mitsubishi Motors N. Am. Inc. v. Grand Automotive, Inc., 2018 WL 2012875 (E.D.N.Y. Apr. 30, 2018). The parties entered into a dealer sales and service agreement in which Mitsubishi granted Grand Automotive the right to use the Mitsubishi trademarks to sell new cars at an authorized location. The dispute arose when Grand failed to renew its lease and ...

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The U.S. District Court for the Middle District of Pennsylvania granted in part a motion filed by an independent distributor to stop the termination of its distribution agreements. Pella Products, Inc. v. Pella Corp., 2018 WL 2734820 (M.D. Pa. June 7, 2018). The distributor was a party to several agreements granting it the right to distribute Pella windows and doors to general contractors and businesses (i.e., the trade/commercial business), and to homeowners (i.e., the retail business). Based upon evidence of sexual misconduct by the distributor’s president, the ...

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Posted in Procedure

A federal court in California granted a supplier’s motion to dismiss a distributor’s lawsuit pursuant to the first-to-file rule. W. Pac. Signal, LLC v. Trafficware Grp., Inc., 2018 WL 3109809 (N.D. Cal. June 25, 2018). Trafficware, a supplier of traffic control devices, terminated its distributor agreement with WPS due to WPS’s failure to pay invoices, and filed suit in the Southern District of Texas. WPS responded and asserted counterclaims in Texas. WPS also filed a second lawsuit in California, asserting claims similar to the counterclaims. In response to the California ...

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Posted in Procedure

The United States Court of Appeals for the Fifth Circuit has held that a franchisee seeking relief for violations of the Texas Motor Vehicle Commission Code (the “Code”) had to exhaust all available administrative remedies before proceeding in state court. Autobahn Imports, L.P. v. Jaguar Land Rover N. Am., LLC, 2018 WL 3406933 (5th Cir. July 13, 2018). A dispute arose between franchisor Jaguar Land Rover North America and franchisee Autobahn Imports when Jaguar requested roughly $300,000 of chargebacks in incentive payments from Autobahn. Autobahn filed a complaint with the ...

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Posted in Contracts

The Supreme Court of Nebraska affirmed the decision of a state district court that a contract permitted a fuel retailer to rebrand several of its gas stations and sell competitor-branded fuel. Ray Anderson, Inc. v. Buck’s, Inc., 300 Neb. 434 (July 6, 2018). Ray Anderson, Inc., the operator of retail gas stations in Omaha, Nebraska, and Buck’s, Inc., a distributor and “jobber” of BPbranded fuel, entered into a fuel supply contract, through which Anderson sold BP-branded fuel at its stations. A rider entitled the Electronic Dealer Delivery Plan (EDDP) was incorporated into ...

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A federal court in New Jersey has granted a motion to dismiss a challenge to the “immediate” termination of a distribution agreement because the distributor failed to plead adequately that the agreement contemplated its maintenance of a New Jersey place of business, as required for the New Jersey Franchise Practices Act (NJFPA) to apply. Lawmen Supply Co. of N.J., Inc. v. Glock, Inc., 2018 WL 3201790 (D.N.J. June 29, 2018). The parties had entered into a distribution agreement for Lawmen Supply to distribute “Glock Only” pistols to the law enforcement market. Glock ...

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Posted in Antitrust

The Ninth Circuit affirmed dismissal of Hip Hop Beverage Corporation’s claim that its competitor, Monster Energy, unlawfully restricted competition through exclusive dealing agreements. Hip Hop Beverage Corp. v. Monster Energy Co., 2018 WL 2093508 (9th Cir. May 7, 2018). The suit stemmed from Hip Hop Beverage’s attempt to sell to the U.S. Defense Commissary Agency. In compliance with DECA’s vending requirements, Hip Hop Beverage hired a broker, Mid Valley Products, but Mid Valley terminated the contract “due to conflicts at the broker level with regards to competing ...

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Posted in Arbitration

The United States District Court for the Western District of North Carolina granted a motion to compel arbitration in a dispute arising out of a voluntarily terminated dealer agreement. High Country Dealerships, Inc. v. Polaris Sales, Inc., 2018 WL 3620494 (W.D.N.D. July 30, 2018). (Gray Plant Mooty represents defendantsupplier Polaris Sales in this case.) The agreement contained a broadly worded arbitration clause requiring the plaintiff (the terminated dealer) to submit all disputes with Polaris to binding arbitration in Minneapolis, Minnesota. Instead of pursuing ...

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The U.S. District Court for the Southern District of Texas granted in part and denied in part a defendant retailer’s motion for partial summary judgment on several Lanham Act and false advertising claims brought by its former manufacturers. Tempur-Pedic N. Am., LLC v. Mattress Firm, Inc., 2018 WL 3483082 (S.D. Tex. July 19, 2018). After nearly twenty years of working together, the plaintiffs (collectively, “Tempur-Sealy”) and Mattress Firm entered into a letter agreement in which the parties agreed to continue their relationship through a specified date. When Mattress ...

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An Arkansas state appellate court upheld a motion for default judgment against a wholesale distributor for failing to adhere to the Arkansas Farm Equipment Retailer Franchise Protection Act. R.W. Distributors, Inc. v. Texarkana Tractor Co., 2018 Ark. App. 345 (June 6, 2018). R.W. supplied riding lawnmowers that Texarkana Tractor sold in stores. Texarkana was unable to sell the tractors and demanded that R.W. take them back and repay Texarkana in accordance with the statute. After originally defaulting, R.W. unsuccessfully opposed the claim and then appealed.

The appellate ...

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U.S.-based franchisors and other American businesses were just getting used to compliance with the European Union’s General Data Protection Regulation (GDPR) when, on June 28, 2018, California Governor Jerry Brown signed into law the 2018 California Consumer Privacy Act (CCPA). In its current form, the CCPA applies to any business that collects personal information from California residents and (1) has annual gross revenues of $25 million or more; (2) buys, receives, sells, or shares the personal information of at least 50,000 California residents, households, or devices ...

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Posted in Antitrust

A federal district court in Illinois recently denied McDonald’s motion to dismiss a claim that the anti-raiding provision in its franchise agreement violated Section 1 of the Sherman Act. Deslandes v. McDonald’s USA, LLC, 2018 WL 3105955 (N.D. Ill. June 25, 2018). Until 2017, McDonald’s included a provision in its franchise agreement that prohibited franchisees from hiring workers who were at the time, or had been within the past six months, employed at another McDonald’s restaurant. McDonald’s also applied the policy to its own restaurants. The plaintiff was denied ...

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An Ohio federal court granted a franchisor’s motion to preliminarily enjoin a franchisee from operating a competing business or suggesting any affiliation with the franchisor in Handel’s Enterprises, Inc. v. Schulenburg, 2018 WL 3077756 (N.D. Ohio June 22, 2018). In 2015, Handel’s Enterprises, an ice cream shop franchisor, and Schulenburg entered into a franchise agreement granting Schulenburg a franchise in Encinitas, California, and the option to open a second location in San Diego. The agreement contained a covenant not to compete with Handel’s during the term of ...

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The United States District Court for the Western District of Washington held that a franchisee does not have a direct cause of action against a franchisor for violations of the Washington Franchise Investment Protection Act (FIPA), unless the claim is in connection with the offering or sale of a franchise. Money Mailer, LLC. v. Brewer, 2018 WL 3156901 (W.D. Wash. June 28, 2018). Brewer, a franchisee of Money Mailer, brought an action alleging that the franchisor was charging unreasonable fees in violation of FIPA and the Washington Consumer Protection Act (CPA). During discovery ...

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A South Carolina federal court has denied a franchisee’s motion to dismiss for improper venue, as well as the franchisee’s alternative motion to transfer venue, based on a forum selection clause in the parties’ franchise agreement. ARCpoint Fin. Grp., LLC v. Blue Eyed Bull Inv. Corp. (BEBIC), 2018 WL 2971205 (D.S.C. June 13, 2018). In denying franchisee BEBIC’s motion to dismiss for improper venue, the court held that franchisor ARCpoint had made a prima facie showing that venue was proper because a substantial part of the events giving rise to its claims occurred within the ...

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Posted in Attorneys' Fees

The U.S. District Court for the Western District of Texas has denied a franchisee’s motion for attorneys’ fees after the franchisor voluntarily dismissed its claims without prejudice. Stockade Cos., LLC v. Kelly Rest. Grp., LLC, 2018 WL 3018177 (W.D. Tex. June 15, 2018). Stockade entered into multiple franchise agreements with Kelly Restaurant Group (“KRG”) for KRG to develop various franchised Stockade restaurant concepts. When KRG continued to operate the restaurants following the termination of the franchise agreements, Stockade sued KRG for trademark ...

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Posted in Terminations

The U.S. District Court for the Eastern District of Pennsylvania has dismissed a constructive termination claim against a franchisor because the franchisee was still operating the franchise location. Takiedine v. 7-Eleven, Inc., 2018 WL 3141461 (E.D. Pa. June 27, 2018). The court held that when alleging constructive termination in violation of the duty of good faith and fair dealing, the franchise relationship must actually terminate. In this case, the franchisee alleged that the franchisor tried to force the franchisee out of the relationship through defamatory comments and ...

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Posted in Terminations

In another case from the Northern District of Illinois involving Sears Home Appliances Showrooms, the court dismissed counterclaims brought by a group of franchisees on the grounds that the claims were barred by a one-year contractual limitations provision in their franchise agreements. Sears Home Appliance Showrooms, LLC v. Charlotte Outlet Store, LLC, 2018 WL 3068459 (N.D. Ill. June 21, 2018). The franchisees made a cursory argument that the limitations provision in their agreements was unenforceable as a matter of law because it shortened the 10-year statutory limitations ...

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A federal court in Indiana has granted a franchisor’s motion to dismiss five of the six claims brought against it by a franchisee. Gre-Ter Enters. v. Mgmt. Recruiters Int'l, Inc., 2018 WL 3145572 (S.D. Ind. June 26, 2018). Gray Plant Mooty represents the franchisor in this case. In 1998 and again in 2005, the franchisee, Gre-Ter, entered into franchise agreements with Management Recruiters International (“MRI”), a franchisor of recruiting and contract-staffing businesses. In 2017, Gre-Ter brought suit against MRI, alleging violations of the Indiana Franchise Act and the ...

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On July 9, 2018, in a coordinated action, attorneys general of California, the District of Columbia, Illinois, Maryland, Massachusetts, Minnesota, New Jersey, New York, Oregon, Pennsylvania, and Rhode Island announced that they were seeking information about the antipoaching practices of eight QSR chains. Companies receiving requests for information include Arby’s, Burger King, Dunkin’ Donuts, Five Guys Burgers and Fries, Little Caesar, Panera, Popeyes Louisiana Kitchen, and Wendy’s. In her press release announcing the probe, Massachusetts Attorney General ...

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A federal court in New Mexico recently denied a request for a temporary restraining order made by franchisees of the Wyndham hotel chain that would have reinstated their terminated franchise agreement. Presidential Hospitality, LLC v. Wyndham Hotel Grp., LLC, 2018 WL 2604831 (D.N.M. June 2, 2018). After the franchisees repeatedly defaulted on their obligation to pay royalties, Wyndham terminated their franchise agreement and cut off their access to the Wyndham central reservation system. The franchisees then filed a motion for a temporary restraining order (TRO) to reinstate ...

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Posted in Terminations

A federal court in Illinois recently granted a franchisor’s motion for summary judgment, finding that it properly terminated the defendant’s six franchise agreements. Sears Home Appliances Showrooms, LLC v. Appliance Alliance, LLC, 2018 WL 3208514 (N.D. Ill. June 29, 2018). The franchisor, Sears Home Appliances Showrooms, terminated the agreements after the franchisee, Appliance Alliance, failed to meet several of its obligations, including paying rent and payroll on a timely basis, providing requested financial reports, and observing designated store hours. Sears ...

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On June 21, 2018, the U.S. Supreme Court eliminated the physical presence requirement for sales tax collection. In a 5-4 decision in South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018), the Court overruled its prior decision in Quill Corp. v. North Dakota, 504 U.S. 298 (1992), in which the Court had ruled that a state could require an out-of-state seller to collect sales tax on sales into the state only if that seller has a physical presence in the state. The Court was reviewing South Dakota’s economic nexus statute that imposes a sales tax obligation on out-of-state sellers with at ...

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Posted in Contracts

A Kansas appellate court concluded that a franchisor was entitled to enforce one clause of its franchise agreement despite its alleged breach of an unrelated clause in Hendrix v. Sheridan, 2018 WL 2272588 (Kan. Ct. App. May 18, 2018). Franchisee Ronald Hendrix and franchisor Sheridan’s Franchise Systems (SFS) were parties to a franchise agreement that granted Hendrix the right to operate a Sheridan’s Frozen Custard franchise. The franchise agreement allowed SFS to purchase the restaurant upon termination or expiration of the agreement. The dispute between the parties began ...

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A Florida appellate court recently affirmed the denial of Domino’s Pizza’s request for a directed verdict on its vicarious liability for the actions of its franchisee’s employee, but remanded the case for a new trial as a result of the opposing counsel’s improper closing argument. Domino’s Pizza, LLC v. Wiederhold, 2018 WL 2165224 (Fla. Dist. Ct. App. May 11, 2018). The plaintiff sued Domino’s on a vicarious liability theory after a franchisee’s delivery driver cut off the plaintiff’s husband in traffic, which resulted in a serious accident, and contributed to the ...

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The U.S. District Court for the Western District of Tennessee granted a motion for a preliminary injunction in favor of franchisor Amerispec, enforcing a one-year post-termination covenant against competition and rejecting the ex-franchisee’s argument that the covenant expired prior to the date on which he ceased operating his franchise. Amerispec, L.L.C. v. Omni Enters., Inc., 2018 WL 2248459 (W.D. Tenn. May 16, 2018). Gray Plant Mooty represented the franchisor in this case. When the parties’ franchise agreement expired in March of 2017, the franchisee failed to execute ...

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A federal court in Texas has denied a franchisor’s motion for a preliminary injunction, finding that the franchisor failed to show a likelihood of success on the merits. BL Rest. Franchises LLC v. 510 Park Inc., 2018 WL 2363606 (N.D. Tex. May 24, 2018). Restaurant franchisor Bar Louie filed suit against a group of franchisees and sought an injunction to require them to comply with the early termination procedures set forth in the parties’ franchise agreement before closing one of their restaurants.

As an initial matter, the court held that the motion was still ripe for review, even ...

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A district court in Missouri recently held that a forum selection clause did not survive the mutual termination of a franchise agreement. Serv. Team of Prof’ls, Inc. v. Folks, 2018 WL 2051516 (W.D. Mo. May 2, 2018). The parties had previously entered into a franchise agreement with a forum selection clause dictating that all actions be brought in Kansas City, Missouri. Following a dispute between the parties, they agreed to terminate the franchise agreement and enter into a settlement agreement. The settlement agreement provided that except for certain post-termination ...

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Posted in Terminations

In the case of Holiday Hospitality Franchising LLC v. CPTS Hotel Lessee LLC, No. 653096/2016 (N.Y. Sup. Ct. May 7, 2018), the Supreme Court of New York granted Holiday Hospitality’s motion to dismiss CPTS’s claim that the license agreement between the parties was a personal services contract and, therefore, could be terminated without cause. CPTS had attempted to terminate the license agreement due to Holiday’s alleged failure to properly invest in the growth and promotion of the Crowne Plaza brand. CPTS alleged, among other things, that Holiday breached the license ...

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The U.S. District Court for the Eastern District of Michigan recently denied a franchisor’s motion to enjoin a franchisee from proceeding with its counterclaim in a related matter pending in Texas state court. Live Cryo, LLC v. CryoUSA Import & Sales, LLC, 2018 WL 2355662 (E.D. Mich. May 24, 2018). The Texas action was initiated by defendant-franchisor CryoUSA. A few days later, plaintiff-franchisee Live Cryo filed the related federal suit in the Eastern District of Michigan. After the Michigan court granted in part and denied in part a motion to dismiss filed by CryoUSA, CryoUSA ...

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Posted in Damages

A federal court in New Jersey found that 7-Eleven could seek damages following the court’s grant of a declaratory judgment determining that 7-Eleven had properly terminated the parties’ franchise agreements. 7-Eleven, Inc. v. Sodhi, 2018 WL 2289876 (D.N.J. May 18, 2018). Sodhi appealed the district court’s order granting the declaratory judgment, but his motion to stay execution of the judgment was denied. 7-Eleven then filed an emergency motion for supplemental relief pursuant to 28 U.S.C. § 2202, alleging that Sodhi had stolen some $180,000 in proceeds before ...

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Posted in RICO

The U.S. District Court for the Northern District of Georgia has dismissed claims that a franchisor and its franchisees violated the Racketeer Influenced and Corrupt Organizations Act (RICO) through an alleged companywide policy of buying sick puppies, certifying their health for sale, and then covering up the source of their illness after they grew sick. Cisneros v. Petland, Inc., Bus. Franchise Guide (CCH) ¶ 16,177 (N.D. Ga. Apr. 17, 2018). The plaintiff bought a Shih Tzu puppy from a Petland franchisee that was certified as healthy but died of parvovirus soon after she brought him ...

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Posted in International

A Superior Court of Justice in Canada last week awarded a franchisor over $1.7 million in costs against the sole shareholder and guarantor of a franchisee that had been the named plaintiff in an unsuccessful class action against the franchisor. Pet Valu Canada Inc. v. Rodger, 2018 O.N.S.C. 3353 (Ontario Super. Ct. May 29, 2018). The class action had been commenced in 2009, seeking some $100 million, but was dismissed on summary judgment, with the franchisor receiving cost awards totaling $1,736,675 against the named plaintiff franchisee, a corporation. When the corporation failed ...

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Posted in Arbitration

In a landmark non-franchise decision, the United States Supreme Court held, 5-4, that employers can require employees to individually arbitrate employment law claims without violating federal labor laws. Epic Sys. Corp. v. Lewis, 2018 WL 2292444 (U.S. May 21, 2018). Employees of Epic Systems Corporation entered into an arbitration agreement that required them to resolve employment disputes through individual arbitration and waive their right to participate in class actions. A former Epic employee brought an action in federal court against the company, on behalf of himself and ...

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Posted in Employment

A series of unusual developments has brought the NLRB’s joint-employer standard back in front of the D.C. Circuit, where the federal court will finally weigh in on the 2015 decision in Browning-Ferris Industries, 362 NLRB No. 186 (2015). For many years prior to 2015, when determining when two or more entities would be considered a “jointemployer” under the National Labor Relations Act, the NLRB looked at whether an entity possessed and exercised direct control over employees’ terms and conditions of employment. In Browning-Ferris, however, the board announced that even ...

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Posted in Arbitration

The federal court in Connecticut denied a former Subway franchisee’s motion to vacate an arbitration award, finding that the franchisee failed to show that the arbitrator was guilty of misconduct in refusing to continue a hearing and reserving judgment on two of the franchisee’s motions. The court also declined to find that the arbitrator exceeded his powers by issuing an ex parte award to the franchisor, and confirmed the arbitrator’s award. Vyas v. Doctor’s Assocs., Inc., 2018 WL 1440179 (D. Conn. Mar. 21, 2018). Doctor’s Associates (DAI), the franchisor of Subway, had ...

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The United States District Court for the Southern District of New York recently partially granted and partially denied a franchisor’s motion for summary judgment against its former franchisee. Wyndham Hotel Grp. Int’l, Inc., v. Silver Entm’t LLC, 2018 WL 1585945 (S.D.N.Y. Mar. 28, 2018). Wyndham and its franchisee were parties to a franchise agreement for the operation of a hotel in Panama. After several years of operations, the hotel fell into financial difficulties and the franchisee became delinquent on contractually required fees, installments on a promissory note ...

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Posted in Terminations

The United States District Court for the Central District of California recently granted summary judgment in favor of H&R Block Tax Services (“Block”) in two consolidated cases in which franchisees had claimed that Block’s terminations of their franchises had breached their franchise agreements and violated the California Franchise Relations Act. Devore v. H&R Block Tax Servs. LLC, No. 16-cv-946 (C.D. Cal. Mar. 29, 2018). Gray Plant Mooty represents Block in both cases. Block terminated the agreements of the two related franchisees after discovering that they were ...

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A federal court in Michigan recently determined that Pennsylvania’s “gist of the action” doctrine, which is similar to the economic loss rule, did not bar franchisees’ fraud claims. Nutrimost Doctors, LLC v. Sterling, 2018 WL 1570624 (E.D. Mich. Mar. 30, 2018). Franchisor Nutrimost Doctors sued its three franchisee chiropractors claiming that they had purposely submitted contaminated samples of Nutrimost’s supplements to a laboratory in an attempt to void the franchise agreements. Nutrimost had the supplements tested by a different facility that detected no ...

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Posted in Terminations

A federal district court in Florida recently held that a franchisee’s refusal to install a new point-of-sale (POS) system was valid grounds for termination. Peterbrooke Franchising of Am., LLC v. Miami Chocolates, LLC, 2018 WL 1083552 (S.D. Fla. Feb. 28, 2018). Peterbrooke Franchising of America (PFA) terminated its agreement with former franchisee Miami Chocolates after it refused to install a new point-of-sale system, as required under the franchise agreement. When Miami Chocolates continued to operate in the same location, PFA sued to enforce the noncompete provision ...

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A federal court in Indiana recently granted a franchisee’s motion for summary judgment on the franchisor’s underreporting claim. Noble Roman’s, Inc. v. Hattenhauer Distrib. Co., 2018 WL 1566812 (S.D. Ind. Mar. 30, 2018). At issue in the case were two gas stations and convenience stores owned by Hattenhauer that contained Noble Roman’s pizza franchises. Each location was required to pay a royalty fee on its gross sales. Noble Roman’s alleged that Hattenhauer breached its franchise agreement by underreporting those sales by more than 20% and failing to pay the ...

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New rules from the Food and Drug Administration take effect on May 7, 2018, requiring certain businesses selling food to disclose calorie counts on their menus. The FDA’s menu labeling rules were previously scheduled to take effect in May 2017, but a strong lobbying effort from the restaurant industry led to a delay in implementation. The new rules apply to restaurants and similar businesses with 20 or more locations operating under a common name and offering substantially similar menu items. If enacted, a recent bill, the Common Sense Nutrition Disclosure Act, could loosen some of ...

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Posted in Arbitration

A federal court in Tennessee has confirmed an arbitrator’s award of damages and rescission against a franchisor, Medex, and in favor of a franchisee. Altruist, LLC v. Medex Patient Transp., LLC, 2018 WL 1704111 (M.D. Tenn. Apr. 9, 2018). The franchisee had asserted various claims, including breach of contract, misrepresentation, and breach of the covenant of good faith and fair dealing against Medex, arising out of a failure to disclose a bankruptcy in the FDD and unfulfilled promises of “back door” services including a call center, dispatch, and route management. In seeking ...

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A federal court in New York recently dismissed claims brought by a former U.S. distributor of ORI legwear—an Italian hosiery brand—against ORI’s subsequent U.S. distributor. LuxSoma LLC v. Leg Res., Inc., 2018 WL 583119 (S.D.N.Y. Jan. 25, 2018). LuxSoma purportedly entered into a nonexclusive distribution agreement with ORI for distribution of ORI products in the U.S. in June 2011. LuxSoma struggled to sell ORI’s products, so ORI entered into an exclusive U.S. distribution agreement with Leg Resource in July 2012. LuxSoma sued Leg Resource for, among others things ...

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Posted in Antitrust

The United States District Court for the District of Delaware recently held that a manufacturer’s use of exclusivity agreements with its distributors may support anticompetitive conduct for purposes of the Sherman and Clayton Acts. Roxul USA, Inc. v. Armstrong World Indus., Inc., 2018 WL 810143 (D. Del. Feb. 9, 2018). Armstrong World Industries is a dominant manufacturer in the ceiling tile market, controlling 55 percent of the market share. Roxul USA, one of only three companies that compete against Armstrong, brought suit alleging that Armstrong unlawfully maintained ...

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The District of Minnesota recently dismissed a plaintiff’s claims under two Minnesota dealer statutes arising out of terms imposed on the sale of the dealership. Bobcat of Duluth, Inc. v. Clark Equip. Co., 2018 WL 559531 (D. Minn. Jan. 25, 2018). Plaintiff Bobcat of Duluth had been a dealer of Bobcat equipment since 2000, and it also sold other lines of equipment including two Kubota products that compete with Bobcat’s equipment. In 2012, Bobcat implemented a new policy in its dealer agreements prohibiting the sale of products that compete with Bobcat’s lines, but this policy ...

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Following a bench trial, a federal court in Wisconsin last month awarded lost profits for the breach of an exclusive distributorship contract. Sanchelima Int’l, Inc. v. Walker Stainless Equip. Co., 2018 WL 1401195 (W.D. Wis. Mar. 19, 2018). Defendant Walker manufactures dairy silos, and plaintiff Sanchelima was Walker’s exclusive distributor of dairy silos in 13 Latin American countries, including Mexico. Sanchelima alleged that Walker breached its distribution agreement by making five direct sales (and attempting a sixth) to Mexico, and sued Walker for profits lost on ...

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The United States District Court for the Southern District of Florida granted a manufacturer’s motion to dismiss fraud claims brought by one of its dealers in Broward Motorsports of Palm Beach, LLC v. Polaris Sales, Inc., 2018 WL 1072211 (S.D. Fla. Feb. 27, 2018). The plaintiff, Broward Motorsports, was a dealer of various Polaris products, including Victory motorcycles. In late 2016, it entered its first dealer agreement with Polaris for six product lines, with a term ending June 30, 2017. After entering into the agreement, Broward Motorsports received a letter from Polaris ...

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The U.S. District Court in Bismarck, North Dakota entered a preliminary injunction that enjoined the State of North Dakota from enforcing amendments to the North Dakota Farm Equipment Dealership Statute, which were enacted in Senate Bill 2289 (SB 2289) on March 16, 2017. Association of Equipment Mfrs. v. Burgum, No. 1:17-cv-151 (D.N.D. Dec. 14, 2017). The plaintiffs included several farm equipment manufacturers and the Association of Equipment Manufacturers. The defendants were the North Dakota Governor, and the dealer association that had drafted the legislation. The ...

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Posted in Damages

A federal court in Ohio recently held that neither IHOP, nor its parent company, DineEquity, Inc., were obligated to indemnify a former employee of IHOP for the legal fees she had accrued during a criminal investigation. Tangas v. Int’l House of Pancakes, LLC, 2018 WL 776857 (N.D. Ohio Feb. 8, 2018). Tangas had been indicted by the FBI due to her alleged involvement with an IHOP franchisee who was charged with an array of criminal conduct, including underreporting sales, money laundering, conspiracy to harbor illegal aliens, and mail fraud. Tangas—who was a Franchise Bureau ...

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A federal court in Alabama recently granted a preliminary injunction ordering a former IHOP franchisee to deidentify and debrand its restaurants. IHOP Rests LLC v. Moeini, 2018 WL 762343 (S.D. Ala. Feb. 7, 2018). IHOP had terminated three franchise agreements with the franchisee, who had failed to operate the restaurants in compliance with IHOP’s standard procedures, polices, and regulations. Following the termination, Moeini continued operating the restaurants as IHOP franchised businesses, so IHOP sued and moved for a preliminary injunction seeking to enforce ...

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Posted in Employment

A federal district court in California has denied in part a plaintiff’s unusual motion for summary judgment on whether a franchisor and its franchisees were joint employers of the franchisees’ delivery drivers. Campanelli v. ImageFIRST Healthcare Laundry Specialists, Inc., 2018 WL 934545 (N.D. Cal. Feb. 16, 2018). ImageFIRST businesses provide industrial laundry service for companies in the healthcare industry. Campanelli brought a putative class action on behalf of ImageFIRST delivery drivers against the franchisor, 17 ImageFIRST franchisees, and another 10 ...

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Posted in Damages

A federal court denied a franchisee’s motion to dismiss its franchisor’s claim for lost future profits in Interim Healthcare Inc. v. Health Care@Home, LLC, 2018 WL 830113 (S.D. Fla. Feb. 12, 2018). The defendant franchisee had operated an Interim Healthcare staffing franchise in Arizona for almost two years before Interim issued a notice of default based on the franchisee’s failure to pay weekly service charges under the agreement. After the franchisee failed to cure its default, Interim terminated the agreement and brought suit for almost $400,000 in past due royalties ...

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In February, the Federal Trade Commission announced its revised regulatory review schedulefor 2018. This year,the FTC intends to begin its initial review of, and solicit public comments on, Disclosure Requirements and Prohibitions Concerning Franchising, 16 C.F.R.Part436, which is more commonly known as the FTC Franchise Rule. The current version of the FTC Franchise Rule became effective on July 1, 2007. This scheduled review aligns with the FTCs intention to review its regulations on a ten- year cycle to ensure that they remain up-to-date. Stay tuned for more information ...

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Posted in Arbitration

The arbitration clause in a franchise agreement is not superseded by an assignment and assumption agreement when the original franchisee transfers its business, the Georgia Court of Appeals has ruled in affirming a trial court’s order compelling arbitration. Samaca, LLC v. Cellairis Franchise, Inc., 2018 WL 1079806 (Ga. Ct. App. Feb. 28, 2018). Samaca, the successor franchisee, took possession of four existing units in 2014, pursuant to an assignment and assumption agreement to take on the franchise agreements, which contained arbitration requirements. The assignment and ...

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Posted in Damages

A franchisee filed a complaint alleging that the franchisor had committed several precontractual torts, including fraud in the inducement, in Sumanth v. Essential Brands, Inc., 2018 WL 558612 (D. Md. Jan. 25, 2018). After franchisor Essential Brands moved to dismiss, Sumanth voluntarily dismissed its complaint, and Essential Brands sought its attorneys’ fees and costs under an attorneys’ fees provision contained in the parties’ franchise agreement. The provision entitled Essential Brands to recover the attorneys’ fees and costs that it incurred in enforcing the ...

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Judges in the United States District Court for the Western District of Missouri recently issued orders in two separate cases enjoining two terminated franchisees from operating competing tax-service businesses within 25 miles of their former franchise territory for a period of two years. H&R Block Tax Serv., LLC v. Thomas, 2018 WL 910170 (W.D. Mo. Feb. 15, 2018); H&R Block Tax Serv. v. Frias, 2018 WL 934901 (W.D. Mo. Feb. 16, 2018). In both cases, the terminated franchisees were operating competing businesses in violation of their franchise agreements’ post-termination ...

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Posted in Employment

On February 26, 2018, the National Labor Relations Board issued an order that vacates its December 14, 2017, joint employer decision in Hy-Brand Industrial Contractors, Ltd. and Brandt Construction Co. As we reported in Issue 225 of The GPMemorandum, Hy-Brand had expressly overruled the expansive joint-employer standard set forth in the Obama-era Browning-Ferris Industries, 362 N.L.R.B. No. 186 (2015). In its recent order, the NLRB accepted its ethics official’s determination that NLRB Member William Emanuel is, and should have been, disqualified from participating in the ...

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Posted in Advertising

The United States District Court for the Northern District of Illinois granted franchisor KFC Corporation’s motion to dismiss, rejecting a franchisee’s claim that KFC had breached the parties’ franchise agreement by prohibiting him from telling customers that his KFC stores sold Halal chicken. Lokhandwala v. KFC Corp., 2018 WL 509959 (N.D. Ill. Jan. 23, 2018). Lokhandwala alleged that in 2002 KFC expressly permitted him to sell Halal chicken at his KFC stores. Relying on KFC’s alleged approval, the franchisee chose the locations for his five franchised businesses in ...

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Posted in Damages

The United States Court of Appeals for the Eleventh Circuit has affirmed a judgment, following a bench trial, against a franchisee who alleged that his inability to repay a promissory note was caused by the franchisor’s breach of the franchise agreement. DZ Bank AG Deutche Zentral-Genossenschaftsbank v. McCranie, 2018 WL 345045 (11th Cir. Jan. 10, 2018). McCranie, the former Brooke insurance agency franchisee, had originally financed the purchase of his franchise with a promissory note from the franchisor’s affiliate. The franchise agreement itself made the franchisor the ...

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Posted in Employment

A federal court in Georgia recently held that a franchisor and its licensee were not joint employers of a subfranchisee’s former employee. In Boon v. Clark Foods, Inc., 2017 WL 6622554 (M.D. Ga. Dec. 28, 2017), a server at an IHOP restaurant operated by Clark Foods sued IHOP (the franchisor), an IHOP master licensee named Sunshine Partners, and Clark Foods (an IHOP subfranchisee), claiming she was discriminated against on the basis of her age in violation of the Age Discrimination in Employment Act. IHOP and Sunshine Partners filed for summary judgment on the basis that they were not ...

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Relying substantially on admissions from the franchisee’s deposition, a federal court in Washington granted the defendant franchisor’s motion for summary judgment on the franchisee’s claims for misrepresentation. DiNardo v. Wow 1 Day Painting, LLC, 2018 WL 513584 (W.D. Wash. Jan. 23, 2018). Wow licenses a system for providing single-day interior and exterior painting services. DiNardo entered an agreement with Wow in May 2014 to open a franchise in Connecticut, but stopped operating it in late 2015. In May 2016, he brought suit against Wow in Connecticut state court ...

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We reported in The GPMemorandum, Issue No. 223, that the Virginia State Corporation Commission had issued an Order to Take Notice regarding the state’s franchise law. That Order stated that the Virginia Division of Securities and Retail Franchising had recommended certain revisions to Chapter 110 of Title 21 of the Virginia Administrative Code entitled “Retail Franchising Act Rules.” The proposed amendment would have provided an exemption from Virginia’s franchise registration law for franchisors that offer or sell a “single unit” franchise in which the ...

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Posted in Damages

In November 2017, the Seventh Circuit affirmed the confirmation of an approximately $9 million arbitration award for Hyatt against one of its former franchisees. In doing so, the Seventh Circuit instructed the parties to agree to the attorneys’ fees and costs owed to Hyatt under the attorneys’ fee provision in the parties’ franchise agreement. But the court also noted that it had the authority to award Hyatt fees and costs as a sanction for the franchisee’s refusal to comply with the arbitrator’s decision. After the franchisee did not agree to pay Hyatt’s attorneys’ ...

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Posted in Arbitration

A federal district court in Maryland recently enforced an arbitration provision in a rescinded franchise agreement. Burrell v. 911 Restoration Franchise Inc., 2017 WL 5517383 (D. Md. Nov. 17, 2017). The franchisor, 911 Restoration, previously offered to rescind its franchise agreement with franchisee Burrell because 911 Restoration was not authorized to sell franchises in Maryland at the time the franchise agreement was executed. Although Burrell accepted the rescission offer, it subsequently brought an action against 911 Restoration alleging damages of more than ...

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Posted in Transfers

A federal district court granted the motion of franchisor H&R Block Tax Services LLC (“Block”) for summary judgment, finding that the plaintiff had no right to become an H&R BLOCK franchisee under either contract or detrimental reliance theories. CG & JS Enters., LLC v. H&R Block, Inc., 2017 WL 5483763 (E.D. La. Nov. 15, 2017). CG & JS Enterprises, LLC is owned by Christopher Gibbens and Johnny Shaw, two former employees of Block. Gibbens left Block in January 2013 under amicable circumstances. In April 2013, an existing H&R BLOCK franchisee expressed interest in transferring his ...

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A series of agreements between a franchisee operating in Buffalo, New York, and Dollar Rent-a-Car and Hertz included a floating forum selection clause. The clause provided that the franchisee consented to jurisdiction in the district court where the principal place of business of the franchisor is located. When the relationship between the parties soured, Dollar Rent-a-Car and Hertz filed an action in Florida against franchisee Westover Car Rental for breach of the license agreements and associated personal guarantees. Dollar Rent a Car, Inc. v. Westover Car Rental, LLC, 2017 WL ...

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Posted in Transfers

A federal court in Florida granted in part and denied in part a motion to dismiss a lawsuit brought by plaintiffs seeking to sell their Tim Hortons franchises to a third party. Picktown Foods, LLC v. Tim Hortons USA, Inc., 2017 U.S. Dist. LEXIS 186107 (S.D. Fla. Nov. 8, 2017). The plaintiffs, who are five different Tim Hortons franchisees, had entered into a purchase agreement with a third party to sell each restaurant for $880,000, but Tim Hortons did not consent to the sale, which was required under the franchise agreements before a sale could close. Tim Hortons indicated that it would ...

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Posted in Noncompetes

The United States Court of Appeals for the Fourth Circuit recently affirmed an arbitration award entered in favor of Wild Bird Centers of America, Inc. enforcing a covenant not to compete against a former franchisee. Frye v. Wild Bird Centers of Am., Inc., Case No. 17-1346 (4th Cir. Nov. 27, 2017). Gray Plant Mooty represented Wild Bird Centers in this case. Upon expiration of the parties’ franchise agreement, the franchisee, Frye, continued to operate the franchise without renewing the agreement. Wild Bird Centers filed an arbitration action for violation of the agreement’s ...

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Posted in Damages

An Illinois state appellate court upheld the waiver of consequential damages contained in a franchise agreement, and on that basis denied the franchisee’s appeal of a trial court’s grant of summary judgment in favor of the franchisor. United Investment Grp. v. Beggars Pizza Corp., 2017 IL App (1st) 162275-U (Ill. App. Ct. Nov. 22, 2017). Franchisee United Investment Group filed suit against franchisor Beggars Pizza Franchise Corporation claiming territorial infringement by the franchisor’s affiliates, in alleged violation of the parties’ franchise agreement. In ...

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Posted in Renewals

A federal court in Maryland denied both parties’ cross motions for summary judgment on the issue of whether the renewal of a franchise agreement must retain unaltered the initial agreement’s renewal term, thus permitting indefinite renewals. Jos. A. Bank Clothiers, Inc. v. J.A.B.-Columbia, Inc., 2017 WL 6406805 (D. Md. Dec. 15, 2017). Bank, a clothing store with more than 500 locations, had fourteen franchises. After Bank was acquired by Men’s Wearhouse in 2014, it decided to abandon its franchising efforts. Accordingly, it sought to remove or explicitly limit the ...

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Posted in Employment

As we brought to your attention last month in a special Franchise Law Alert, the National Labor Relations Board decided in Hy-Brand Industrial Contractors, Ltd., 365 NLRB No. 156 (Dec. 14, 2017), to overrule expressly the controversial joint employer standard espoused two years ago in Browning-Ferris Industries, 362 NLRB No. 186 (2015). Under the ruling in Browning-Ferris, two entities could be found to be joint employers based on the mere right to control the terms and conditions of employment, regardless of whether that right was actually exercised. The Hy-Brand Board held that ...

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Posted in Terminations

The United States District Court in the Northern District of Ohio recently ruled in favor of Buffalo Wild Wings (“BWW”) and against its former licensee, BW-3 of Akron, on cross motions for summary judgment. Buffalo Wild Wings, Inc. v. BW-3 of Akron, Inc., 2017 WL 5467156 (N.D. Ohio Nov. 14, 2017). The case began when BWW sent BW-3 – the only licensee in its system – a notice of termination after BW-3 did not cure its failure to comply with the remodel requirements imposed by the parties’ licensing agreement. However, the notice stated that the termination would be held in ...

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Posted in Employment

In another joint-employer case, a federal court in Pennsylvania denied a franchisor’s motion to dismiss claims for sexual harassment, gender discrimination, and retaliation brought against it on a joint employer theory by a technician who worked at a franchised automotive repair facility. Harris v. Midas, 2017 WL 5177668 (W.D. Pa. Nov. 8, 2017). The court identified three factors necessary for a finding of joint employment: (1) the alleged employer’s authority to hire and fire employees, promulgate work rules, and set other conditions of employment; (2) the alleged ...

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Franchisors (and franchisees) that control and/or process the data of individuals within the European Union should be aware of the General Data Protection Regulation (“GDPR”) and take affirmative steps to prepare for its imminent roll-out. The GDPR requires businesses to, among other things, implement strict measures to protect the personal data and privacy of EU residents. Failure to comply with the GDPR may result in significant fines and open noncompliant companies to class action lawsuits. Billed as a landmark global standard for data protection and privacy, the GDPR ...

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The Supreme Court of Missouri recently reversed an award of lost profits as damages for an improper notice of termination of a distributorship under the Missouri Franchise Act. Sun Aviation, Inc. v. L-3 Commc’ns Avionics, 2017 WL 4930870 (Mo. Oct. 31, 2017). Sun Aviation, a former distributor of L-3’s aircraft instrument products, sued L-3 on the grounds that L-3 had failed to provide 90 days’ written notice of termination as required by the Missouri Franchise Act when it terminated Sun’s distributorship. The trial court found L-3 liable and awarded Sun eighteen years of ...

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The United States District Court for the Southern District of Texas has granted supplier Thermo King Corporation’s motion for summary judgment, finding that Thermo King did not violate Texas’ Fair Practices of Equipment Manufacturers, Distributors, Wholesalers, and Dealers Act by denying a dealer’s request to transfer its dealership to Doggett Company, LLC. Doggett Co., LLC v. Thermo King Corp., 2017 WL 3267796 (S.D. Tex. Aug. 1, 2017). Thermo King’s basis for denying the transfer was that Doggett was affiliated with another trucking company. Doggett alleged that this ...

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Posted in Terminations

Meanwhile, a federal court in Nevada granted summary judgment in favor of a franchisor on franchisees’ claims for, among others, wrongful termination in violation of the Petroleum Marketing Practices Act (“PMPA”), breach of contract, and breach of the implied covenant of good faith and fair dealing. Nev. W. Petroleum, LLC v. BP W. Coast Prods., LLC, 2017 WL 4172269 (D. Nev. Sept. 20, 2017). The franchisees’ claims arose when BP allegedly took various actions to force them out of their businesses, which they claimed amounted to a constructive termination of their franchise ...

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A federal district court in South Dakota recently held that a truck trailer manufacturer violated the South Dakota motor vehicle dealer law by terminating and failing to renew its dealer without providing the requisite notice and opportunity to cure. Black Hills Truck & Trailer, Inc. v. MAC Trailer Mfg., Inc., 2017 WL 4236546 (D.S.D. Sept. 22, 2017). Black Hills claimed it was wrongfully terminated when, less than a year after entering into a written distributor agreement, MAC sought to amend the agreement and refused to accept any orders until Black Hills signed an amended dealer ...

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Posted in Antitrust

A price discrimination suit against the maker of 5-hour Energy is heading to trial after a federal court in California denied cross-motions for summary judgment. In ABC Distributing, Inc. v. Living Essentials, LLC, 2017 WL 3838443 (N.D. Cal. Sept. 1, 2017), several Los Angeles area wholesalers brought suit against Living Essentials for allegedly offering 5-hour Energy drinks to Costco at lower prices than it did to the plaintiffs, in violation of the Robinson-Patman Act and California's unfair competition laws. Because a price discrimination claim requires competitive injury ...

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Posted in Terminations

A magistrate judge for the United States District Court for the Southern District of Texas recently denied a distributor’s motion for summary judgment on a counterclaim arising from the distributor’s alleged competitive activities. PPD Enters., LLC v. Stryker Corp., 2017 WL 4950065 (S.D. Tex. Nov. 1, 2017). The defendants, MAKO/Stryker, make orthopedic implants. They entered into an exclusive sales representative agreement with the plaintiff, PPD, for the sale and distribution of those implants. But a little more than a year after the agreement commenced, MAKO/Stryker ...

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Posted in Damages

The United States Court of Appeals for the Third Circuit has affirmed a district court’s grant of summary judgment in favor of Terex, a manufacturer of heavy equipment and parts. TL of Fla., Inc. v. Terex Corp, 2017 WL 3722718 (3d Cir. Aug. 29, 2017). TL, a nonexclusive distributor of Terex parts, alleged that Terex fraudulently induced it into entering into the parties’ distribution agreement by failing to disclose, among other things, that TL’s territory in Florida was surrounded by other authorized sellers of Terex parts called “CPEX Accounts.” TL claimed that these ...

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A Wisconsin federal court declined to reach a distributor’s claims that it had entered into an accidental franchisor-franchisee relationship with a manufacturer, instead dismissing the case by applying the limitations period dictated by the parties’ contract. Faxon Sales, Inc. v. U-Line Corp., 2017 WL 4990617 (E.D. Wis. Oct. 31, 2017). The case arose when manufacturer U-Line unilaterally terminated its contract with distributor Faxon, ending a twenty-five-year relationship. The contract disavowed the formation of a franchise, permitted termination without cause ...

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The United States District Court for the Central District of California dismissed a putative class action complaint against franchisor Jackson Hewitt Tax Service on the grounds that the plaintiff had not sufficiently pled claims for fraud and vicarious liability against Jackson Hewitt for fraudulent conduct that was done by a rogue employee of the franchisee. Lomeli vs. Jackson Hewitt, Inc., 2017 WL 4773099 (C.D. Cal. Oct. 19, 2017). The aggrieved customer of the franchisee alleged, in part, that the franchisee submitted returns to the IRS without the customer’s permission ...

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Posted in Noncompetes

A federal court in Michigan recently applied the “rule of reason” doctrine in enforcing a covenant not to compete contained in a Little Caesar franchise agreement. Little Caesar Enters., Inc. v. Creative Rests., Inc., 2017 WL 4778721 (E.D. Mich. Oct. 23, 2017). The noncompete provision restricted the former franchisee from engaging in certain competitive conduct for a one-year period within any “Designated Market Area“ and for a two-year period within the Designated Market Area where the franchise at issue was located. The former franchisee moved for partial summary ...

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The United States District Court for the Northern District of Texas granted summary judgment to franchisor Jani-King Franchising, Inc. in a contract dispute it had with its regional franchisee in Great Britain, Jani-King GB Ltd. (“JKGB”), and JKGB’s majority shareholder and director, Ian Thomas (“Thomas”). Jani-King Franchising, Inc. v. Jani-King (GB) Ltd., 2017 WL 4758673 (N.D. Tex. Oct. 20, 2017). When the parties executed a franchise agreement to extend their existing relationship, Thomas signed a personal guaranty (governed by English law) promising to pay ...

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The United States District Court for the District of Colorado dismissed a trademark infringement action for lack of personal jurisdiction, finding that discussions between a franchisor and an out-of-state potential franchisee were not sufficient to confer personal jurisdiction over the potential franchisee. Rocky Mountain Chocolate Factory v. Arellano, 2017 WL 4697503 (D. Colo. Oct. 19, 2017). The dispute began when the Coloradobased franchisor, Rocky Mountain Chocolate Factory (“RMCF”), and Timothy Arellano pursued negotiations to transfer an existing RMCF ...

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Franchisor World of Beer Franchising, Inc. (“WOB”) recently lost an appeal of the district court’s denial of its motion for a preliminary injunction. World of Beer Franchising, Inc. v. MWB Development I, LLC, 2017 WL 4618565 (11th Cir. Oct. 16, 2017). WOB and three franchisee entities owned and operated by Evan Matz were parties to three franchise agreements to operate World of Beer restaurants. After mutual termination of the agreements, Matz began operating competing businesses. WOB sought to enjoin Matz from using its marks, confidential information, and trade dress and ...

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Posted in Employment

The Oregon Court of Appeals recently affirmed rulings by the Oregon Employment Department and an administrative law judge that National Maintenance Contractors (“NMC”), a maintenance services franchisor, owed $138,029.69 in unemployment insurance taxes because its franchisees were not independent contractors but its employees. Nat’l Maintenance Contractors, LLC v. Employment Dep’t, 2017 WL 4675106 (Or. Ct. App. Oct. 18, 2017). NMC had argued that it was exempt from unemployment insurance taxes because, as its franchise agreements stated, its franchisees were ...

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On October 13, 2017, the SBA announced a revision to its requirements for franchisors to qualify their franchisees for SBA financing programs. As of January 1, 2018 any franchise listed on the SBA Franchise Directory will be deemed to meet SBA’s “affiliation,” “business eligibility,” and “franchise” definitional requirements. The Directory may be found at www.sba.gov/partners/lenders. SBA does not charge for a Directory listing. The Directory is simple, laid out in seven columns, providing the following information, about which SBA writes either “Yes” or ...

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The Virginia State Corporation Commission issued an Order to Take Notice on October 11, 2017, stating that the Virginia Division of Securities and Retail Franchising has recommended certain revisions to Chapter 110 of Title 21 of the Virginia Administrative Code entitled “Retail Franchising Act Rules.” The proposed amendment provides an exemption from Virginia’s franchise registration law for franchisors that offer or sell a single unit franchise in which the actual minimum initial investment exceeds $5 million. The proposed exemption does not exempt franchisors from ...

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Posted in Terminations

A franchisee’s failure to pay royalties and other fees constitutes a material breach of contract justifying termination—even if the franchisee had expressed a willingness to pay—according to a Florida federal district court. Tim Hortons USA, Inc. v. Singh, 2017 WL 4837552 (S.D. Fla. Oct. 25, 2017). Following a bench trial, the court upheld Tim Hortons’ decision to terminate Singh for failure to pay monies owed and ordered Singh to pay all past-due amounts. The court did deny Tim Hortons its lost future royalties because the testimony of its senior finance manager regarding ...

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A federal court in Texas has denied a franchisor’s motion to enjoin a former franchisee from using confidential information, misappropriating trade secrets, and infringing on trade dress in the post-termination operation of competing buffet restaurants. Stockade Cos., LLC, v. Kelly Rest. Grp., LLC, 2017 WL 4640443 (W.D. Tex. Oct. 16, 2017). Earlier in the case, the court had entered an order requiring the franchisee to de-identify its formerly franchised buffet restaurants. Subsequently, the franchisee rebranded and began operating the restaurants as a competing ...

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Posted in Contracts

Baskin-Robbins charges its designated supplier a fee for the right to manufacture and sell Baskin’s proprietary ice cream products to Baskin’s franchisees. The supplier includes an amount equal to the fee in the price that it charges Baskin’s franchisees for those products. In Association of Independent BR Franchise Owners v. Baskin-Robbins Franchising, LLC, 2017 WL 4314607 (D. Mass. Sept. 27, 2017), an association of Baskin-Robbins franchisees sought a declaration that the price component paid by its members that was attributable to the fee paid by the supplier to Baskin ...

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Posted in Choice of Law

An Arizona federal court declined to enforce choice of law and forum selection provisions in a suit brought by four Ohio franchisees of Zounds Hearing Franchising for violations of Ohio’s Business Opportunity Purchasers Protection Act. Zounds Hearing Franchising, LLC v. Bower, 2017 WL 4399487 (D. Ariz. Sept. 19, 2017). The suit was initially filed in Ohio state court, and Arizona-based Zounds removed the case to federal court and moved to transfer it to Arizona pursuant to the forum selection clause in each franchise agreement, which included identical Arizona choice of law and ...

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The United States District Court for the Northern District of Alabama has granted summary judgment in favor of franchisor Wintzell’s Franchise Company on vicarious liability claims lodged against it by Jose Ruiz, a customer of franchisee Wintzell’s Huntsville. Ruiz v. Wintzell’s Huntsville, LLC, 2017 WL 4305004 (N.D. Ala. Sept. 28, 2017). Ruiz developed a severe infection after eating raw oysters at Wintzell’s Oyster House, a restaurant owned and operated by Wintzell’s Huntsville under a franchise agreement with Wintzell’s Franchise. Ruiz claimed that ...

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Posted in Noncompetes

Meanwhile, a federal court in Ohio denied a franchisor’s motion for a preliminary injunction after finding that the franchisor did not show that it faced irreparable harm from a former franchisee who operated a competing business where the franchisor intended to open a new restaurant. D.P. Dough Franchising, LLC v. Southworth, 2017 WL 4315013 (S.D. Ohio Sept. 26, 2017). Franchisor D.P. Dough alleged a series of claims against Edward Southworth, a former franchisee, including breach of contract, misappropriation of trade secrets, copyright infringement, and trademark ...

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Posted in Antitrust

A franchisor of window replacement companies and its exclusive approved supplier of windows have successfully avoided claims that the windows sold to franchisees were sold at a discriminatory price under the Robinson-Patman Act and unlawfully tied to the franchisor’s services under the Sherman Act. Bendfeldt v. Window World, Inc., 2017 WL 4274191 (W.D.N.C. Sept. 26, 2017). The plaintiffs entered into a series of license agreements with Window World, Inc. (“WWI”) in the 2000s. Although the plaintiffs were at first required to purchase windows and related materials from a ...

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Posted in Noncompetes

In another case involving a post-term covenant against competition, the United States District Court for the District of Colorado declined to dismiss a franchisor’s complaint seeking to enforce a noncompete provision contained in the parties’ franchise agreement, despite the “strong public policy” against enforcement of such restrictions under Colorado law. Homewatch Int’l, Inc. v. Navin, 2017 WL 4163358 (D. Colo. Sept. 20, 2017). After expiration of the parties’ franchise agreement, the franchisee’s owner immediately commenced operating a competing ...

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Posted in Employment

The United States Court of Appeals for the First Circuit recently refused to allow a franchisee to pursue a claim that he was an employee of franchisor Jan-Pro on the grounds that the franchisee had already lost a similar case in a Georgia state court. Depianti v. Jan-Pro Franchising Int'l, Inc., 2017 WL 4324323 (1st Cir. Sept. 29, 2017). Depianti, a unit franchisee of a thirdparty who was a Jan-Pro master franchisee, brought suit in the federal court in Massachusetts, where his franchise was located, arguing that he was an employee of Jan-Pro. At the same time, Jan-Pro filed a case in ...

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Posted in Class Actions

A federal district court in California dismissed a class action suit initiated against Fitness Evolution Franchising LLC (“FEF”), the franchisor and successor to the Fitness 19 system, by members of the former Fitness 19 gyms in Abrantes v. Fitness 19 LLC, 2013 WL 4075576 (E.D. Cal. Sept. 14, 2017). The members’ accounts were transferred from franchised Fitness 19 gyms to various franchised Fitness Evolution gyms in 2015 and 2016. Automatic debits of monthly membership fees were subsequently made from the members’ bank accounts in accordance with the terms of the ...

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A federal court in Michigan recently dismissed fraud claims brought against a provider of cryotherapy chambers for failure to state a cause of action. Live Cryo, LLC v. CryoUSA Import & Sales, LLC, 2017 WL 4098853 (E.D. Mich. Sept. 15, 2017). Live Cryo alleged that it had been fraudulently induced to enter into the parties’ agreement, under which CryoUSA provided cryotherapy chambers to Live Cryo for use at its Michigan locations. Prior to signing the agreement, Live Cryo had received a booklet stating that some CryoUSA locations reached a 25-client-per-day mark fairly quickly ...

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Posted in Noncompetes

In another case litigated by Gray Plant Mooty, the Chief Judge for the United States District Court for the District of Nebraska granted a preliminary injunction prohibiting former The Maids franchisees and their two daughters from operating a competing residential cleaning business in violation of the noncompete and nonsolicitation provisions contained in the applicable franchise agreements. The Maids Int’l, Inc. v. Maids On Call, LLC, 2017 WL 4277146 (D. Neb. Sept. 25, 2017). The Maids International (“TMI”) terminated the franchise agreements because the ...

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Posted in Discrimination

In Andy Mohr Truck Center, Inc. v. Volvo Trucks North America, 2017 WL 3695355 (7th Cir. Aug. 28, 2017), the United States Court of Appeals for the Seventh Circuit reversed an Indiana district court’s denial of Volvo Trucks of North America’s motion for judgment as a matter law, finding that Volvo did not unfairly discriminate against its dealer, Mohr Truck Center, in violation of the Indiana Deceptive Franchise Practices Act (“IDFPA”) and overturning a jury’s finding of discrimination and a $6.5 million damages award. In support of its unfair discrimination claim, Mohr ...

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Posted in Arbitration

The federal court in Massachusetts has denied a franchisor’s motion to vacate an arbitration award and granted a franchisee’s motion to confirm the award on the grounds that the franchisor failed to show that the arbitrator was partial to the franchisee or that the arbitrator had exceeded her powers. System4, LLC v. Ribeiro, 2017 WL 3461292 (D. Mass. Aug. 11, 2017). In 2010, a state court putative class action was filed against franchisor System4 and master franchisee NECCS, Inc. on behalf of unit franchisee cleaning workers who claimed that System4 and NECCS had misclassified ...

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A federal district court in Wisconsin recently granted summary judgment in favor of the franchisor of Dairy Queen® restaurants against a counterclaim alleging that it had improperly interfered with negotiations between a franchisee and its subfranchisee, to which the franchisee was attempting to sell its territory rights. Am. Dairy Queen Corp. v. Universal Inv. Corp., 2017 WL 3701865 (W.D. Wis. Aug. 25, 2017). The subfranchisee, Universal Investment Corp., had operated a Dairy Queen unit in Wisconsin for more than 40 years. Universal’s franchise rights were originally ...

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Posted in Arbitration

In Money Mailer, LLC v. Brewer, 2017 WL 3017539 (W.D. Wash. July 17, 2017), the United States District Court for the Western District of Washington held that a franchisor had waived its right to compel arbitration under its franchise agreement. Money Mailer’s standard franchise agreement required franchisees to enter into a franchise agreement with the franchisor, Money Mailer Franchise Corporation (“MMFC”), and a separate contract for mailing services with a closely-related entity, Money Mailer, LLC (“MMLLC”). While franchisee Brewer entered into Money ...

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Posted in Employment

Another decision out of the United States District Court for the District of Maryland partially granted, and partially denied, a motion to dismiss filed by franchisor Ledo Pizza Systems in an action involving one of Ledo’s franchisees and the franchisee’s employees. Lora v. Ledo Pizza Sys., Inc., 2017 WL 3189406 (D. Md. July 27, 2017). Among the issues in dispute were claims filed by the employees of the franchised business against both Ledo and the franchisee pursuant to the Fair Labor Standards Act (“FLSA”) and the Age Discrimination in Employment Act of 1967 (“ADEA” ...

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In another form of vicarious liability case, a court in Idaho granted summary judgment in favor of a franchisor and its corporate parent, after an employee of a franchised Taco Bell restaurant was accused of giving automatic discounts to white military customers but not to military members of color. McKinnon v. Yum! Brands, Inc., 2017 WL 3659166 (D. Utah Aug. 24, 2017). The plaintiffs, members of the Army National Guard, alleged that they went to the franchised restaurant with a group of other military members that included four Caucasians. Only after the group members had purchased ...

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An appellate court in Illinois upheld a trial court’s dismissal of a suit for emotional distress against a franchisor and a franchisee by two of the franchisee’s customers who were filmed in a franchised Planet Fitness gym’s tanning room without their knowledge or consent. C.H. v. Pla-Fit Franchise, LLC, 2017 IL App. 3d 160378 (Ill. App. Ct. Aug. 23, 2017). The court rejected the plaintiffs’ arguments that the franchisor, Pla-Fit, was liable for the tortious acts of the franchisee’s employee based on the special relationship between Pla-Fit and its franchisee and ...

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In ServiceMaster of Fairfax, Inc. v. ServiceMaster Residential/Commercial Services, L.P., 2017 WL 3023342 (D. Md. July 17, 2017), a multi-unit franchisee brought suit against ServiceMaster in Maryland state court for, among other things, violations of Maryland's franchise disclosure laws. ServiceMaster removed the case to federal court in Maryland and moved to transfer the case to the United States District Court for the Western District of Tennessee pursuant to the forum selection clause contained in the parties’ franchise agreements. Gray Plant Mooty represented ...

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Posted in Employment

Meanwhile, a federal court in Pennsylvania dismissed an auto repair services franchisor from a sexual harassment and discrimination case brought by a franchisee’s former employee. In Harris v. Midas, 2017 WL 3440693 (W.D. Pa. Aug. 10, 2017), the plaintiff employee of a Midas Auto Service franchisee was allegedly repeatedly sexually, physically, and emotionally harassed, assaulted, and tortured by some of the franchisee’s other employees. In addition to suing the franchisee, the employee sued Midas, alleging joint employer, agency, and vicarious liability.

In moving to ...

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Posted in Arbitration

Meanwhile, a federal court in New Jersey granted a franchisor’s motion to compel arbitration finding, among other things, that a franchisee’s claims fell within the scope of the parties’ arbitration agreements (as contained in seven franchise agreements), and that any differences between the arbitration provisions could be reconciled. Mitnick v. Yogurtland Franchising, Inc., 2017 WL 3503324 (D.N.J. Aug. 16, 2017). The franchisee had argued that the arbitration provisions contained different language, were in conflict, and did not specify a uniform method of ...

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Posted in Class Actions

The United States Court of Appeals for the Seventh Circuit has reversed a district court’s decision to certify a class and approve a settlement related to Subway’s “Footlong” sandwiches. In re Subway Footlong Sandwich Mktg. & Sales Practices Litig., 2017 WL 3666635 (7th Cir. Aug. 25, 2017). In 2013, a teenager’s photo revealing his 11-inch Subway Footlong sandwich alongside a tape measure went viral. Plaintiffs’ lawyers across the nation sued Subway under state consumer protection laws, and the cases were consolidated. Initial discovery indicated that the majority ...

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The United States Court of Appeals for the Sixth Circuit has reversed a district court's grant of a preliminary injunction enjoining termination of a beer distributor who failed to obtain the brewer's consent before a change of the distributor's ownership. S. Glazer's Distribs. of Ohio, LLC v. Great Lakes Brewing Co., 860 F.3d 844 (6th Cir. June 26, 2017). The parties' agreement required the brewer's written consent prior to any change in ownership of the distributor. Yet, without obtaining consent, the distributor merged with another distributor and requested consent only after a ...

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Posted in Trademarks

The United States Court of Appeals for the Third Circuit affirmed on alternative grounds the Western District of Pennsylvania's finding that a manufacturer owned a trademark used to distribute its products, but the court vacated and remanded the case as to damages. Covertech Fabricating, Inc. v. TVM Building Prods., Inc., 855 F.3d 163 (3d Cir. Apr. 18, 2017). Covertech manufactures insulation products under the umbrella of its rFOIL brand, which includes the products CONCRETE BARRIER (a registered trademark) and ULTRA (an unregistered trademark). Covertech entered into two ...

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A federal court in South Dakota recently denied a motion to exclude a dealer's expert testimony in a dispute over lost profits resulting from the termination of a distributor agreement. Black Hills Truck & Trailer, Inc. v. Mac Trailer Mfg., Inc., 2014 WL 5782452 (D.S.D. July 10, 2017). MAC had entered into a written distributor agreement with Black Hills. Less than a year later, MAC sent Black Hills proposed modifications to the agreement and required Black Hills to accept the modifications. Black Hills filed a lawsuit in response, alleging that MAC's actions constituted a wrongful ...

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A federal court in Colorado dismissed a car dealer's claim of fraudulent concealment against its manufacturer in European Motorcars of Littleton, Inc. v. Mercedes-Benz USA, LLC, 2017 WL 2629133 (D. Colo. June 19, 2017). The controversy arose when Mercedes-Benz USA ("MBUSA") entered into an agreement to establish a new dealership several miles from plaintiff Mercedes-Benz of Littleton ("MBOL"). MBOL contended MBUSA had hid its intention to establish a new dealership nearby. The court dismissed the claim, holding that MBUSA had no duty to disclose its intention.

Applying ...

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A federal court in Nevada declined to dismiss a beer distributor's claim that a brewer had breached the implied duty of good faith and fair dealing in Crown Beverages, Inc. v. Sierra Nevada Brewing Co., 2017 WL 1508486 (D. Nev. Apr. 26, 2017). Plaintiff-distributor Crown sued brewer Sierra Nevada Brewing over a dispute arising out of the parties' distribution agreement that made Crown the exclusive importer and wholesaler of Sierra Nevada products in northern Nevada. Nevada statutes governing liquor suppliers and wholesalers require that a brewer notify a distributor 90 days ...

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Posted in Class Actions

A California federal court has denied class certification to two proposed classes of small wholesalers alleging that Living Essentials, LLC, the maker of 5-hour Energy, engaged in price discrimination. ABC Distrib., Inc. v. Living Essentials LLC, 2017 WL 2603311 (N.D. Cal. Apr. 7, 2017). The plaintiffs, who were three small wholesale distribution companies in California, alleged that Living Essentials sold 5-Hour Energy to wholesalers at different prices, discriminating against small wholesalers in violation of the Robinson-Patman Act and California law. The court found ...

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Posted in Damages

A South Dakota federal court granted in part and denied in part a franchisor’s motion for summary judgment arising out of nonpayment of fees in Days Inns Worldwide, Inc. v. Miller, 2017 WL 2829810 (D.S.D. June 29, 2017). After the franchisee failed to pay fees required by the parties’ franchise agreement, the franchisor terminated the agreement and filed suit for breach of contract. The franchise agreement contained a liquidated damages provision, but an addendum to the agreement replaced that provision with a provision making the franchisee responsible for “any and all ...

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Posted in Contracts

An appellate court in California recently reversed a grant of summary judgment to a franchisor, finding that the franchisor did not provide sufficient evidence to establish that a landlord was not assigned the rights to one of its restaurant franchises. Cha La Mirada, LLC, v. Red Robin Int’l, Inc., 2017 WL 2691576 (Cal. Ct. App. June 22, 2017). The dispute involved a franchise agreement between Red Robin and La Mirada Restaurant Group (“LMRG”) for the rights to operate a Red Robin restaurant in a hotel. Red Robin, LMRG, and the landlord for the property also signed a consent ...

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Posted in Class Actions

The United States District Court for the Northern District of California recently denied class certification to a group of plaintiffs alleging that they were misclassified as franchisees rather than employees. Soares v. Flowers Foods, Inc., 2017 WL 2793807 (N.D. Cal. June 28, 2017). The plaintiffs were all distributors who delivered, or hired their own subcontractors to deliver, baked goods for Flowers Foods and its network of subsidiaries. Flowers had classified the plaintiffs as franchisees rather than employees, as expressed in each plaintiff’s distributor agreement ...

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A federal district court in New York denied a franchisee’s motion for a preliminary injunction that would have prevented its franchisor from installing a new software system in its stores. JDS Grp Ltd. v. Metal Supermarkets Franchising Am., Inc., 2017 WL 2643667 (W.D.N.Y. June 20, 2017). The dispute arose when the franchisor, Metal Supermarkets Franchising America (“MSFA”), developed and began installing an upgraded software platform in its franchise system. The franchisee, JDS Group, brought suit against MSFA, arguing that the requirement to utilize the new software ...

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Posted in Arbitration

The Superior Court of New Jersey, Appellate Division, has upheld a lower court’s decision to enforce the arbitration provision in a franchise agreement between Angel Tips and its franchisee. Glamorous Inc. v. Angel Tips, Inc., 2017 WL 2705412 (N.J. Super. Ct. App. Div. June 23, 2017). In doing so, the appellate court noted that the parties’ franchise agreement called for arbitration of “all controversies disputes or claims between them,” with only a few exceptions, including any claims made by the franchisor against the franchisee for money owed. The court held that a ...

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The United States Court of Appeals for the Ninth Circuit has affirmed the dismissal of a franchisee’s complaint alleging that franchisor Charter Practices International (“CPI”) improperly refused to renew his franchise. Robinson v. Charter Practices Int’l, LLC, 2017 WL 2684122 (9th Cir. June 21, 2017). The franchisee had purchased a veterinary hospital from CPI and at the same time also owned and operated independent veterinary clinics that were not part of his CPI franchise. Initially, CPI had not enforced a noncompetition covenant contained in the parties’ ...

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The Texas Court of Appeals recently held, in part, that a settlement agreement between a franchisor and franchisee containing “best efforts” and “reasonable assurances” clauses did not create heightened duties of candor, loyalty, and good faith in their subsequent dealings. Whataburger, Inc. v. Whataburger of Alice, Ltd., 2017 WL 2664437 (Tex. App. June 21, 2017). The franchisor, Whataburger, and the franchisee, Whataburger of Alice (“WOA”), were parties to various franchise agreements. They later entered into a settlement agreement under which Whataburger ...

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Meanwhile, the Sixth Circuit recently affirmed the dismissal of a prospective franchisee’s consumer fraud claims against a franchisor, holding that the plaintiff failed to state a claim upon which relief could be granted. 859 Boutique Fitness, LLC v. CycleBar Franchising, LLC, 2017 WL 2731311 (6th Cir. June 26, 2017). The prospective franchisee, 859 Boutique Fitness, and the franchisor, CycleBar Franchising, participated in negotiations for a cycle-studio franchise. During a closing call, CycleBar executives indicated that the terms and conditions of the franchise ...

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Posted in Employment

A federal court in California recently granted the franchisor of the Jan-Pro franchise system summary judgment on wage-and-hour claims asserted by unit franchisees of its regional master franchisees, concluding that Jan-Pro did not employ the unit franchisees. Roman v. Jan-Pro Franchising Int'l, Inc., 2017 WL 2265447 (N.D. Cal. May 24, 2017). In assessing the unit franchisees’ joint employer claims, the court applied the test articulated by the Supreme Court of California in Martinez v. Combs, 231 P.3d 259 (Cal. 2010), which consists of three alternative bases to find an ...

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Posted in Employment

A federal district court in Alabama has granted a franchisor’s motion to dismiss for failure to state a claim, holding that the plaintiff failed to show that the franchisor was the plaintiff’s employer under the Fair Labor Standards Act (“FLSA”). Rodriguez v. America’s Favorite Chicken Co., 2017 WL 1684543 (N.D. Ala. May 3, 2017). Rodriguez was employed as a counter customer service employee at a Church’s Chicken franchise location in Alabama. She alleged three claims against the franchisor and the franchisee: (1) failure to pay overtime pay under the FLSA; (2) failure ...

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Posted in Trademarks

The Eighth Circuit Court of Appeals recently overturned an award of monetary damages for trademark infringement under the Lanham Act and violations of the Minnesota Deceptive Trade Practices Act. Martinizing Int’l, LLC v. BC Cleaners LLC, 855 F.3d 847 (8th Cir. Apr. 28, 2017). Martinizing International entered into two franchise agreements with KM Cleaners authorizing the use of Martinizing’s trademarks and system in KM Cleaners’ two dry cleaning stores. The agreements prohibited KM Cleaners from selling the franchise locations or assigning the franchise agreements ...

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Posted in Fiduciary Duty

A Kansas district court, applying Georgia law, recently denied a franchisor’s motion to dismiss a franchisee’s claim for breach of fiduciary duty. Lenexa Hotel, LP v. Holiday Hosp. Franchising, Inc., 2017 WL 2264358 (D. Kan. May 24, 2017). The franchisee, Lenexa, previously entered into a franchise licensing agreement with the franchisor, Holiday, to build and operate a Crowne Plaza hotel. In the agreement, Holiday represented that it would drive demand for the new hotel through its central reservation system and marketing resources. In its complaint, Lenexa alleged that ...

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Posted in Class Actions

The United States Court of Appeals for the Second Circuit affirmed the Southern District of New York’s dismissal of a putative class action against Dunkin’ Donuts and several of its New York franchisees for allegedly improperly charging sales tax on pre-packaged coffee. Estler v. Dunkin’ Brands, Inc., 2017 WL 2258614 (2d Cir. May 23, 2017). In New York, as in many other states, pre-packaged coffee is considered a grocery item and is not subject to the sales tax charged on ready-to-eat restaurant items.

Dunkin’ contended that its franchisees determined and charged sales tax ...

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Posted in Arbitration

A district court in Texas denied a franchisee’s motion to compel arbitration in Stockade Companies, LLC v. Kelly Restaurant Group, LLC, 2017 WL 1968328 (W.D. Tex. May 11, 2017). Although the parties’ franchise agreements contained an arbitration clause, the court held that the substance of the claims at issue had been expressly excluded from the arbitration clause. In part because the substance of the claims were excluded from arbitration, the court also held that the franchise agreements did not contain sufficient evidence that the parties had agreed to arbitrate the issue of ...

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A federal court in the Western District of Washington granted a personal injury plaintiff’s motion to amend, filed in response to the franchisor’s motion to dismiss. Johnson v. Marriott Int’l Inc., 2017 WL 1957071 (W.D. Wash. May 11, 2017). After sustaining an injury in a trip-and-fall incident at a franchised Marriott hotel in Bangkok, Thailand, the plaintiff, Johnson, sued Marriott. Johnson did not sue the Thai franchisee. Marriott moved to dismiss, arguing that it did not own the Thai hotel or have responsibility for the hotel’s operation or management. In response ...

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Posted in Terminations

A United States District Court in Miami, Florida rejected a franchisee’s bid to invalidate a notice of default sent by email for failure to comply with the franchise agreement’s notice provisions. Tim Hortons USA, Inc. v. Singh, 2017 WL1326285 (S.D. Fla. Apr. 4, 2017). Tim Hortons had sent a notice of default by both email and overnight mail. The notice gave the franchisee, Singh, five days to cure certain financial defaults. Tim Hortons terminated the franchise after Singh allegedly failed to cure its default within five days of receiving a copy of the emailed notice. Having ...

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Posted in Terminations

The United States District Court for the District of Arizona recently granted a hotel membership association’s motion to dismiss, holding that its termination of a hotel’s membership agreement did not constitute a breach of contract. Regency Midwest Ventures Ltd P’ship v. Best Western Int’l, Inc., 2017 WL 992357 (D. Ariz. Mar. 15, 2017). The membership association arrangement is akin to a franchisor-franchisee relationship. The membership association involved in this case, Best Western, initially determined that it had grounds to terminate the parties’ agreement ...

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Posted in Employment

The Second Circuit Court of Appeals recently affirmed a decision that franchised black-car drivers using a franchisor dispatching service were independent contractors, not employees, of the franchisor. In Saleem v. Corporate Transportation Group, 2017 WL 1337227 (2d Cir. Apr. 12, 2017), the plaintiffs-appellants were black-car drivers in the tri-state area who owned black-car franchises. The defendants-appellees were a group of related transportation companies known as Corporate Transportation Group (“CTG”) that owned “base licenses” that allowed them to ...

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Posted in Arbitration

A federal district court in Illinois granted a franchisor’s motion to confirm an arbitration award in Hyatt Franchising, LLC v. Shen Zhen New World I, LLC, 2017 WL 1397553 (N.D. Ill. Apr. 19, 2017). The hotel franchisor had been awarded over $10 million in damages and fees in an arbitration to enforce the termination of a California franchisee’s franchise agreement for repeated failure to meet its payment obligations and for failure to timely complete required renovations. The franchisee moved to vacate the arbitrator’s award on three grounds: (1) the arbitrator engaged in ...

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Posted in Terminations

A federal court in Illinois has granted summary judgment in favor of a franchisor on both its claims and the franchisee’s counterclaims in Fantastic Sams Franchise Corp. v. PSTEVO, LLC, 2017 WL 1075195 (N.D. Ill. Mar. 22, 2017). Fantastic Sams brought suit after the franchisee, PSTEVO, stopped paying weekly licensing fees and national advertising fees and then abandoned its franchised salons altogether. Initially, PSTEVO actively defended the litigation, asserting counterclaims which alleged that Fantastic Sams should have let PSTEVO spend its national advertising fees on ...

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Posted in Arbitration

The Texas Court of Appeals recently confirmed an arbitration award in favor of a franchisee, Adams, and against franchisor Prescription Health Network, LLC (“PHN”). Prescription Health Network, LLC v. Adams, 2017 WL 1416875 (Tex. App. Apr. 20, 2017). PHN had raised four principal arguments on appeal: (1) that the award should be vacated because the arbitration panel “exceeded their powers”; (2) that the award should be vacated because the arbitration panel acted with “manifest disregard”; (3) that alternatively, the award should be modified because the ...

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Meanwhile, the United States District Court for the Southern District of New York held that a license agreement between Safe Step Walk In Tub and CKH Industries created an accidental franchise, and therefore partially denied Safe Step's motion to dismiss CKH's claims. Safe Step Walk In Tub Co. v. CKH Indus., Inc., 2017 WL 1050126 (S.D.N.Y. Mar. 17, 2017). Under both the FTC's "Franchise Rule" and applicable state laws, the court found that the following three indicia of a franchise were readily met: (1) the franchisee obtained the right to operate a business or sell or offer goods or ...

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A federal court in California has allowed various claims by a distributor against its supplier to go to trial, including a California Unfair Competition Law ("UCL") claim alleging the supplier should have provided a Franchise Disclosure Document. G.P.P., Inc. v. Guardian Protection Prods., Inc., 2017 WL 220305 (E.D. Cal. Jan. 18, 2017). The Pennsylvania-based plaintiff was the exclusive distributor of defendant Guardian's products in several different territories, which did not include California. But the distributor had originally entered into distribution agreements ...

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Posted in Antitrust

The Ninth Circuit Court of Appeals has reversed a district court's standing-based dismissal of a class-action complaint against Apple Inc. In re Apple iPhone Antitrust Litig., 846 F.3d 313 (9th Cir. Jan. 12, 2017). The plaintiffs alleged that Apple violated federal antitrust law by requiring iPhone "apps" to be sold only through Apple's "App Store," prohibiting third-party app developers from selling the software outside of Apple, and charging app developers 30 percent of their App Store sales. The district court had held that the plaintiffs lacked standing because of the ...

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Posted in Arbitration

A Michigan federal court recently found that it lacked the authority to determine the arbitrability of a dispute between an American manufacturer and a foreign dealer in Arabian Motors Group, W.L.L. v. Ford Motor Co., 2017 WL 218081 (E.D. Mich. Jan 19, 2017). A Kuwaiti dealer alleged that it could not be compelled to arbitrate its dispute with an American manufacturer as required by the parties' resale agreement. The dealer claimed that the agreement's delegation clause was unenforceable under the federal Motor Vehicle Franchise Contract Arbitration Fairness Act. The court found ...

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Posted in Antitrust

In Suture Express, Inc. v. Owens Sr Minor Distribution, 2017 WL 971782 (10th Cir. Mar. 14, 2017), a distributor of sutures and endomechanical (together known as "suture-endo") supplies sued two competitors in the medical and surgical supply market, alleging that their bundling packages constituted illegal tying arrangements in violation of state and federal antitrust laws. Unlike the defendants, who distributed a large selection of medical supplies from a network of regional distribution centers, Suture Express's narrow focus on two types of easy-to-ship medical supplies ...

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Posted in Contracts

A Wisconsin federal court recently denied a distributor's motion to dismiss a breach of contract action brought by one of its dealers. Traffic and Parking Control Co. v. Global Traffic Techs., LLC, 2017 WL 1067774 (E.D. Wis. Mar. 21, 2017). TAPCO claimed, among other things, that GTT breached the dealership agreement between the parties by sending its termination notice in the form of an email. While the notice clause of the agreement did not explicitly identify email as a permissible form of written notice, both parties' email addresses were listed in the contact information section ...

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Posted in Arbitration

Meanwhile, the same court held that a franchise agreement delegated to the court the power to determine arbitrability. Han v. Synergy Homecare Franchising, LLC, 2017 WL 446881 (N.D. Cal. Feb. 2, 2017). The issue arose when Synergy moved to dismiss the complaint of its franchisee, Han, and to compel arbitration pursuant to an arbitration clause in the franchise agreement. In furtherance of its motion, Synergy argued that an arbitrator must decide the threshold question of whether the claims asserted by Han were subject to arbitration. Han argued that the question of arbitrability ...

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Posted in Arbitration

The United States District Court for the Northern District of California denied a former franchisee’s motion for vacatur of an arbitration award and affirmed the arbitration award in favor of franchisor Jiffy Lube International, Inc. on the grounds that the franchisee failed to show the arbitrator’s manifest disregard for the law. Stevens v. Jiffy Lube Int’l, Inc., 2017 WL 512888 (N.D. Cal. Feb. 8, 2017). After Randy and Elissa Stevens failed to successfully negotiate a new lease with their existing landlord, Jiffy Lube terminated their franchise agreement for loss of right ...

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A federal court in Virginia recently denied a franchisor’s claim that a franchisee of its tax preparation system breached its post-termination obligations and awarded the franchisee $2,736,896.17 on its counterclaims. JTH Tax, Inc. v. Aime, 2017 WL 640092 (E.D. Va. Feb. 15, 2017). The matter arose out of the IRS’s revocation of Aime’s Electronic Filing Identification Number (“EFIN”), which the franchise agreements required Aime to maintain. Rather than simply terminate the franchise agreements for Aime’s nine offices, JTH entered into a purchase and sale ...

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The Eighth Circuit Court of Appeals recently affirmed a district court’s dismissal of a contractor’s claims against FedEx Corporation. Neubauer v. FedEx Corp., 2017 WL 655434 (8th Cir. Feb. 17, 2017). From 2004 to 2011, Neubauer and his corporate entity were parties to a series of Standard Operating Agreements with FedEx under which Neubauer would pick up and deliver FedEx packages within specific geographic areas in return for weekly payments based on stops made. Neubauer was described as an independent contractor of FedEx. In early 2011, FedEx transitioned to a new business ...

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A federal court in Indiana has dismissed a franchisor’s Lanham Act claim on the grounds that the franchisor unreasonably delayed bringing the claim. Noble Roman’s, Inc. v. Hattenhauer Distrib. Co., 2017 WL 640092 (S.D. Ind. Feb. 27, 2017). Under the parties’ franchise agreements, Hattenhauer was required to use only Noble Roman’s approved ingredients at its pizza franchises. However, after Noble Roman’s changed its approved distributor in 2010, Hattenhauer began purchasing and using unapproved cheese at one of its franchised locations. In 2014, Noble Roman’s ...

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A trial court’s dismissal of defamation claims against a franchisor and related parties, including the franchisor’s legal counsel, was reversed last week by a court of appeals in Florida. Rolle v. Cold Stone Creamery, Inc., et al., 2017 WL 815365 (Fla. App. March 1, 2017). This case arose when Rolle, a former franchisee, participated in a 2010 CNBC documentary regarding franchising. In response to the documentary, the franchisor retained attorney Robert Zarco, who wrote a letter to CNBC (with a copy to Janet Sparks, a freelance writer for the Blue Mau Mau website), asking that ...

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Last month, the United States Court of Appeals for the Fourth Circuit affirmed the District of Maryland’s holding that a hotel franchisor was not responsible for a guest’s death at one of its franchised hotels. DiFederico v. Marriott Int’l, Inc., 2017 WL 444690 (4th Cir. Feb. 2, 2017). The guest was killed in the September 20, 2008 terrorist attack on the Marriott Islamabad, a hotel owned and operated by one of Marriott International’s franchisees. The guest’s family brought a wrongful death suit against Marriott but did not name the franchisee as a defendant. The Fourth ...

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Posted in Arbitration

In Frye v. Wild Bird Centers of America, Inc., 2017 WL 605285 (D. Md. Feb. 14, 2017), the district court upheld an arbitration award that equitably tolled the start of a posttermination noncompetition period until the date of actual compliance. Gray Plant Mooty represented the franchisor in the case. The franchisees, Frye, had allowed their franchise agreement to expire, but they nevertheless continued to use the Wild Bird Centers of America’s (“WBCA’s”) marks and to operate a WBCA store at their Colorado location without paying any fees to WBCA, without WBCA’s ...

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A district court in California has granted Domino’s motion to dismiss claims asserted against it by Prostar Wireless Group, a prospective supplier to Domino’s franchisees. Prostar Wireless Grp., LLC v. Domino’s Pizza, Inc., 2017 WL 67075 (N.D. Cal. Jan. 6, 2017). Prostar alleged that it had worked with Domino’s and its franchisees over the course of ten years to develop technology to assist franchisees in driver tracking and navigation. Domino’s ultimately elected to develop technology of its own, which Prostar alleged was functionally identical to Prostar’s ...

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Posted in Arbitration

In Rahmany v. T-Mobile USA, Inc., No. C16-1416-JCC (W.D. Wash. Jan. 5, 2017), a federal court in Washington granted defendant Subway’s motion to compel arbitration based on the plaintiffs’ cellular telephone contracts with T-Mobile, which mandated arbitration. Shortly after entering into those agreements, T-Mobile sent the plaintiffs a text message promoting free Subway sandwiches for T-Mobile customers. The plaintiffs filed a putative class action against T-Mobile and Subway, alleging violations of the Telephone Consumer Protection Act. The plaintiffs then ...

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Posted in Transfers

Meanwhile, a federal court in Kentucky held that a franchisee sufficiently pled a claim against a franchisor for intentional interference with a prospective economic advantage. Raheel Foods, LLC v. Yum! Brands, Inc., 2017 WL 217751 (W.D. Ky. Jan. 18, 2017). Raheel was party to several franchise agreements with Yum! Brands and eventually decided to sell its franchised stores. Under the franchise agreements, prior to selling the stores, Raheel was required to obtain Yum! Brands’ approval of the proposed purchaser. Raheel alleged that it presented proposed purchasers to Yum ...

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Posted in Choice of Law

The United States District Court for the Northern District of New York recently rejected a franchisee’s counterclaims that her franchisor wrongfully refused to renew her franchise agreement and breached its implied covenant of good faith and fair dealing when (as previously reported in Issue 190 of The GPMemorandum) it thereafter obtained enforcement of the franchisee’s post-termination covenant against competition. H&R Block Tax Servs. LLC v. Strauss, 2017 WL 395119 (N.D.N.Y. Jan. 27, 2017). Gray Plant Mooty represents H&R Block in this case. 

The franchise agreement ...

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Last month, an Oklahoma district court dismissed a bad faith counterclaim against a franchisor in Sonic Industries LLC v. Halleran, 2017 WL 239388 (W.D. Okla. Jan. 19, 2017). Oklahoma law recognizes an implied covenant of good faith and fair dealing in every contract but only allows recovery for breach of that covenant as an independent claim if there is a “special relationship” between the parties and evidence of adhesion. The court dismissed the bad faith claim after finding no evidence of adhesion in the contracts at issue.

The court further held that, under Florida law, a ...

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The United States Court of Appeals for the Sixth Circuit has affirmed a judgment granting rescission of a purported franchise agreement and holding the franchisor and its salesperson jointly and severally liable for damages. Lofgren v. AirTrona Canada, 2017 WL 384876 (6th Cir. Jan. 27, 2017). The lower court’s judgment was summarized in Issue 202 of The GPMemorandum. AirTrona Green Technologies had previously sold an “ozone process” automobile deodorizer business plan and related equipment to the plaintiff, Lofgren. In 2011, AirTrona Canada (the apparent ...

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Posted in Employment

A Wisconsin federal court recently granted a motion for summary judgment filed by franchisor Fish Window Cleaning Services, Inc., finding that it was neither an employer of its franchisee’s employees under the Fair Labor Standards Act (“FLSA”) nor under Wisconsin state wage and hour laws. Pope v. Espeseth, Inc., 2017 WL 108081 (W.D. Wis. Jan. 11, 2017).

The court held that the test for joint-employer liability was substantially similar under both the FLSA and Wisconsin state law and looked to the following four factors: (1) whether Fish had the power to hire and fire the ...

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Posted in Arbitration

A federal court in California has denied franchisees’ motion for an order to consolidate their claims into a single arbitration. Meadows v. Dickey’s Barbecue Rests., Inc., 2016 WL 7386138 (N.D. Cal. Dec. 21, 2016). This case arose from a dispute regarding whether franchisor Dickey’s Barbecue Restaurants made false and misleading representations to the plaintiffs, all of whom are owners and former owners of Dickey’s franchises in California. The court had previously determined that the franchisees’ claims in this matter must be submitted to arbitration. Subsequent ...

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Posted in Arbitration

A federal court in Florida recently ordered a franchisor and franchisee to proceed to arbitration following an earlier entry of a preliminary injunction against the franchisee. Pirtek USA, LLC v. Twillman, 2016 WL 7116205 (M.D. Fla. Dec. 7, 2016). The case involved claims of unfair competition, fraud, and breach of the noncompete and confidentiality provisions of a franchise agreement between the parties. Following entry of the preliminary injunction order, Twillman, a Pirtek franchisee, filed several motions seeking, among other things, relief from and/or modification of ...

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Posted in Arbitration

The United States Court of Appeals for the Eleventh Circuit denied a franchisee’s appeal of a district court’s confirmation of an arbitration award in Careminders Home Care, Inc. v. Kianka, 2016 WL 7228808 (11th Cir. Dec. 14, 2016). In arbitration, Compassionate Care, a former franchisee of CareMinders Home Care, claimed that the franchisor had breached the franchise agreement and committed fraud as to the parties’ business relationship. After the arbitrator found in favor of CareMinders, the franchisor petitioned the district court to confirm the arbitration award ...

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Posted in Employment

In December, an Oregon federal court found that a franchisor was not a joint employer of its franchisee’s employees and granted portions of the franchisor’s motion for summary judgment. Gessele v. Jack in the Box, Inc., 2016 WL 7223324 (D. Or. Dec. 13, 2016). The plaintiffs had brought a putative class action alleging violations of the minimum wage and overtime provisions of the Fair Labor Standards Act (“FLSA”) and various state wage-and-hour laws. The plaintiffs had been employed in several of the company-owned restaurants run by franchisor Jack in the Box at the time the ...

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Posted in Arbitration

Similarly, the Appellate Court of Illinois affirmed an order dismissing a franchisee’s complaint and ordering the parties to submit to arbitration, despite the fact that the defendants were not signatories to the franchise agreement. In Kim v. Kim, 2016 IL App. (1st) 153296-U (Ill. App. Ct. Nov. 30, 2016), a franchisee sued employees of the franchisor claiming that the employees had fraudulently induced him to enter into a franchise agreement with the franchisor. The franchisor itself was not a defendant. Citing to the franchise agreement’s arbitration clause, the employees ...

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Posted in Noncompetes

A United States District Court for the Southern District of Texas recently granted a motion by Fantastic Sams to enforce a post-termination noncompetition obligation against a nonrenewing franchisee. Fantastic Sams Franchise Corp. v. Mosley, 2016 WL 7426403 (Dec. 23, 2016). The franchise agreement contained a noncompetition provision prohibiting the franchisee, Mosley, from operating a hair salon business within five miles of the location of his former Fantastic Sams salon for two years after the expiration of the agreement. Soon after the expiration of the franchise ...

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Posted in Arbitration

A Connecticut federal court granted a petition to compel arbitration filed by Subway sandwich restaurant franchisor Doctor’s Associates, Inc. (“Subway”) enforcing an arbitration clause contained in Subway’s application to become a franchisee. Doctor’s Assocs. Inc. v. Burr, 2016 WL 7451620 (D. Conn. Dec. 28, 2016). Prospective franchisees, the Burrs, submitted a Subway franchise application that included the arbitration clause, but Subway declined to grant the Burrs a franchise. In response, the Burrs initiated an action against Subway’s third-party ...

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A California court of appeal recently affirmed a trial court’s award of more than $800,000 in attorneys’ fees under the state’s Unfair Competition Law (“UCL”) and the issuance of a permanent injunction against U-Haul prohibiting the company from enforcing a covenant against competition in its standard form contract with dealers in the state. Robinson v. U-Haul Co. of Cal., 209 Cal. Rptr. 3d 81 (Cal. Ct. App. 2016). After Robinson terminated the parties’ dealer contract and began renting trucks from a competitor, U-Haul sued for breach of the contract’s covenant ...

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The United States District Court for the Eastern District of New York concluded that an automobile dealer stated a plausible claim for breach of the implied covenant of good faith and fair dealing against its distributor in Valley Stream Foreign Cars, Inc. v. American Honda Motor Co., 2016 WL 5239645 (E.D.N.Y. Sept. 22, 2016). Valley Stream alleged that American Honda’s failure to enforce its wholesaling policy prevented Valley Stream from exercising its right to earn profits from the sale of Honda vehicles. Valley Stream further alleged that American Honda received reports of ...

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Posted in Antitrust

A federal court in Iowa last week dismissed with prejudice a dealer’s price discrimination claim made under the Robinson Patman Act (“RPA”). Sioux City Truck & Trailer, Inc. v. Ziegler, Inc., No. 16-cv-4106 (N.D. Iowa Dec. 5, 2016). Gray Plant Mooty represented the supplier in this case. The dealer had been party to an engine parts and service agreement, which was terminated by the supplier, Ziegler, earlier this year. Ziegler tendered a new contract that would have allowed Sioux City Truck & Trailer (“SCTT”) to buy parts, but not to be a “full service” dealer. SCTT ...

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The United States Court of Appeals for the First Circuit partially affirmed a lower court’s decision that a product distributor’s claims based on an allegedly exclusive distribution agreement were barred by the three-year statute of limitations under Puerto Rico’s Dealers Act (“Law 75”). Medina & Medina Inc. v. Hormel Foods Corp., 840 F.3d 26 (1st Cir. 2016). Medina, the distributor, entered into a verbal distribution arrangement with Hormel in 1988, which Medina alleged gave it the exclusive right to distribute Hormel’s retail refrigerated products in Puerto ...

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Posted in Antitrust

Another federal court in Ohio dismissed price discrimination claims brought against a motor vehicle manufacturer after ruling that the “functional availability” defense barred the claims. Brentlinger Enters. v. Volvo Cars of N. Am., 2016 WL 4480343 (S.D. Ohio, Aug. 25, 2016). Brentlinger, a Volvo dealer, sued Volvo over a tier-based incentive program that provided dealerships that only carried Volvo products and met Volvo’s
design standards with higher bonuses per vehicle sold and a larger allocation of high demand vehicles than it did to stores that did not meet both ...

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Posted in Antitrust

A manufacturer can sell its largest packs of products only to discount club chains without engaging in illegal price discrimination, according to the United States Court of Appeals for the Seventh Circuit in Woodman’s Food Market, Inc. v. Clorox Co., 833 F.3d 743 (7th Cir. 2016). The case concerned Clorox’s practice of selling its largest-sized containers of products only to discount warehouses such as Sam’s Club or Costco. Woodman’s, a small grocery chain based in Wisconsin and Illinois, sued Clorox seeking injunctive relief for unlawful price discrimination under ...

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Posted in Antitrust

The United States Court of Appeals for the Ninth Circuit has affirmed a district court holding that Aerotec International failed to establish federal antitrust claims against Honeywell International, one of the largest manufacturers of auxiliary power units for aircraft. Aerotec Int’l v. Honeywell Int’l, 836 F.3d 1171 (9th Cir. 2016). Aerotec, a small company that provides repair services for Honeywell’s products, alleged that during a worldwide parts shortage, it was unable to purchase from Honeywell the parts necessary to service its clients because Honeywell’s ...

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Posted in Antitrust

Meanwhile, the United States District Court for the Northern District of Ohio denied a car distributor’s motion to dismiss a claim under the RPA. Bedford Nissan, Inc. v. Nissan N. Am., Inc., 2016 WL 6395799 (N.D. Ohio Oct. 28, 2016). After discovering that Nissan North America had given Bernie Moreno, a dealer, cash and sales incentives not offered to all dealers in the area, four other Nissan dealers in the same market sued Nissan, claiming, among other things, that the incentive payments allowed Moreno to purchase and sell Nissan vehicles at substantially lower prices than the ...

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Posted in Antitrust

The United States Court of Appeals for the Third Circuit recently reversed a large antitrust jury verdict that had been entered against telecom equipment manufacturer Avaya. Avaya Inc. v. Telecom Labs, Inc., 838 F.3d 354 (3d Cir. Sept. 30, 2016). After a lengthy and contentious trial, a jury had awarded a $20 million general verdict in favor of Telecom Labs, a former Avaya dealer and maintenance provider, finding that Avaya had attempted to monopolize the aftermarket for maintenance of its specialized telephone switchboard for business organizations and had unlawfully tied ...

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A California federal district court recently denied a hotel’s motion to dismiss a claim that it violated the California Customer Records Act (“CRA”), which requires businesses to “implement and maintain reasonable security measures.” Dugas v. Starwood Hotels & Resorts Worldwide, Inc., 2016 WL 6523428 (S.D. Cal. Nov. 3, 2016). Following a breach of Starwood’s computer system, Paul Dugas, a customer of Starwood’s Sheraton San Diego Hotel, claimed that the hotel and its franchisor violated the CRA by failing to follow industry-standard encryption procedures to ...

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Posted in Antitrust

A North Carolina trial court dismissed a state-law antitrust claim that Window World franchisees brought against their franchisor in Window World of Baton Rouge, LLC v. Window World, Inc., 2016 WL 6242945 (N.C. Super. Ct. Oct. 25, 2016). The franchisees claimed that Window World conspired with a supplier of vinyl replacement windows by requiring franchisees to purchase products at inflated prices, rather than allowing them to pay the lowest price available among suppliers of their own choosing. Although federal Sherman Act precedent was instructive to the court’s analysis ...

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Posted in Arbitration

The District of Columbia Court of Appeals recently affirmed a lower court’s denial of a franchisee’s late attempt to compel arbitration. In Hossain v. JMU Properties, LLC, 2016 WL 6134871 (D.C. Oct. 20, 2016), Hossain, a franchisee, sued its landlord and the landlord’s owner for wrongful eviction. The landlord’s owner, who also owned the taxpreparation franchisor that had contracted with Hossain, responded by suing Hossain for breach of the franchise agreement. Early in the case, JMU brought a motion to stay the proceedings and compel arbitration pursuant to an ...

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The United States District Court for the District of Arizona rejected an argument that a general release clause barred a franchisee’s counterclaims for fraudulent inducement. Zounds Hearing Franchising LLC v. Moser, 2016 WL 6476291 (D. Ariz. Nov. 2, 2016). Moser, a franchisee of Zounds, had purchased an existing franchise through an assignment agreement. The agreement contained broad release language in which the parties waived “known and unknown” claims. The relationship between Moser and Zounds eventually soured, and Zounds sued Moser, who in turn, brought ...

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Posted in Noncompetes

The United States District Court for the Middle District of Florida granted U.S. Lawns, Inc.’s request to enjoin its former franchisee, Landscape Concepts of CT, LLC, from competing after termination. U.S. Lawns sought the preliminary injunction enforcing the covenant not to compete pending arbitration of other claims. U.S. Lawns, Inc. v. Landscape Concepts of CT, LLC, No. 6:16-cv-929-Orl-41DAB (M.D. Fla. Oct. 31, 2016). In granting the motion the court found U.S. Lawns had established legitimate business interests in protecting its goodwill, franchise system ...

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Posted in Noncompetes

In Pirtek USA, LLC v. Twillman, 2016 WL 5846978 (M.D. Fla. Oct. 6, 2016), a federal court granted, in part, Pirtek’s motion for a preliminary injunction seeking to enjoin the use of confidential information and the operation of a competing business by former franchisees, Michael Twillman, Dolores Twillman, and Donald Twillman, in Missouri. In February 2016, Michael Twillman executed a franchise agreement for the operation of a Pirtek franchise in Missouri. Each of the Twillmans also executed a personal guaranty. Both the franchise agreement and the personal guaranty ...

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A federal court in Florida partially granted, and partially denied, a motion to dismiss filed by franchisor Le Macaron Development LLC regarding claims brought by a franchisee for fraud, misrepresentation, and breach of contract. Le Macaron, LLC v. Le Macaron Development LLC, 2016 WL 6211718 (M.D. Fla. Oct. 24, 2016). The franchisee claimed that it based its decision to purchase a Le Macaron pastry franchise on several misrepresentations by Le Macaron, including oral representations regarding, among other things, the franchisee’s “huge profit potential,” and false ...

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Posted in Antitrust

The White House last month announced a broad series of new administrative steps “calling for actions that enhance competition” in employment practices. One aspect of the new antitrust focus on employment matters may intentionally or unintentionally also affect franchise agreements. That possibility involves terms in many franchise agreements that prohibit franchisees from soliciting employees away from other franchisees or from the franchisor itself. Under the new emphasis, such “anti-poaching” agreements could be deemed illegal—or at least subject to ...

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Posted in Employment

The Appellate Division of the New York Supreme Court recently affirmed rulings by New York’s Unemployment Appeal Board that the Jan-Pro Cleaning Systems franchisor was the employer of some of its franchisees for unemployment tax purposes. The case, In re Baez, 2016 WL 6270685 (N.Y. App. Div. Oct. 27, 2016), is an important reminder of the continued need for franchisors to carefully structure their relationships with franchisees to minimize employee misclassification risks.

Following an unemployment insurance tax audit of Jan-Pro, the New York Department of Labor determined ...

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Posted in Class Actions

The United States Court of Appeals for the Third Circuit recently held that a trial court did not abuse its discretion when it allowed an employmentclassification dispute between a group of franchisees and a franchisor to proceed on a class-wide basis. In Williams v. Jani-King of Philadelphia Inc., 2016 WL 5111920 (3d Cir. Sept. 21, 2016), two franchisees sued Jani-King, the world’s largest commercial cleaning franchisor, on behalf of a class of JaniKing franchisees in the Philadelphia area. The franchisees claimed that they were misclassified by Jani-King as independent ...

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A New Jersey federal district court granted a permanent injunction to Mister Softee against a former franchisee but declined to award lost future royalties based on the terminated franchise agreements. Mister Softee, Inc. v. Amanollahi, 2016 WL 5745105 (D.N.J. Sept. 30, 2016). Reza Amanollahi (“Amano”) entered into twenty-two franchise agreements pursuant to which he was permitted to operate Mister Softee ice cream trucks, provided that he park the trucks only at a specified location. Through an installment sale, Amano sold his franchises to four individuals (the ...

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After review by the French Constitutional Court, the French Parliament recently passed a controversial labor law commonly referred to as the “El Khomri” law (the “Law”). Article 64 of the Law contains provisions governing certain franchises. It is triggered if: (1) a franchise network contains at least 300 employees in France, inclusive of the employees of both franchisors and franchisees, and (2) the underlying franchise agreement contains terms that “have an effect on the organization of work and the conditions of work.” If those two requirements are satisfied ...

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Posted in Class Actions

A federal court in New York held that it lacked subject matter jurisdiction to hear claims that Dunkin’ Donuts franchises assessed an unlawful surcharge, under the guise of a sales tax, in Estler v. Dunkin’ Brands, Inc., 2016 WL 5720814 (S.D.N.Y. Oct. 3, 2016). Gray Plant Mooty represented the franchisor in this case. The plaintiffs alleged that various franchisees in New York City had improperly assessed sales tax on prepackaged coffee, which is exempt from sales tax under New York law. The plaintiffs brought claims against the franchisor, Dunkin’ Brands, and several ...

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Posted in Employment

A district court in the Southern District of New York recently denied a franchisor’s motion to dismiss federal and state law employment claims brought against it by employees of one of its franchisees. Ocampo v. 455 Hospitality LLC, 2016 WL 4926204 (Sept. 15, 2016). Several employees of a Doubletree hotel franchise sued the franchisee and the franchisor of the Doubletree system alleging violations of the Fair Labor Standards Act (“FLSA”) and the New York Labor Law. Doubletree moved to dismiss the claims against it on the grounds that the employees had failed to allege facts from ...

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Franchisors seeking to do business in Iran will continue to face challenges because Iranian sanctions will remain substantially in place for most industries. On October 7, 2016, the United States Department of Treasury’s Office of Foreign Assets Control (“OFAC”) updated the FAQs related to the Iranian Sanctions Program to provide further clarity regarding the scope of the sanctions lifting that occurred as part of the Joint Comprehensive Plan of Action (“JCPOA”) reached in 2015.

In July 2015, the U.S. and other countries entered into the JCPOA to ensure that Iran’s ...

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Posted in Terminations

The United States Court of Appeals for the Tenth Circuit has affirmed the district court’s grant of summary judgment in favor of a fast food franchisor in a case where the franchisee refused to sell and promote the franchisor’s mandatory menu plan. Steak N Shake Enter., Inc. v. Globex Co., LLC, 2016 WL 4743685 (10th Cir. Sept. 12, 2016). The dispute arose when Steak n Shake expanded its “$4 Menu” promotion, which offered a combination of items for a price of $4 – less than what customers would pay if each item was purchased separately. The franchisee refused to adopt the new $4 Menu ...

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The Kentucky Court of Appeals recently affirmed the dismissal of a complaint against six Domino’s Pizza entities on a motion for summary judgment. Johnson v. Seagle Pizza, Inc., 2016 WL 4410705 (Ky. Ct. App. Aug. 16, 2016). The case arose from a robbery at a Domino’s franchise in Kentucky. At the time of the armed robbery, Crystal Roberts, an employee of the franchise, was on break behind the store, talking on the phone with her boyfriend, who lived a block away. The robber forced Roberts back into the store and demanded money. As the assailant was fleeing, he shot and killed Roberts’ ...

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The United States District Court for the Eastern District of Pennsylvania partially denied a motion to dismiss a complaint alleging that a transmission repair franchisor had failed to maintain its brand. Jade Grp., Inc. v. Cottman Transmission Ctrs., LLC, 2016 WL 3763024 (E.D. Pa. July 13, 2016). The plaintiff-franchisees entered into license agreements that allegedly required the franchisor, Cottman Transmission Centers, to “continue to develop, promote and protect the good will and reputation associated with the Cottman names and marks.” In 2006, Cottman purchased the ...

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Posted in Arbitration

In PCPA, LLC v. The Flying Butcher, LLC, 2016 WL 3920170 (D.N.H. July 18, 2016), a federal court granted the plaintiffs’ motion to dismiss their complaint without prejudice. The Flying Butcher, former franchisees of Meat House Franchising, executed a franchise agreement with Meat House that included an arbitration clause that covered disputes “arising out of or relating to operation of the Franchised Business or this Agreement.” In 2014, Meat House’s secured creditors entered into an Asset Purchase Agreement with one of the plaintiffs – PCPA, LLC – pursuant to which ...

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Posted in Arbitration

A federal court in New York denied the petition of franchisor Benihana, Inc. to vacate an arbitration award, finding that the arbitration panel acted within its broad authority in concluding that even though Benihana had the right to terminate its license agreement with franchisee Benihana of Tokyo, LLC (“BOT”), Benihana’s decision to terminate was unreasonable. Benihana, Inc. v. Benihana of Tokyo, LLC, No. 15-cv-7428 (S.D.N.Y. July 15, 2016). In challenging the arbitration panel’s decision, Benihana conceded that the license agreement language required the panel to ...

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Posted in Noncompetes

An Arizona federal court enjoined a former ReBath franchisee from violating a covenant not to compete in ReBath LLC v. New England Bath Inc., Bus. Franchise Guide (CCH) ¶ 15,801 (D. Ariz. July 15, 2016). ReBath, a bathroom remodeling franchisor, discovered that franchisee New England Bath, Inc. (“NEBI”) conducted business outside of its exclusive territory in breach of its franchise agreement, and demanded payment of liquidated damages. NEBI refused to pay the damages and, after the agreements expired, also failed to comply with its post-expiration obligations, including a ...

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Posted in Terminations

The United States District Court for the Northern District of Illinois denied a motion to dismiss and permitted franchisor Tilted Kilt Franchise Operating, LLC to proceed with its request for a declaratory judgment that it had good cause to terminate its agreement with a franchise developer. Tilted Kilt Franchise Operating v. 1220, 2016 WL 4063172 (N.D. Ill. July 29, 2016). Tilted Kilt sought to terminate the agreement after discovering that the developer had made financial performance representations to prospective franchisees that were inconsistent with its Franchise ...

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Posted in Insurance

A federal court in Michigan dismissed all of a franchisee’s counterclaims and defenses that were based on the franchisee’s claim that the franchise agreements between the parties were unenforceable due to indemnification provisions that lacked mutuality. L.A. Ins. Agency Franchising, LLC. v. Montes, 2016 WL 4415238 (E.D. Mich. Aug. 19, 2016). Claudia Montes entered into several franchise agreements with L.A. Insurance Agency Franchising, LLC. LA Insurance subsequently sued Montes for breach of the franchise agreements. In turn, Montes asserted several counterclaims ...

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A Wisconsin federal court recently granted summary judgment in favor of Dean Foods on the plaintiff’s claim that a hauling agreement between the parties was governed by the Wisconsin Fair Dealership Law (“WFDL”). Andrea Distrib., Inc. v. Dean Foods of Wis., LLC, 2016 WL 3199544 (W.D. Wis. June 8, 2016). Dean Foods and Andrea Distributing were parties to two agreements: (1) a hauling agreement, under which Andrea Distributing hauled Dean Foods’ products directly to Dean Foods’ customers, and (2) a distribution agreement, under which Andrea Distributing purchased ...

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A Virginia federal court partially granted Volvo Group North America’s motion for a preliminary injunction to stop the proposed sale of a group of truck dealerships. Volvo Grp. N. Am., LLC v. Truck Enters., Inc., 2016 WL 1479687 (W.D. Va. Apr. 14, 2016). Volvo initiated the suit against a group of truck dealers who owned and operated seven dealerships, four of which sold both Volvo and Kenworth trucks, two of which sold Kenworth and Isuzu trucks, and one that sold only Kenworth trucks. The dealers entered into an agreement with a third party to sell the dealerships in a package deal. In ...

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Posted in Terminations

Meanwhile, the United States District Court for the Northern District of Indiana granted in part and denied in part a manufacturer’s motion to dismiss claims arising from the termination of a dealership agreement in Ervin Equipment Inc. v. Wabash National Corp., 2016 WL 2892132 (N.D. Ind. May 17, 2016). Ervin entered into a dealership agreement with semitrailer manufacturer Wabash that granted Ervin the right to sell Wabash products in a territory that covered parts of Texas and all of Mexico. After several years, during which Ervin repeatedly sold Wabash products outside of its ...

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In Miller Construction Equipment Sales, Inc. v. Clark Equipment Co., 2016 WL 2626803 (D. Alaska May 6, 2016), the federal court in Alaska found that a distributor did not have an obligation to repurchase several pieces of equipment in its former dealer’s inventory under Alaska’s distributorship statute. After the parties’ distribution agreement ended, Miller demanded that Clark repurchase several pieces of heavy equipment (and associated attachments) under a statute which governs the disposition of a dealer’s remaining merchandise upon the termination of a ...

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A federal district court in Washington has preliminarily enjoined a terminated distributor from violating the terms of his distribution agreement by competing with Organo, his former supplier of mushroom-based drinks and products. Organo Gold Int’l, Inc. v. Ventura, 2016 WL 1756636 (W.D. Wash. May 3, 2016). The parties’ agreement included a noncompete provision that prohibited Ventura’s participation in any opportunity involving the sale of mushroom-based products for twelve months following termination. The agreement further prohibited Ventura from soliciting ...

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Posted in Antitrust

In Issues 196 and 200 of The GPMemorandum, we discussed some of the common antitrust risks facing manufacturers. Prevention is the best cure for those problems, as attempts to address the risks at the time of termination or after a claim has been lodged are too late. We recommend that manufacturing companies review their compliance with antitrust laws by formally gathering and scrutinizing all of their pricing programs, sales policies, competitor communications, and customer agreements, among other documents, to uncover and defuse landmines. Sales leadership and other ...

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The United States Court of Appeals for the Sixth Circuit has affirmed a lower court’s finding that the successor-manufacturer exception to Ohio’s alcohol distributor protection law applies when termination follows the sale of an alcohol supplier’s parent company to a third party. Tri County Wholesale Distribs., Inc. v. Labatt USA Operating Co., LLC, 2016 WL 3618970 (6th Cir. Mar. 17, 2016). Under ordinary circumstances, the Ohio statute requires a supplier to have “just cause” for termination of an alcohol distributor. There is, however, an exception to the just cause ...

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Posted in Terminations

The United States Court of Appeals for the Third Circuit has affirmed in part and reversed in part a Pennsylvania federal court’s order dismissing a dealer’s claims that arose from the alleged improper termination of its dealer agreement. Bull Int’l, Inc. v. MTD Consumer Grp., Inc., 2016 WL 3542249 (3d Cir. June 29, 2016). MTD terminated, without cause, a termless dealer agreement with Bull in accordance with the express terms of the agreement. Bull claimed that, among other things, the termination breached the implied covenant of good faith and fair dealing because it was ...

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Posted in Antitrust

The United States Court of Appeals for the Third Circuit recently ruled that Swatch Group was not subject to New Jersey’s Franchise Practices Act (“NJFPA”) but partially reversed the lower court’s summary judgment order because a material dispute of fact remained regarding a retailer’s claim that Swatch violated the Robinson-Patman Act (“RPA”). Orologio of Short Hills, Inc. v. Swatch Group (U.S.), Inc., 2016 WL 3454211 (3d Cir. June 24, 2016). Orologio, a high-end watch store in suburban New Jersey, sued Swatch after it was dropped as an authorized dealer. Orologio ...

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Posted in Trademarks

In MPC Franchise, LLC v. Tarntino, 2016 WL 3512500 (2d Cir. June 27, 2016), the United States Court of Appeals for the Second Circuit affirmed a ruling cancelling a federal trademark registration on the grounds that it was obtained by fraud in violation of the Lanham Act. MPC, a franchisor of Pudgie’s pizza restaurants in upstate New York, brought suit against a nephew of the original Pudgie’s founder after the nephew, Brent Tarntino, applied for and received registration of the mark PUDGIE’S for use with restaurant services. MPC alleged that Tarntino procured the mark ...

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Posted in Arbitration

Former Florida franchisees brought a complaint for $14 million in damages against Del Taco, a Mexican and American food quick service restaurant franchisor headquartered in California. Following a five-day arbitration in Los Angeles, a panel of three arbitrators found in Del Taco’s favor on all counts. Floridel, LLC v. Del Taco, LLC, AAA No. 01-14-0001-9403 (June 15, 2016). Gray Plant Mooty represented Del Taco in the arbitration. The claimants, a corporation and its principals who had developed three Del Taco restaurants in Florida, brought claims in late 2014, alleging that ...

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Posted in Class Actions

A federal judge in California last week certified for class action treatment a case brought by a group of workers at five franchised McDonald’s restaurants. Ochoa v. McDonald’s Corp., No. 3:14-cv-02098 (N.D. Cal. July 7, 2016). Because the franchisee in this closely-followed case has settled with the plaintiffs, the class was certified to pursue claims against only McDonald’s Corp. and McDonald’s USA, LLC, which remain in the case on the theory of “ostensible agency.” As reported in Issue 198 of The GPMemorandum, summary judgment already has been denied on ostensible ...

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In Baskin-Robbins Franchising LLC v. Alpenrose Dairy, Inc., the United States Court of Appeals for the First Circuit held that an Oregon subfranchisor’s continuing interaction with Baskin-Robbins after Baskin had moved its headquarters from California to Massachusetts was sufficient to support specific personal jurisdiction over the subfranchisor in Massachusetts. 2016 WL 3147645, __ F.3d __ (1st Cir. June 6, 2016). Gray Plant Mooty represented Baskin-Robbins in the case.

The focus of the court’s decision was primarily on whether the subfranchisor had “purposefully ...

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An Alabama federal court granted the motion of a franchisor’s affiliate to be dismissed from a putative class action in Lee v. Hyundai Motor America, Inc., 2016 WL 3194532 (N.D. Ala. June 9, 2016). Lee had sued both Precision Tune Auto Care, an entity related to Precision Franchising, LLC, the franchisor of retail automotive repair shops, along with automaker Hyundai, alleging that a defective aftermarket oil filter purchased from a Precision Tune franchise in Alabama had caused the engine to fail in his Hyundai car. Lee sued for violations of the Alabama Deceptive Trade Practices ...

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Following a bench trial, a Missouri federal court found an automobile cosmetic repair franchisor not liable to a former master franchisee under the Texas Business Opportunity Act (“TBOA”). Restored Images Consulting, LLC v. Dr. Vinyl & Assocs., Ltd., 2016 WL 3064142 (W.D. Mo. May 31, 2016). Restored Images had been a franchisee of Dr. Vinyl before entering into a master franchise agreement with Dr. Vinyl. The master franchise agreement obligated Restored Images to sell a minimum number of franchises, though Restored Images repeatedly repudiated this obligation, and the ...

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Posted in Damages

The Court of Appeals of Georgia held that a franchisee was not entitled to damages for negligent misrepresentation because the franchisee failed to prove that it suffered actual economic damages as a result of the alleged misrepresentation. Legacy Acad., Inc. v. Dole-Smith Enters., Inc., 2016 WL 3208751 (Ga. Ct. App. June 9, 2016). In so holding, the court overturned a jury verdict in the franchisee’s favor. In 2006, Dole-Smith Enterprises spoke to several potential franchisors about purchasing a daycare franchise. During those discussions, Legacy Academy provided ...

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Posted in Class Actions

A New Jersey state court granted a franchisor’s motion to dismiss a class-action complaint because the court found that, based on the language of the franchise agreements, only the franchisees could be at fault. Frate v. Dunkin’ Brands, Inc., 2016 WL 3542402 (N.J. Super. Ct. Law Div. June 28, 2016). Gray Plant Mooty represented the franchisor in this case. The plaintiffs alleged that various New Jersey franchisees had improperly assessed sales tax on bottled water and prepackaged coffee, which are goods that may qualify as grocery items and thus be exempt from New Jersey sales ...

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A federal court in New Jersey granted 7-Eleven’s motion for summary judgment on a franchisee’s four counterclaims that 7-Eleven: (1) violated the New Jersey Franchise Practices Act (“NJFPA”); (2) breached the implied covenant of good faith and fair dealing; (3) violated the federal Fair Labor Standards Act (“FLSA”); and (4) violated the New Jersey Law Against Discrimination (“NJLAD”). 7-Eleven, Inc. v. Sodhi, 2016 WL 3085897 (D.N.J. May 31, 2016). After identifying accounting discrepancies in the records of Sodhi, its franchisee, 7-Eleven terminated the ...

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The United States Court of Appeals for the Seventh Circuit last week issued a decision upholding the dismissal of claims challenging the publication of a settlement in a franchise disclosure document. Caudill v. Keller Williams Realty, Inc., No. 15-3313 (7th Cir. July 6, 2016). Franchisor Keller Williams had settled a case brought by a former franchisee who later had become a regional director of the franchisor. The settlement, like many, was subject to a confidentiality provision that specifically covered the amount paid to the plaintiff in the settlement. Importantly, the ...

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A federal court in Connecticut denied thirty-five franchisees' collective motion for a preliminary injunction against their franchisor in Family Wireless #1, LLC v. Automotive Technologies, Inc., No. 3:15-cv-01310 (D. Conn. May 4, 2016). The franchisees sought to enjoin their franchisor, Automotive Technologies, Inc. ("ATI"), from withholding a five percent royalty on certain funds paid to the franchisees by Verizon Wireless. As subagents of Verizon, the franchisees sold wireless devices and service plans at their stores and were compensated for those sales in the form of ...

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Posted in Arbitration

On May 5, 2016, the Consumer Financial Protection Bureau ("CFPB") issued a proposed rule that would prohibit the use of mandatory arbitration clauses in consumer financial services contracts that waive class action lawsuits. Although the proposed rule is aimed at regulating providers of consumer financial services, a number of commentators have highlighted the broad scope of the rule and its applicability to banks, credit unions, consumer lenders, payday lenders, certain auto lenders, loan servicers, debt settlement firms, installment lenders, money transfer services ...

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A federal district court in Pennsylvania recently denied a motion to dismiss filed by the franchisor of Friendly's restaurants in which Friendly's argued that a putative class of restaurant employees asserting violations of the Fair Labor Standards Act ("ELSA") and other state labor and wage laws had failed to plead facts sufficient to establish that Friendly's and its franchisees were joint employers. Reed v. Friendly's Ice Cream, LLC, 2016 WL 2736049 (M.D. Pa. May 11, 2016). To determine whether Friendly's could be considered a joint employer under the FLSA, the court applied the ...

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The United States District Court for the Eastern District of Kentucky has dismissed a complaint raising claims for breach of contract, promissory estoppel, and misrepresentation in connection with a franchisor's refusal to grant a franchise. 859 Boutique Fitness LLC v. CycleBar Franchising, LLC, 2016 WL 2599112 (E.D. Ky. May 5, 2016). Following negotiations between the parties about a ten-year franchise, Boutique Fitness signed a franchise agreement during a closing call with CycleBar's representatives. Two days after Boutique Fitness signed the agreement, however ...

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Meanwhile, the Kentucky Supreme Court recently held that the franchisor of the Quizno's system, QFA Royalties, LLC ("QFA"), did not have up-the-ladder liability for a  workers' compensation claim brought by an employee of one of its franchisees. Uninsured Employers' Fund v. Crowder, 2016 WL 2605624 (Ky. May 5, 2016). The injured worker was employed by a Quizno's franchisee whose workers' compensation insurance had lapsed. The state's Uninsured Employers' Fund paid the employee's benefits and sought reimbursement from QFA under a Kentucky statute that imposes workers ...

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After several years of consideration, the United States Congress has enacted the Defend Trade Secrets Act ("DTSA"), the first federal law designed to protect companies' trade secrets. The DTSA passed with strong bipartisan support, and it was signed into law on May 11, 2016.

Prior to the enactment of the DTSA, businesses seeking to hold someone accountable for the misappropriation of their trade secrets had to rely on the Uniform Trade Secrets Act ("UTSA"), a version of which has been adopted in forty-eight states. Although there is significant overlap between most states' version ...

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The United States Supreme Court has denied a petition for a writ of certiorari filed by the International Franchise Association ("IFA") in International Franchise Ass'n v. Seattle, 2016 WL 1723297 (S. Ct. May 2, 2016). In its petition, the IFA asked the Court to consider whether a state or local law that discriminates against certain in-state businesses based solely on their ties to interstate commerce violates the Commerce Clause of the United States Constitution. In the underlying case, the United States Court of Appeals for the Ninth Circuit had upheld a lower court's denial of the ...

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The Texas Court of Appeals recently held that Falco Franchising, a Belgian entity, and its related principals had sufficient contacts with Texas to subject them to personal jurisdiction in the state. lani-King Franchising, Inc. v. Falco Franchising, S.A., 2016 WL 2609314 (Tex. App. May 5, 2016). Jani-King, a Texas entity, had granted Falco the right to operate a commercial-cleaning franchise in Belgium pursuant to a franchise agreement governed by Texas law. Falco later defaulted on its reporting and payment obligations to Jani-King and gave notice to Jani-King that it intended ...

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A federal magistrate judge in Michigan granted in part and denied in part a franchisee's motion for leave to amend her counterclaims against her franchisor in L.A. Insurance Agency Franchising, LLC v. Montes, 2016 WL 922948 (E.D. Mich. Mar. 11, 2016). L.A. Insurance sued the franchisee, Montes, after she unilaterally terminated one of her franchises and allegedly opened a competing insurance agency. After filing an initial answer and counterclaim, Montes sought leave to amend and supplement her counterclaims. In her proposed amended countercomplaint, Montes argued that the ...

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Posted in Arbitration

Meanwhile, a federal district court in Washington has denied Money Mailer Franchise Corporation's motion for summary judgment and motion to compel arbitration against one of its franchisees. Money Mailer, LLC v. Brewer, 2016 WL 1393492 (W.D. Wash. Apr. 8, 2016). Brewer entered into a franchise agreement with Money Mailer that required him to contract with Money Mailer's affiliated company, Money Mailer, LLC (the "LLC"), for the use of certain equipment and supplies in the operation of his franchised business. The LLC filed a complaint against Brewer for breach of contract for ...

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The United States District Court for the Western District of Missouri recently enforced a post-termination noncompete covenant against a former Alabama tax preparation franchisee and a business operated by the franchisee's spouse based on a theory of successor liability. H&R Block Tax Services, LLC v. Clayton, 2016 WL 1247205 (W.D. Mo. Mar. 24, 2016). Gray Plant Mooty represented the franchisor in this case. Following the termination of his franchise agreement for failure to pay royalties, the franchisee's husband opened a tax return preparation business in close proximity to ...

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The United States Court of Appeals for the Fifth Circuit has affirmed a ruling dismissing a franchisee's counterclaims under the Texas Deceptive Trade Practices Act ("DTPA") and the Texas Business Opportunity Act ("BOA") stemming from the negotiation of the parties' franchise agreement. Yumilicious Franchise, LLC v. Barrie, 2016 WL 1375871 (N.D. Tex. Apr. 6, 2016). Yumilicious, a franchisor of frozen yogurt restaurants, brought suit against the franchisee, Why Not LLC, after Why Not allegedly failed to make royalty and product payments and closed a store without permission. In ...

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Posted in Discovery

A United States District Court in Indiana granted a motion for a protective order prohibiting a franchisee from obtaining discovery from a major shareholder of the franchisor in Noble Roman's, Inc. v. Hattenhauer Distributing Co., 2016 WL 1162553 (S.D. Ind. Mar. 24, 2016). Noble Roman's and Hattenhauer were parties to franchise agreements pursuant to which Hattenhauer was granted the right to make and sell Noble Roman's pizza products at convenience stores in exchange for royalty payments based on Hattenhauer's gross sales. The dispute arose when Noble Roman's audited ...

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The Fifth Circuit also recently affirmed a district court's dismissal of a franchisee's complaint against another frozen yogurt franchisor for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). Braatz, L.L.C. v. Red Mango FC, L.L.C., 2016 WL 1253679 (5th Cir. Mar. 30, 2016). After the Braatzes inquired about opening a Red Mango franchise in Wisconsin, a Red Mango representative sent them a business plan, financial projections for an established Red Mango franchise, and a copy of Red Mango's FDD. Over a month later, at the Braatzes' request, Red Mango sent them ...

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Posted in Employment

A Virginia federal court has concluded that a lawn care franchisor was not a joint employer of a franchisee's employee. Wright v. Mountain View Lawn Care, LLC, 2016 WL 1060341 (W.D. Va. Mar. 11, 2016). The employee had sued Mountain View Lawn Care (the franchisee) and U.S. Lawns (the franchisor) for gender discrimination, harassment, and retaliation in violation of Title VII of the Civil Rights Act. She argued that U.S. Lawns was a joint employer because she wore a U.S. Lawns uniform, drove a truck with a U.S. Lawns logo, and received correspondence from her employer on U.S. Lawns ...

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On April 7, 2016, the Nebraska legislature passed and Governor Pete Ricketts signed into law modifications to Nebraska's Franchise Practices Act (the "Franchise Act") and Seller-Assisted Marketing Plan Act (the "SAMP Act") that direct courts and arbitrators to use what is generally known as the "blue pencil" rule when asked to enforce noncompete provisions in franchise agreements subject to Nebraska law. See Franchise Act, Neb. Rev. Stat. §§ 87-402, -404; SAMP Act, Neb. Rev. Stat. § 59-1724. Nebraska had been one of only a handful of jurisdictions in which courts refused to reform ...

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Posted in Arbitration

The United States Court of Appeals for the Ninth Circuit recently ruled that an international arbitration clause was unenforceable because the agreement containing the clause was not binding on the parties. Casa Del Caffe Vergnano S.P.A. v. ItalFlavors, LLC, 2016 WL 1016779 (9th Cir. Mar. 15, 2016). The court reversed the district court's finding that the question of arbitrability was for an arbitrator to decide, finding instead that the threshold issue of whether the parties had agreed to submit their dispute to arbitration through a binding agreement, in the first place, was for ...

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In Lawn Doctor, Inc. v. Rizzo, 2016 WL 1445071 (3d Cir. Apr. 13, 2016), the United States Court of Appeals for the Third Circuit upheld an order holding the Rizzos, former franchisees of the Lawn Doctor system, in contempt of a consent injunction that prohibited them from operating a competing business after the termination of their franchise. The contempt finding was based on the Rizzos' transfer of their business to a third party while acting as the third party's lender. The Third Circuit affirmed the district court's finding that the act of providing financing to a competitor was ...

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Posted in Antitrust

The Michigan Court of Appeals recently affirmed a judgment in favor of a dealer on its claims that the manufacturer of the products at issue had violated both the Michigan Antitrust Reform Act ("MARA") and the Michigan Farm and Utility Equipment Act ("MFUEA") by increasing competition in the dealer's exclusive territory. Manitou N. Am., Inc. v. McCormick Intg, LLC, 2016 WL 439354 (Mich. Ct. App. Feb. 2, 2016). Manitou, a manufacturer and supplier of telescoping boom lifts, or "telehandlers," entered into a dealership agreement with McCormick, under which McCormick was to become an ...

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Posted in Terminations

The United States District Court for the Southern District of New York has granted a distributor's motion for judgment on the pleadings, holding that its distribution agreement could not be terminated without cause. Neopharm Ltd. v. Wyeth-Ayerst Int'l LLC, 2016 WL 1076931 (S.D.N.Y. Mar. 18, 2016). Neopharm distributed vaccines manufactured by the defendant, Wyeth, pursuant to a distribution agreement signed in 2002. Originally, the agreement permitted either party to terminate the relationship without cause upon three years' notice. In 2009, in response to a separate ...

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A federal court in Pennsylvania granted a manufacturer's motion for summary judgment on a distributor's breach of contract claim in Precision Industrial Equipment v. IPC Eagle, 2016 WL 192601 (E.D. Pa. Jan. 14, 2016), finding that the claim was barred by the statute of frauds. Precision, a seller and servicer of industrial and commercial cleaning and maintenance equipment, had entered into an oral agreement with IPC to market and distribute IPC's products. Precision alleged that during their discussions, IPC agreed not to sell directly to any of Precision's customers. When a ...

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Posted in Antitrust

A federal district court in New Jersey has denied ExxonMobil's motion to dismiss various antitrust, franchise, and common law claims brought by a group of more than 50 gas station franchisees. S. Gas, Inc. v. ExxonMobil Oil Corp., 2016 WL 816748 (D.N.J. Feb. 29, 2016). The plaintiffs, who leased retail gas stations from Exxon and were required to purchase gas from Exxon for resale to their customers, alleged that Exxon had sold to them at discriminatory prices compared to competing wholesale customers in violation of the Robinson-Patman Act, violated the New Jersey Franchise ...

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Posted in Terminations

A United States District Court in Arizona last month denied Chrysler's motion for summary judgment in a case brought by a dealership's majority shareholder and general manager whose contracts with Chrysler were terminated by the automaker. Smith v. FCA US LLC, 2016 WL 1158789 (D. Ariz. Mar. 24, 2016). At issue in this case was whether Smith, the plaintiff, qualified as a "dealer" and thus was protected under the federal Automobile Dealers' Day in Court Act ("DDCA") and similar state statutes.

In denying Chrysler's attempt to win as a matter of law without a trial, the court relied ...

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The Supreme Court of Minnesota has reversed the denial of a motion to enjoin one Nissan dealership from relocating to a location within ten miles of another. Wayzata Nissan, LLC v. Nissan North Am., Inc., 2016 WL 626069 (Minn. Feb. 17, 2016). The relocation resulted from the sale of the dealership by its previous owner, who wanted to retain the dealership premises for other purposes. The sale contemplated relocation of the dealership to a location approximately 7.5 miles from an existing Nissan dealership operated by the appellant, Wayzata. Nissan approved the sale and relocation and ...

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The state's Supreme Court has held that New Hampshire may regulate equipment dealerships in the same way it regulates motor vehicle dealerships, without violating the Contracts Clause of either the state or federal constitutions. Deere & Co. v. New Hampshire, 130 A.3d 1197 (N.H. Dec. 29, 2015). At issue was an amendment to New Hampshire's "Auto Dealer's Bill of Rights." Specifically, SB 126 amended the bill of rights to include "equipment" in the definition of "motor vehicle." This addition could be read to increase regulation of equipment manufacturer/dealer relationships in a ...

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Posted in Terminations

The United States District Court for the Eastern District of Wisconsin recently ruled that a dealer's sale of its business without supplier consent constitutes good cause for the termination of a dealer agreement under the Texas Fair Practices of Equipment Manufacturers, Distributors, Wholesalers, and Dealers Act ("FPA"). Texas Ujoints, LLC v. Dana Holding Corp., Bus. Franchise Guide 91 15,675 (CCH) (E.D. Wis. Dec. 21, 2015).

The court's decision constitutes a reversal of its prior grant of summary judgment in favor of the dealer, Texas Ujoints, as reported in Issue 196 of The ...

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A Wisconsin federal court recently granted a manufacturer's motion to transfer venue on the basis of a forum selection clause contained in the parties' distribution agreement. Brava Salon Specialists, LLC v. Label.M USA, Inc., 2016 WL 632649 (W.D. Wis. Feb. 16, 2016). Brava had filed suit against the manufacturer, Label.M, in state court and raised claims for breach of contract and violations of the Wisconsin Fair Dealership Law ("WFDL"). After removing the case to federal court in Wisconsin, Label.M moved to transfer the case to the Southern District of Florida on the grounds the ...

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Posted in Class Actions

The United States District Court for the Eastern District of Wisconsin recently approved the settlement of a consolidated consumer class action brought against Doctor's Associates, Inc., the franchisor of Subway restaurants. In re: Subway Footlong Sandwich Mktg. Sr Sales Practices Litig., 2016 WL 755640 (E.D. Wisc. Feb. 25, 2016). The plaintiffs alleged that Doctor's Associates had engaged in deceptive marketing and sales practices by advertising Subway sandwiches as "Footlongs" and "6-inch" sandwiches when, the case alleged, some sandwiches were slightly shorter than ...

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Posted in Arbitration

Meanwhile, a Florida federal court has denied a franchisee's motion to stay proceedings and compel arbitration of the claims filed against it by its franchisor, Jewelry Repair Enterprises. Jewelry Repair Enters., Inc. v. Son Le Enters., Inc., 2016 WL 660904 (S.D. Fla. Feb. 18, 2016). Jewelry Repair's claims all arose from Son Le's alleged violations of the post-termination obligations and restrictive covenants contained in the parties' franchise agreement. One section of the franchise agreement provided for binding arbitration in the event of a dispute, while a subsequent ...

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The United States District Court for the District of Colorado recently denied a franchisor's motion for a preliminary injunction following the termination of one of its master franchisees. Intelligent Office System, LLC v. Virtualink Canada, Ltd., 2016 WL 687348 (D. Colo. Feb. 18, 2016). The parties had entered into an agreement that granted Virtualink the right to sublicense IOS's trademarks and office-sharing methods to subfranchisees throughout Canada. The dispute arose when Virtualink allegedly breached the master license agreement by, among other things, failing to ...

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Posted in Announcement

Ryan Palmer and Lavon Emerson-Henry joined Gray Plant Mooty's 38- member Franchise & Distribution Practice Group on March 2, 2016. Both will practice in the firm's Minneapolis office. Palmer and Emerson-Henry serve domestic and international franchisors across the restaurant, hospitality, retail, and service sectors. They counsel brand and concept owners in the development of franchise and distribution systems and help businesses resolve disputes with franchisees and licensees.

Palmer's experience includes extensive work in franchise finance and intellectual property ...

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Posted in Arbitration

A federal court in Maryland stayed two cases brought by restaurant franchisees against their franchisor pending arbitration in Trouard v. Dickey's Barbecue Restaurants, Inc., 2016 WL 687487 (D. Md. Feb. 19, 2016). The franchisees claimed that Dickey's violated the Maryland Franchise Registration and Disclosure Law in connection with their franchises and sought mediation. In response, Dickey's pursued arbitration and raised claims of fraud and breach of contract. The franchisees then filed lawsuits against Dickey's in federal district court, arguing that the arbitration ...

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A federal district court in New Jersey also recently denied a franchisor's motion to preliminarily enjoin the continued operation of five terminated franchises because the franchisor failed to demonstrate that it would suffer irreparable harm in the absence of injunctive relief. 7-Eleven, Inc. v. Sodhi, 2016 WL 541135 (D.N.J. Feb. 9, 2016). 7-Eleven had terminated the defendants' franchise agreements because they caused the net worth of their stores to fall below contractually mandated levels. While the court found 7-Eleven had demonstrated a likelihood of success on the ...

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The Ontario Court of Appeal has dismissed a class action suit brought by a group of former franchisees against Pet Valu Canada Inc., as the court drew a bright-line distinction between a franchise disclosure violation and a breach of the duty of good faith and fair dealing under the Arthur Wishart Act (AWA). 1250264 Ontario Inc. v. Pet Valu Canada Inc., 2016 ONCA 24 (Can. Ont. Jan. 14, 2016). The franchisees principally alleged that Pet Valu—a wholesaler and retailer of pet food, supplies, and services—had not shared with them volume rebates it received from suppliers. The lower ...

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The United States District Court for the District of Connecticut recently considered whether the economic loss doctrine barred allegations that a franchisor's purported misrepresentations induced a group of franchisees to enter into their franchise agreements. Family Wireless #1, LLC v. Automotive Techs. Inc., 2016 WL 183475 (D. Conn. Jan. 14, 2016). Nearly 40 franchisees brought suit against Automotive Technologies, a master franchisee of Verizon Wireless, for breach of contract, fraud, common law negligent and innocent misrepresentation, and violations of state and ...

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A federal district court in Illinois granted a franchisor's motion to dismiss a franchisee's fraudulent misrepresentation counterclaim in Fantastic Sams Salon Corp. v. PSTEVO, LLC, No. 15--cv-3008 (N.D. Ill. Jan. 15, 2016). Baker, the franchisee, alleged that prior to entering into the parties' franchise agreement, Fantastic Sams presented him with financial disclosure documents falsely stating that he would only need three months of working capital to open a franchise, and that he could expect the franchise to be profitable thereafter. Baker asserted that these disclosure ...

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Posted in Insurance

The United States District Court for the District of Colorado has granted an insurer's motion for summary judgment, holding that it had no duty to defend its insured, Carpet World, in an underlying lawsuit brought by a group of Carpet World's current and former franchisees. AMCO Ins. Co. v. Carpet Direct Corp., 2016 WL 284827 (D. Colo. Jan. 22, 2016). The franchisees alleged that while they were initially promised they would "become independent business owners, with rights of ownership" in the Carpet World businesses in which they were investing, they subsequently learned that they ...

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A Minnesota federal court has dismissed a franchisee's claim against The UPS Store, Inc. ("TUPSS") under the Minnesota Franchise Act (MFA) and has transferred the rest of the case to a California federal court in accordance with the forum selection clause contained in the parties' franchise agreement. Moxie Venture L.L.C. v. The UPS Store, Inc., 2016 WL 128136 (D. Minn. Jan. 12, 2016). Moxie alleged that TUPSS had fraudulently induced it to enter into the franchise agreement by misrepresenting the best location for Moxie's UPS Store and the franchise's anticipated revenue, cash ...

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Following a bench trial, a Michigan federal court granted rescission of a contract relating to a vehicle deodorizing and sanitation business on the grounds that the business met the definition of a "franchise" under the Michigan Franchise Investment Law (MFIL). Lofgren v. AirTrona Canada, 2016 WL 25977 (E.D. Mich. Jan. 4, 2016). Lofgren had originally purchased equipment for the business from non-party AirTrona Green Technologies in 2009 and subsequently purchased upgraded equipment from AirTrona Canada in 2011. While the parties did not sign a formal, written agreement ...

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Posted in Arbitration

The United States Court of Appeals for the Third Circuit recently weighed in on an issue that often arises in the franchise and distribution context — class arbitrability. In Chesapeake Appalachia, LLC v. Scout Petroleum, LLC, 809 F.3d 746 (3d Cir. Jan. 5, 2016), the court concluded that, while no magic language is required to overcome the presumption in favor of judicial control over this issue, the adoption by the parties of the rules of the American Arbitration Association (which provide for arbitrators to decide the issue) does not "clearly and unmistakably" delegate the ...

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As we reported in Issue No. 198 of The GPMemorandum, AB 525, which amends the California Franchise Relations Act ("CFRA"), applies to all franchise agreements entered into or renewed after January 1, 2016. Under the amendments, franchisors that prevent a terminated or nonrenewed franchisee from "retaining control of the principal place of the franchise business" will be required to purchase the franchisee's assets. One issue raised by this new provision is whether language in franchise agreements, conditional lease assignments, or leases that gives a franchisor certain ...

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Posted in Arbitration

Meanwhile, a federal court in California has granted a franchisor's motion to compel arbitration in a putative class action lawsuit filed by one of its franchisees. Jacobson v. Snap-on Tools Co., 2015 WL 8293164 (N.D. Cal. Dec. 9, 2015). Jacobson argued that his work was so closely regulated by Snap-on Tools, a franchisor of automotive and shop equipment, that he should be treated as an employee under California law, rather than as an independent franchisee, and that Snap-on Tools failed to properly pay him for employment-related expenses, overtime, and meal and rest breaks. Snap-on ...

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The United States District Court for the Southern District of Indiana dismissed a franchisor's claims under the Minnesota Franchise Act ("MFA") in a case recently transferred from a Minnesota federal court. Rogovsky Enterprise, Inc. v. Masterbrand Cabinets, Inc., 2015 WL 7721223 (S.D. Ind. Nov. 30, 2015). Rogovsky, the franchisor of Kitchen & Home Interiors remodeling franchises, brought suit against Masterbrand, a manufacturer and distributor of cabinets, following Masterbrand's termination of the exclusive distribution agreement between the parties. Under the ...

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A federal court in Texas recently decided that a franchisor may recover on a guaranty agreement despite the guarantor's claim that the guaranty was unenforceable because he did not receive the value that he was allegedly promised in exchange for executing it. Burger King Europe GMBH v. Groenke, 2015 WL 6751121 (N.D. Tex. Nov. 5, 2015). Groenke had an ownership interest in multiple entities that owned and operated a number of Burger King franchises in and around Berlin, Germany. After the opening of insolvency proceedings for Groenke's entities, Burger King brought claims against ...

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A magistrate judge for the United States District Court for the Eastern District of Michigan has denied, without prejudice, a motion to strike an untimely demand for a jury trial made by a group of franchisees. L.A. Insurance Agency Franchising, LLC v. Montes, 2015 WL 9314738 (E.D. Mich. Dec. 23, 2015). The franchisees waited until five months after filing their answer to the complaint to assert their demand for a jury. L.A. Insurance, the franchisor, then sought to strike the jury demand, arguing that the franchisees had waived their right to a jury because each franchise agreement ...

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The United States District Court for the Eastern District of North Carolina has granted a hotel franchisor's motion to transfer venue based on the forum selection clause in the parties' franchise agreement. Generation Companies, LLC v. Holiday Hospitality Franchising, LLC, 2015 WL 7306448 (E.D.N.C. Nov. 19, 2015). Generation, a franchisee of the Staybridge Suites brand, brought suit alleging that Holiday Hospitality (the franchisor of the Staybridge Suites system) was liable for tortious interference with contract, slander, and unfair trade practices as a result of its ...

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After the United States Court of Appeals for the Third Circuit recently affirmed the denial of Wyndham Hotel's motion to dismiss claims that it allegedly violated Section 5 of the FTC Act (as reported in Issue No. 197 of The GPMemorandum), a federal court in New Jersey entered a stipulated order for an injunction resolving the case. FTC v. Wyndham Worldwide Corp., No. 2:13-cv-01887 (D.N.J. Dec. 11, 2015). The complaint filed by the FTC alleged that Wyndham engaged in unfair practices by failing to maintain reasonable and appropriate data security for consumers' sensitive personal ...

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The United States District Court for the Southern District of New York dismissed a claim brought by blind patrons of the Moe's restaurant chain that the restaurants' "freestyle" touch screen Coca-Cola machines were discriminatory under the Americans with Disabilities Act (ADA). West v. Moe's Franchisor, LLC, 2015 WL 8484567 (S.D.N.Y. Dec. 9, 2015). Because the machines did not incorporate "adaptive features" like the tactile buttons found on ATMs, the plaintiffs claimed that they were unable to use the machines independently. They further contended that Moe's employees failed ...

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Posted in Arbitration

The United States Supreme Court recently reaffirmed the strong federal policy favoring arbitration under the Federal Arbitration Act. In DIRECTV, Inc. v. Imburgia, 136 S. Ct. 463 (U.S. Dec. 14, 2015), the court overturned a decision by a California Court of Appeals, which had invalidated an arbitration provision that included a class action waiver. In doing so, the court held that the arbitration agreement had to be enforced.

After DIRECTV customers commenced a putative class action seeking damages for violation of various California consumer protection laws, DIRECTV moved to ...

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As reported in Issue No. 199 of The GPMemorandum, the North American Securities Administrators Association ("NASAA")—the state franchise examiners—issued a "Proposed Franchise Commentary on Financial Performance Representations" on October 1, 2015. NASAA is seeking to create new interpretations and guidelines for financial performance representations ("FPRs"), including (a) when franchisors can and cannot use data from company-owned or affiliate-owned outlets; (b) when franchisors can and cannot use a subset of the entire pool of franchised or company-owned ...

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Posted in Antitrust

Collusion with competitors is the most serious form of antitrust risk. Bid rigging and price fixing, for example, are criminal offenses, and individuals receive prison sentences when they engage in such conduct on behalf of their companies. The problem is that it is difficult to tell where legal collaboration ends and collusion starts. Trade association activity provides one case in point. While generally legal, trade associations can lead to competitors working together too closely and ending up in trouble. Worries also arise when competitors discuss a merger or acquisition ...

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Posted in Antitrust

The United States District Court for the Eastern District of Pennsylvania granted some, but not all, of a manufacturer's motion to dismiss antitrust claims brought by a cigar distributor that sells mass-market cigars to convenience stores. Satnam Distr. LLC v. Commonwealth-Altadis, Inc., 2015 WL 5971583 (E.D. Pa. Oct. 14, 2015). Satnam sued a competing distribution company and one of the manufacturers of a particular cigar brand, alleging that the manufacturer provided discounts to the distributor, which allowed the distributor to sell the manufacturer's cigars for less than ...

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Posted in Terminations

The United States District Court for the District of South Dakota recently denied a manufacturer's motion for summary judgment, finding material questions of fact regarding whether it had "just provocation" to terminate the agreement with its distributor. Northern Truck Equip. Co. v. Omaha Standard, LLC, 2015 WL 7274357 (D.S.D. Nov. 16, 2015). The parties' relationship began in the 1980s, when they agreed that Northern Truck would distribute and sell Omaha Standard's truck equipment in South Dakota. In 2012, however, Omaha Standard granted another company the right to sell its ...

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A federal court in Delaware recently granted in part and denied in part a manufacturer's motion for summary judgment, and denied its motion for judgment on the pleadings. TL of Fla., Inc. v. Terex Corp., 2015 WL 5618893 13-2009-LPS (D. Del. Sept. 24, 2015). At issue was whether Terex had made a number of misrepresentations (or failed to disclose a number of pertinent facts) to its distributor, TL, in relation to the parties' distributorship agreement. In particular, in filing suit, TL alleged that Terex had failed to disclose the existence of other distributors near TL, had required TL ...

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A Massachusetts federal court granted in part and denied in part a motion to dismiss claims for breach of the implied covenant of good faith and fair dealing in a distribution contract. Bruno Int'l Ltd. v. Vicor Corp., 2015 U.S. Dist. LEXIS 123556 (D. Mass. Sept. 16, 2015). For nearly 25 years, Bruno had been the exclusive Israeli distributor for Vicor, a Massachusetts supplier of modular power components and power systems. Then, Vicor notified Bruno that it would not renew its exclusive distribution contract. Approximately one month later, the parties signed an agreement providing ...

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Posted in Antitrust

The United States Court of Appeals for the Ninth Circuit recently affirmed a ruling in favor of the largest U.S. retail dealer of musical instruments and guitars, dismissing a class action brought by purchasers of guitars on the grounds that the plaintiffs did not plead sufficient facts to prove an antitrust conspiracy. In re Musical Instruments & Equip. Antitrust Litig., 798 F.3d 1186 (9th Cir. Aug. 25, 2015). The class action plaintiffs alleged that the defendant, Guitar Center, Inc., along with manufacturers Fender, Yamaha, Gibson, Hoshino, and Kaman, engaged in a "hub and spoke ...

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Posted in Antitrust

In a rare post-Leegin case involving resale price maintenance, a federal district court in Florida has refused to dismiss claims brought by retailer Costco against its supplier of contact lenses. Costco Wholesale Corp. v. Johnson & Johnson Vision Care, Inc., No. 3:15- cv-00734 (M.D. Fla. Nov. 4, 2015). Costco alleged that Johnson & Johnson forced it to agree to increase its retail contact lens prices to minimum levels. The resale price maintenance policy was alleged to have followed agreements between Johnson & Johnson and eye doctors who sell contact lenses, and between Johnson & ...

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Posted in Antitrust

The United States Court of Appeals for the Second Circuit has affirmed summary judgment in a price discrimination case in which the plaintiffs were unable to show a significant loss of customers. Cash Sr Henderson Drugs v. Johnson & Johnson, 2015 U.S. App. LEXIS 15162 (2d Cir. Aug. 27, 2015). The case arose because Johnson & Johnson, a pharmaceutical manufacturer, offered rebates and discounts to certain "favored purchasers," resulting in higher prices for retail pharmacies for the same drugs. Because Johnson & Johnson did not contest that it sold name-brand drugs to different ...

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Posted in Terminations

The United States District Court for the District of South Carolina recently denied a terminated distributor's request for a preliminary injunction against a manufacturer and a new distributor. Machinery SoIs., Inc. v. Doosan Corp., 2015 WL 5554357 (D.S.C. Sept. 18, 2015). Doosan and Machinery Solutions were parties to a distribution agreement for the sale and service of new and used Doosan machine tools in North Carolina, South Carolina, and Georgia. Doosan terminated the agreement and entered into a new distribution agreement with Ellison for North Carolina, South Carolina ...

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Citing the applicable statutes of limitation and contractually agreed forum selection clauses, the United States District Court for the Eastern District of Missouri recently dismissed in part and transferred to Texas remaining claims brought by 111 franchisee plaintiffs against a franchisor. Armstrong v. Curves Int'l, 2014 WL 6085553 (E.D. Mo. Oct. 15, 2015). Gray Plant Mooty represents the franchisor in this case. The franchisees originally filed a 165- count complaint alleging that Curves made misrepresentations that induced them to buy their respective franchises, that ...

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Do you transfer customer data from the European Union to the United States? Employee data? If so, you better make sure that you are taking the right steps to comply with the EU data privacy and protection laws. On October 6, 2015, the European Court of Justice ruled that the 15-year-old EU-U.S. Safe Harbor Framework used by over 4,000 American businesses to transfer personal data from the 28 member countries of the European Union to the United States was immediately invalid. Maximillian Schrems v. Data Protection Commissioner, Case C-362/14 (Oct. 6, 2015). Even if a company did not ...

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The United States District Court for the Eastern District of Arkansas recently held that a forum selection clause in a series of franchise agreements was enforceable and did not violate Arkansas public policy. Ajax Holdings, LLC v. Comet Cleaners Franchise Grp., LLC, 2015 WL 5898310 (E.D. Ark. Oct. 9, 2015). Ajax and Comet Cleaners entered into a series of franchise agreements for Ajax to operate Comet Cleaners dry cleaning and laundry businesses. Under the franchise agreements, the parties agreed to bring all lawsuits arising from or relating to the agreements in the state or ...

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Posted in Noncompetes

A federal court in Georgia granted a plaintiff franchisor's motion for a preliminary injunction enforcing a franchise agreement's restrictive covenants in Cellairis Franchise, Inc. v. Duarte, 2015 WL 6517487 (N.D. Ga. Oct. 21, 2015). The defendant, Duarte, was a former employee, independent contractor, and officer of the franchisor who had been involved in finding and negotiating mall leases for the franchisor to open franchised cell phone kiosks. He was also a part-owner of four franchises, although he claimed he was not involved in their day-to-day operations or management ...

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Posted in Class Actions

A United States District Court in the Eastern District of Missouri recently granted class certification to certain former general managers of company-owned Panera restaurants in connection their employment dispute with the company. Boswell v. Panera Bread Co., 2015 WL 6445396 (E.D. Mo. Oct. 23, 2015). The class of former general managers alleged that Panera breached a buy-out provision in their employment agreements and also committed fraud because it never intended to comply with the provision. Panera contested the allegations, contending, among other things, that the ...

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On October 1, 2015, the North American Securities Administrators Association ("NASAA")—the franchise examiners—issued a "Proposed Franchise Commentary on Financial Performance Representations." NASAA is seeking to create new interpretations and guidelines for financial performance representations ("FPRs"), including (a) when franchisors can and cannot use data from company-owned or affiliate-owned outlets; (b) when franchisors can and cannot use a subset of the entire pool of franchised or company-owned outlets; and (c) the types of disclaimers, notes and ...

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Posted in Contracts

The New Jersey Superior Court recently affirmed summary judgment in favor of a retail lessor, holding that an exclusivity provision in a lease agreement with Starbucks did not prohibit the shopping center from also leasing space to a McDonald's franchisee. Delco LLC v. Starbucks Corp., 2015 WL 6159534 (N.J. Super. Ct. App. Div. Oct. 21, 2015). The lease agreement contained an exclusivity provision that prohibited the lessor from leasing space within the shopping center to any tenant (other than Starbucks) for the operation of a business selling coffee, espresso, and tea drinks. The ...

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A Massachusetts state appellate court has affirmed a trial court holding that Domino's Pizza LLC was not liable when a pizza delivery driver was robbed, kidnapped, and killed while making an early morning delivery. Lind v. Domino's Pizza LLC, 87 Mass. App. Ct. 650 (Mass. App. July 29, 2015). The plaintiffs—the parents and co-administrators of the victim's estate—brought a wrongful death action against Domino's on theories of vicarious liability, negligence, and negligent supervision and training.

Observing that courts have "consistently" determined that franchisors are ...

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A federal court has ruled that a plaintiff could not state a claim for negligence per se based on a defendant's alleged failure to comply with the disclosure requirements under the FTC's Franchise Rule. In G.P.P. Inc. v. Guardian Protection Products, 2015 U.S. Dist. LEXIS 85999 (E.D. Cal June 30, 2015), a distributor, Guardian Innovative Solutions ("GIS"), brought suit against its supplier, Guardian, regarding numerous distribution contracts covering multiple regions across the United States. GIS's central allegation was that the distribution agreements between the parties ...

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A federal court in New Jersey recently granted Steak n Shake's motion to dismiss a franchisee's fraud and misrepresentation claims in Cornerstone Inv. Partners, LLC v. Steak N Shake Enters., Inc., 2015 U.S. Dist. LEXIS 87533 (D.N.J. July 6, 2015). Steak 'n Shake has traditionally offered franchises for large "Classic" restaurants offering a full menu 24 hours a day. In January 2011, Steak 'n Shake began offering smaller "Signature" restaurants with a more limited menu and hours of operation. Plaintiff Cornerstone and Steak 'n Shake began negotiations for a Signature franchised ...

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The United States District Court for the Northern District of New York recently imposed contempt sanctions against a former franchisee after finding the franchisee had willfully violated an earlier injunction requiring her to comply with post-termination covenants against competition and solicitation contained in her franchise agreement. H&R Block Tax Servs. LLC v. Strauss, 2015 U.S. Dist. LEXIS 87668 (N.D.N.Y. July 7, 2015). Gray Plant Mooty represents the franchisor in this case. The franchisee had agreed that, upon termination, she would neither solicit clients to whom ...

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Posted in Arbitration

The United States Court of Appeals for the Fourth Circuit recently bifurcated a franchisor's common law claims from several franchisees' Maryland Franchise Law claims pursuant to the Federal Arbitration Act, and required the franchisor to pursue its claims in arbitration while the franchisees pursue their claims in Maryland district court. Chorley Enters. v. Dickey's Barbecue, 2015 U.S. App. LEXIS 13652 (4th Cir. 2015). Dickey's, a national franchisor of quick-service barbecue restaurants, claimed several of its Maryland franchisees breached their franchise agreements by ...

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In Espinosa v. Accor North America, Inc., 2015 La. App. LEXIS 2294 (La. App. July 8, 2015), the Louisiana Court of Appeal affirmed a lower court ruling that franchisor could not be held liable for injuries sustained by a guest who was shot at a Motel 6 location owned by a franchisee. Espinosa, who became a paraplegic as a result of the shooting, alleged that a broken gate enabled the armed robber to enter the parking lot. As against the franchisor, Accor, Espinosa asserted claims of direct negligence and vicarious liability, with the vicarious liability claim based on alleged actual and ...

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Posted in Discrimination

The United States District Court for the District of Indiana ruled on several motions in limine related to franchisee's claims under the Indiana Deceptive Franchise Practices Act ("IDFPA") in Andy Mohr Truck Center, Inc. v. Volvo Trucks, 2015 U.S. Dist. LEXIS 93817 (S.D. Ind. July 20, 2015), and declined to bar the plaintiff franchisee from presenting evidence showing concessions offered to franchisees in other states. The court was not persuaded by Volvo's argument that the IDFPA is properly construed as applying only to discrimination among Indiana franchisees. The plain ...

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Posted in Employment

The long anticipated Browning-Ferris decision was released on August 27, 2015. Browning Ferris Indus. of Cal., Inc., 362 N.L.R.B. No. 186. As expected, a three-member majority decided it was necessary to abandon the relatively "bright-line" definition of "joint-employer" to address the "current economic landscape" of the labor market. Citing to a 1982 Third Circuit opinion dealing with another Browning-Ferris affiliate, the Board majority said it needed to "revisit and to revise the Board's joint-employer standard . . . to put the Board's joint-employer standard on a clearer ...

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The Third Circuit court of appeals recently affirmed the denial of Wyndham Hotels' motion to dismiss a case brought by the FTC for unfair and deceptive trade practices. FTC v. Wyndham Worldwide Corp., 2015 WL 4998121 (3d Cir. Aug. 24, 2008). The FTC alleged that franchisor Wyndham Hotels & Resorts, along with its affiliates, engaged in deceptive practices by misrepresenting that it used standard and commercially reasonable practices to secure guest data, and engaged in unfair practices by failing to protect customer data. The claims arose after a criminal organization hacked into ...

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Posted in Antitrust

The United States District Court for the Western District of Pennsylvania recently denied in part a motion to dismiss a distributor's claims against a competing manufacturerdistributor for breach of contract and unlawful price discrimination. AlarMax Distributors, Inc. v. Honeywell International, Inc., 2015 WL 3645259 (W.D. Pa. June 9, 2015), involved a wholesale distributor of electronic fire and security products, AlarMax, that purchased its inventory from several companies, including defendant Honeywell. In addition to its manufacturing activities, Honeywell also ...

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As we see in some of the cases summarized above, change tends to leave some former distribution partners or would-be competitors on the outside looking in. It is in these situations when disputes, threats, and even litigation can result. In these same situations, therefore, the manufacturer is best served by having clear documentation in its files, having had legal compliance programs in place, having trained its employees how not to violate antitrust laws and other legal boundaries, and having understood and followed rules relating to pricing, exclusivity, and termination.

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Posted in Antitrust

The United States Court of Appeals for the Eleventh Circuit has affirmed the Federal Trade Commission's finding that McWane, Inc. violated Section 5 of the FTC Act when it developed an exclusive dealing program to maintain monopoly power in the domestic fittings market. McWane, Inc. v. FTC, 783 F.3d 814 (11th Cir. Apr. 15, 2015). The FTC initiated the enforcement action against McWane, a manufacturer of iron pipe fittings primarily used by municipal water authorities, for requiring exclusivity from its distributors. After a new manufacturer, Star Pipe Products, entered the ...

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Posted in Contracts

In LightStyles, Ltd. v. Marvin Lumber & Cedar Co., 2015 U.S. Dist. LEXIS 86954 (M.D. Pa. July 6, 2015), a federal court granted summary judgment in favor of manufacturer Marvin against a distributor, LightStyles, after Marvin terminated the parties' oral distribution agreement of sixteen years. LightStyles brought claims for (1) breach of contract, (2) breach of the covenant of good faith and fair dealing, (3) breach of a franchise agreement; (4) breach of fiduciary duty, (5) unjust enrichment, (6) promissory estoppel, and (7) intentional interference with business and ...

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Posted in Damages

The United States District Court for the Southern District of Ohio found that, under Ohio's Alcoholic Beverage Franchise Act, the diminished value of a terminated distributorship agreement includes the fair market value of the franchise contracts (including goodwill), plus any loss in the fair market value of the other tangible or intangible components of the distributorship resulting directly from loss of the brands. Tri County Wholesale Distribs., Inc. v. Labatt USA Operating Co., 2015 U.S. Dist LEXIS 81914 (S.D. Ohio June 24, 2015). Labatt, a successor manufacturer, had ...

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The United States Court of Appeals for the First Circuit recently affirmed a decision enforcing a forum selection clause contained in sales invoices that partially governed the relationship between a manufacturer and its local retailer. Carter's of New Bedford, Inc. v. Nike, Inc., 2015 U.S. App. LEXIS 10692 (1st Cir. June 24, 2015). The dispute arose when Nike notified Carter's, a clothing and footwear business located in Massachusetts and longtime retailer of Nike products, that it was terminating the parties' relationship. When Carter's brought suit in Massachusetts seeking ...

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Posted in Antitrust

In a case closely followed in the franchising and distribution industries, the proposed merger of national distributors Sysco Corporation and US Foods, Inc. has been blocked. FTC v. Sysco Corp., 2015 U.S. Dist. LEXIS 83482 (D.D.C. June 23, 2015). Upholding the administrative injunction, the United States District Court in Washington, D.C. agreed with antitrust concerns raised by the Federal Trade Commission. Many restaurant chain franchisors and others had been asked to support or refute these concerns as witnesses in the case, due to the close vendor relationships between food ...

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Posted in Antitrust

Finding Apple, Inc. per se liable under the Sherman Antitrust Act, the United States Court of Appeals for the Second Circuit has affirmed a district court's important ruling from 2013 in United States v. Apple, 2015 WL 3953243 (2d Cir. June 30, 2015). The appellate court agreed that Apple orchestrated what became a "horizontal" agreement among nearly all major book publishing companies to fix (and raise) prices of electronic books. Based on this analysis of the situation as horizontal—including the unique role of Apple, a nonpublisher—the court held Apple's conduct to be a per se

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The United States Court of Appeals for the Seventh Circuit recently held there was sufficient evidence to support a jury's determination that a manufacturer breached the duty of good faith and fair dealing implied into a dealer agreement. In Tilstra v. BouMatic LLC, 2015 WL 3953403 (7th Cir. June 30, 2015), Tilstra was a dealer of BouMatic dairy equipment, with a particularly lucrative exclusive dealership territory. Under the dealer agreement between the parties, BouMatic had the right to modify the assigned dealership territory "at its sole discretion," but could not terminate ...

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The Third Circuit Court of Appeals, after certifying the issue to the Delaware Supreme Court, has ruled that a supplier's inventory repurchase obligation under Delaware's dealer law is limited to new, unused, undamaged and complete inventory. Southern Track & Pump, Inc. v. Terex Corp., 2015 U.S. App. LEXIS 11190 (3d Cir. June 30, 2015). Plaintiff Southern Track terminated its distributorship agreement with Terex after Southern Track had difficulty marketing approximately $4 million worth of construction equipment purchased from Terex. Although Delaware's Equipment Dealer ...

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Posted in Terminations

The Wisconsin Court of Appeals affirmed a jury's finding that a manufacturer, CNH America, terminated a dealership agreement without good cause in violation of Wisconsin's Fair Dealership Law, finding that CNH had imposed a market share requirement that discriminated against small dealers. Chili Implement Co. v. CNH Am., LLC, 362 Wis. 2d 540 (Wis. Ct. App. Apr. 30, 2015). CNH, an agricultural equipment manufacturer, granted a dealership to Chili Implement. During the term of their agreement, CNH sent Chili a notice stating, in part, that Chili needed "to meet or exceed 90% of the ...

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A Wisconsin district court granted a distributor's motion for summary judgment finding that the distributor was entitled to the termination protections provided by the Texas Fair Practices of Equipment Manufacturers, Distributors, Wholesalers and Dealers Act (the "FPA") even though no written agreement existed between distributor and manufacturer. Texas UJoints, LLC v. Dana Holding Corp., 2015 WL 3454431 (E.D. Wis. June 1, 2015). In 2012, Texas UJoints, a distributor, acquired the assets of Automotive Industrial Supply Co., Inc. ("AISCO"), a distributor of Dana's ...

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The United States District Court for the Southern District of New York has held that a provision in a franchise agreement disclaiming a franchisee's reliance on statements made outside of the franchise disclosure document was sufficient to defeat a claim for common law fraud. The court, however, also found the same disclaimer provision did not bar a cause of action for statutory fraud under the New York Franchise Sales Act ("NYFSA"). Coraud LLC v. Kidville Franchise Co., 2015 U.S. Dist. LEXIS 77028 (S.D.N.Y. June 12, 2015). Prior to the sale of the franchise, the franchisor, Kidville ...

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Posted in Contracts

A federal district court in Colorado recently granted a franchisor's motion for summary judgment on claims of breach of contract, trademark infringement, unfair competition, and injunctive relief against two terminated franchisees, while rejecting the franchisees' counterclaims for breach of contract and fraud. Steak 'n Shake Enters., Inc. v. Globex Co., 2015 WL 3883590 (D. Colo. June 23, 2015). The franchisor, Steak 'n Shake, alleged that franchisees Globex and Springfield Downs, LLC, had breached the franchise agreement by charging more than allowed for certain food and ...

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A federal court recently denied defendant Harley-Davidson's motion to dismiss a claim under the Hawaii Franchise Investment Law ("HFIL"). Cycle City Ltd., v. Harley-Davidson Motor Co., 2015 WL 3407825 (D. Haw. May 26, 2015). Cycle City alleged that HarleyDavidson failed to renew a license agreement between the parties in violation of the HFIL. In response, Harley-Davidson argued that Cycle City failed to state a claim under the HFIL because the relationship between the parties is not a franchise governed by the law. Under the parties' license agreement, Cycle City was granted the ...

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The United States Court of Appeals for the Third Circuit recently affirmed an order holding a franchisor liable for damages awarded against its predecessor in an arbitration proceeding brought by one of the predecessor's franchisees. Regis Corp. v. S. El Dorado Corp. (In re Trade Secret Inc.), 2015 U.S. App. LEXIS 9912 (3d Cir. June 10, 2015). Houston BW, Inc., the franchisee, had filed an arbitration action seeking to terminate its franchise agreements with the original franchisor, Trade Secret, Inc. Trade Secret then filed for bankruptcy, and its assets and liabilities were ...

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Posted in Insurance

In connection with a lawsuit by a franchisor against former franchisees for injunctive relief, a federal court in Wisconsin granted a motion by the former franchisees' insurer seeking a declaration that the former franchisees were not entitled to coverage because their policy only covered suits for damages. Paul Davis Restoration, Inc. v. Everett, 2014 U.S. Dist. LEXIS 172227 (E.D. Wis. Dec. 12, 2014). The franchisor, Paul Davis Restoration, initiated the suit against former franchise owners, the Everetts, and their businesses, to enjoin them from disseminating misleading ...

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Posted in Contracts

A federal court in Florida recently denied a franchisor's motion for summary judgment, finding that issues of fact remained as to whether the franchisor or the franchisee was responsible for alleged breaches of the franchise agreement. Creative Am. Educ., LLC v. The Learning Experience Sys., LLC, 2015 U.S. Dist. LEXIS 60138 (S.D. Fla. May 7, 2015). Pursuant to a management agreement between the parties, the franchisor ("TLE") assumed initial management responsibilities for the two franchises at issue, then transitioned responsibility to the franchisee ("CAE"). At some point ...

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Posted in Contracts

The United States Court of Appeals for the Seventh Circuit recently reversed a lower court's judgment that a sales agreement was of indefinite duration and therefore terminable at will. Burford v. Accounting Practice Sales, Inc.,2015 U.S. App. LEXIS 7894 (7th Cir. May 13, 2015). The parties had entered into an agreement whereby Burford facilitated the purchase and sale of accounting practices in a designated territory on behalf of Accounting Practice Sales ("APS"). The agreement had an initial term of twelve months and provided that it would renew automatically for another ...

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The U.S. District Court for the Northern District of Texas confirmed that the FTC's Franchise Disclosure Rules do not confer a private right of action. In Yumilicious Franchise, LLC v. Barrie, 2015 U.S. Dist. LEXIS 64407 (N.D. Tex. May 18, 2015), Yumilicious had filed breach of contract claims against a franchisee, Barrie, which had failed to make required payments and closed its franchised frozen yogurt store without consent. Barrie responded with counterclaims alleging violations of the Texas Deceptive Trade Practices Act ("DTPA"), the Franchise Rule, and the Texas and South ...

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Posted in Arbitration

The United States District Court for the Southern District of Georgia granted a franchisor's motion to compel arbitration, concluding that a franchisee and its employee were not transportation employees of the franchisor, and thus not exempt from the Federal Arbitration Act. Morning Star Assocs., Inc. v. Unishippers Global Logistics, LLC, 2015 U.S. Dist. LEXIS 66042 (S.D. Ga. May 20, 2015). The case arose out of three franchise agreements between Morning Star and Unishippers and a noncompetition agreement between Morning Star and one of its employees. Each of the franchise ...

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Posted in Procedure

The United States District Court for the Eastern District of California recently denied a franchisee's request to stay the franchisor's motion for a preliminary injunction so the franchisee could take expedited discovery. TGI Friday's Inc. v. Stripes Rests., Inc., 2015 U.S. Dist. LEXIS 62885 (E.D. Cal. May 13, 2015). TGI Friday's had terminated the franchise agreements after Stripes failed to pay amounts owed. TGI Friday's sued and moved for a preliminary injunction after Stripes continued to operate the TGI Friday's restaurants using TGI Friday's trademarks. Stripes filed an ...

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Posted in Trademarks

The federal district court in Minnesota granted a franchisor's motion for summary judgment against a competitor who used variations of its trademark in online advertisements and when interacting with customers. Zerorez v. Distinctive Cleaning, Inc. 2015 U.S. Dist. LEXIS 58635 (D. Minn. May 5, 2015). Zerorez Franchising System, a carpet cleaning franchisor, brought suit against Distinctive Cleaning, a competing carpet cleaning business located in the same area, and its owner and day-to-day manager after discovering online advertisements for "Zero Rez Carpet Cleaning" with ...

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Posted in Arbitration

The Illinois Court of Appeals held that an arbitrator did not make a gross error of law in concluding that the exemption to the Illinois Franchise Disclosure Act's disclosure requirements did not apply where the franchisor and franchisee were controlled by the same individual and they entered into a franchise agreement when that individual was already in negotiations to sell the franchise to another party. McGill v. Wortham, 2015 III. App. Unpub. LEXIS 1052 (III. App. Ct. May 15, 2015). The arbitrator found that the franchisees, McGill, were entitled to rescission of the franchise ...

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Posted in Arbitration

The Massachusetts Supreme Judicial Court found that a franchisor could compel subfranchisees to arbitrate their disputes under arbitration clauses in the sub-franchise agreements, even if the franchisor was not a signatory to such agreements. Machado v. System4 LLC, 2015 Mass. Lexis 163 (Mass. Apr. 13, 2015). The plaintiff franchisees of a System4 subfranchisor filed a complaint against the subfranchisor and System4 alleging breach of contract and violations of the Massachusetts Wage Act. The subfranchisor and System4 filed a motion to stay proceedings pending arbitration ...

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Posted in Arbitration

The Second Circuit has affirmed in part and reversed in part a district court's injunction in aid of arbitration in a license agreement dispute. Benihana, Inc. v. Benihana of Tokyo, LLC, 2015 WL 1903587 (2nd Cir. Apr. 28, 2015). For many years, Benihana of Tokyo had been operating a restaurant in Hawaii pursuant to a license agreement with Benihana, Inc. ("Benihana America"). Despite provisions in the license agreement that prohibited Benihana of Tokyo from serving unapproved menu items, the restaurant began serving hamburgers without approval. After Benihana America terminated ...

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A franchisor recently prevailed on a motion to dismiss an amended complaint filed by a former franchisee, which alleged the franchisor had violated the Wisconsin Franchise Investment Law during the franchise sales process. Braatz, LLC v. Red Mango FC, LLC, 2015 U.S. Dist. LEXIS 54885 (N.D. Tex. Apr. 27, 2015). On November 4, 2011, Red Mango provided Braatz with its current FDD, which included a form franchise agreement. On December 28, 2011, Red Mango provided Braatz with an official franchise agreement to sign, which was executed and returned by Braatz with a check on January 5, 2012 ...

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Posted in Trademarks

In a recent case a federal court in New Jersey granted a franchisee's motion to dismiss trademark infringement claims brought by the franchisor, but granted the franchisor leave to amend its claim. 7 Eleven, Inc. v. Maia Inv. Co., 2015 U.S. Dist. LEXIS 50753 (D.N.J. Apr. 17, 2015). 7-Eleven brought suit against its franchisee, Maia, after discovering that it had sold 7-Eleven branded products at a competing convenience store. Specifically, 7-Eleven alleged that Maia had sold various 7-Eleven proprietary products, such as Cheeseburger Bites and BIG BITE hot dogs, at its own store ...

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In Patel v. 7-Eleven, Inc., Bus. Franchise Guide (CCH) 9115,492 (C.D. Cal. Apr. 14, 2015), a former franchisee alleged that 7-Eleven unlawfully terminated its franchise. While preparing to file the case, Patel's counsel was contacted by a disgruntled employee in 7- Eleven's Asset Protection Department, Kurt McCord, who offered his services as a "Loss Prevention Consultant." Patel hired McCord. He drafted a document specifying how 7- Eleven's Asset Protection Department operated, a summary of proper interview techniques, and an analysis of 7-Eleven's loss prevention ...

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Posted in Contracts

A federal district court in Michigan recently denied a franchisee's motion to dismiss its franchisor's counterclaims for breach of contract and a declaratory judgment. AKB Wireless, Inc. v. Wireless Toyz Franchise LLC, 2015 U.S. Dist. LEXIS 48005 (E.D. Mich. Apr. 13, 2015). The franchisor, Wireless Toyz, alleged that AKB had breached its franchise agreement by, among other things, violating the agreement's covenant not to compete and confidentiality provisions. AKB argued that the franchise agreement's noncompetition and confidentiality provisions only applied upon ...

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Posted in Damages

In a case involving claims for rescission of the franchise agreement and damages related to a franchisee's purchase of a day care franchise, the Georgia Supreme Court recently reversed the franchisee's favorable jury verdict and remanded the case for a new trial. Legacy Acad., Inc., v. Mamilove, LLC, 2015 Ga. LEXIS 233 (Ga. Apr. 20, 2015). Mamilove and its owners alleged that the franchisor, Legacy Academy, made improper earnings claims, and that they were fraudulently induced to sign the franchise agreement with false information from historical earnings of existing ...

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Following a two-week jury trial in federal court in Philadelphia on a real estate developer's tortious interference claim, a jury recently returned a complete defense verdict in favor of Dunkin' Donuts. Selzer v. Dunkin' Donuts Inc., No. 2:09-cv-05484-GP (E.D. Pa.). Gray Plant Mooty represented the franchisor in this case, which involved a Pennsylvania real estate developer who had entered into an agreement with a Dunkin' Donuts franchisee to develop his stores in York, Pennsylvania. The franchisee had entered into a store development agreement with Dunkin', giving him the ...

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Posted in Contracts

In Unlimited Opportunity, Inc. v. Waadah, 2015 Neb. LEXIS 71 (Neb. Apr. 10, 2015), the Supreme Court of Nebraska affirmed a district court's ruling that the post-term noncompete covenant contained within the parties' franchise agreement was unreasonable, and therefore unenforceable. Unlimited Opportunity, d/b/a Jani-King of Omaha, ("JaniKing") is a subfranchisor of professional cleaning and maintenance services. In 2008, Jani-King granted Waadah a franchise in the Omaha, Nebraska area, which franchise later was terminated. The parties' franchise agreement contained a ...

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Posted in Class Actions

A Pennsylvania federal court has granted class certification to a group of Jani-King® franchisees, allowing their lawsuit alleging contractor misclassification and wage claims under Pennsylvania's Wage Payment and Collection Law ("WPCL") to proceed. Myers v. Jani-King of Phila., 2015 U.S. Dist. LEXIS 29566 (E.D. Pa. Mar. 10, 2015). The action considered whether Texas-based franchisor Jani-King, a franchisor of commercial cleaning businesses, exercised so much control that its franchisees were employees, rather than independent business owners, and whether the ...

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Posted in Terminations

The Second Circuit affirmed a grant of summary judgment in favor of hotel franchisor HLT Existing Franchise Holding LLC, dismissing a former franchisee's claim that HLT improperly terminated the franchise agreement and permitting HLT to recover liquidated damages. HLT Existing Franchise Holding LLC v. Worcester Hospitality Grp., LLC, 2015 U.S. App. LEXIS (2d Cir. Apr. 9, 2015). The terminated Hampton Inn franchisee, Worcester Hospitality Group, LLC (WHG), argued that the district court erred in three respects, contending that: (1) HLT had violated the covenant of good faith ...

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Posted in Trademarks

The U.S. Supreme Court recently held that, under certain circumstances, rulings by the Trademark Trial and Appeal Board (TTAB) of the United States Patent and Trademark Office on the core issue of "likelihood of confusion" in contested trademark registration (opposition or cancellation) proceedings can be binding on a court considering the same issue in infringement litigation. B&B Hardware, Inc. v. Hargis Indus., Inc., 135 S. Ct. 1293 (March 24, 2015). The TTAB had held, in an opposition proceeding, that there was a likelihood of confusion between B&B's senior registered mark ...

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The Texas Court of Appeals recently overturned a jury verdict that had found the Domino's franchisor vicariously liable for a death and serious injuries resulting from an accident caused by the defective vehicle of a delivery driver. Domino's Pizza, LLC v. Reddy, 2015 Tex. App. LEXIS 2578 (Tex. Ct. App. Mar. 19, 2015). The court observed that whether a franchisor may be held vicariously liable for the acts of its franchisees depends on whether the franchisor had the right to the control the injury causing conduct. Reddy, a representative of the victims, argued that Domino's controls ...

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Posted in Terminations

The Third Circuit recently affirmed a federal district court's dismissal of a lawsuit against the franchisor of the Doctors Express franchise system. In Fabbro v. DRX Urgent Care, LLC, 2015 WL 1453537 (3d Cir. Apr. 1, 2015), the franchisee alleged that Doctors Express breached its contract, breached the duty of good faith, and fraudulently misrepresented the actual startup costs the franchisee would expend after entering into the franchise agreement. It claimed that its actual costs exceeded the estimates by a substantial margin, and it argued that overly restrictive ...

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Posted in Encroachment

The Commonwealth Court of Pennsylvania recently reversed a decision by the State Board of Vehicle Manufacturers, Dealers and Salespersons that prohibited Arctic Cat from appointing a new dealer to sell ATVs within an existing dealer's market. Arctic Cat Sales, Inc. v. State Bd. of Vehicle Mfrs., Dealers, and Salespersons, 2015 Pa. Commw. LEXIS 78 (Pa. Commw. Ct. Feb. 23, 2015). The existing dealer, Nieman, filed a protest before the board alleging that the addition of a new ATV dealership in its market would result in a price war that would cause one or both dealers to withdraw from the ...

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Posted in Class Actions

A California state appellate court affirmed the denial of a motion for class certification for a group of independent Apple dealers (known as Specialists) in Siechert & Synn v. Apple, Inc., 2015 WL 513645 (Cal. Ct. App. Feb. 6, 2015). The plaintiffs failed to show that common questions predominated over individual issues or that a class action would be superior to individual suits. The court also found that facts related to the statute of limitations, causation, and alleged misrepresentation should all be determined on an individual basis.

All of the plaintiffs were in the business of ...

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In DeTemple v. Leica Geosystems Inc., Bus. Franchise Guide (CCH) ¶ 15,460 (N.D. Ga. Feb. 9, 2015), the United States District Court for the Northern District of Georgia determined that a genuine issue of material fact existed as to whether a manufacturer and its distributor shared a community of interest within the meaning of the Wisconsin Fair Dealership Law (WFDL). The dispute arose when Leica Geosystems, a manufacturer of surveying and construction products, terminated DeTemple d/b/a TPSG, one of its Wisconsin-based distributors, after TPSG failed to meet performance ...

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A federal court in Minnesota has found that the parties' exclusive distribution agreement did not meet the definition of a franchise under the Minnesota Franchise Act (MFA). Rogovsky Enter., Inc. v. MasterBrand Cabinets, Inc., 2015 U.S. Dist. LEXIS 24834 (D. Minn. Feb. 13, 2015). The agreement provided for Rogovsky (the franchisor of the "Kitchen and Home Interiors" system of kitchen and bath remodeling businesses) to source cabinetry products for its franchisees exclusively through MasterBrand. MasterBrand terminated the agreement approximately two years into its ...

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Posted in Antitrust

A federal court recently allowed a price discrimination claim against Nike to proceed to discovery. Games People Play, Inc. v. Nike, Inc., 2015 U.S. Dist. LEXIS 33217 (E.D. Tex. Feb. 12, 2015). Games People Play (GPP) is a golf retailer in Texas that had been selling Nike apparel and equipment since 1986. In 2010, GPP discovered what it considered to be a significant price disparity between what it was paying for specialty Nike golf clubs and what its competitors were paying for the same clubs. GPP alleged that in the two years after it complained to Nike about this price disparity, Nike ...

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Posted in Terminations

A Washington federal court granted Volvo's motion for partial summary judgment, finding that the implied covenant of good faith and fair dealing had no bearing on the exercise of Volvo's unrestricted contractual right to terminate a dealership agreement. Volvo Constr. Equip. N. Am., LLC v. Clyde/West., Inc., 2014 U.S. Dist. LEXIS 168264 (W.D. Wash. Dec. 3, 2014). Volvo terminated its dealership agreement with Clyde, a dealer of Volvo's heavy construction equipment, under a provision of the agreement that allowed either party to terminate the relationship for any reason after ...

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Posted in Antitrust

Following a nine-day jury trial in the United States District Court for the District of Minnesota, a manufacturer of fireplaces and related products won a jury verdict defeating all counts in a product distribution and antitrust case tried earlier this year. J&M Distrib., Inc. v. Hearth & Home Techs., Inc., No. 13- cv-00072-SRN-TNL (D. Minn. Jan. 23, 2015). The lawsuit, in which Gray Plant Mooty represented the manufacturer, Hearth & Home Technologies, followed the decision of Hearth & Home to terminate its wholesale, two-step distributor in Pennsylvania, Ohio, Maryland, and West ...

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Posted in Terminations

In Sleepy's LLC v. Select Comfort Wholesale Corp., the United States Court of Appeals for the Second Circuit reversed the dismissal of a distributor's breach of contract claims, holding that the terms of the parties' distribution agreement may have remained in place after its expiration date. 779 F.3d 191 (2d Cir. 2015). The distributor, Sleepy's, claimed that the manufacturer, Select Comfort, had breached the nondisparagement provision in the parties' distribution agreement. The trial court found that the distribution agreement ceased to operate after its stated expiration ...

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Posted in Antitrust

The United States District Court for the Western District of Wisconsin denied a motion to dismiss a lawsuit alleging violations of the Robinson-Patman Act based on the discriminatory offering of different product sizes to sellers for resale. Woodman's Food Mkt., Inc. v. Clorox Sales Co., 2015 U.S Dist. LEXIS 11656 (W.D. Wis. Feb. 2, 2015). After Clorox informed Woodman's that it would no longer offer Woodman's the large pack products that it offered to bulk retailers like Sam's Club and Costco, Woodman's brought suit against Clorox under the Robinson-Patman Act's price ...

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A federal court in California granted a franchisor's motion to preliminarily enjoin a former franchisee from continuing to use its trademarks following the franchisee's termination for failure to pay royalties and advertising fees. IHOP Franchising, LLC v. Hameed, 2015 U.S. Dist. LEXIS 12021 (E.D. Cal. Feb. 2, 2015). After IHOP and its affiliates terminated the franchise agreement, Hameed continued to operate his restaurant using IHOP's trademarks. IHOP then filed suit for breach of contract, trademark infringement, and unfair competition, and moved to enforce Hameed's ...

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In Ramada Worldwide, Inc. v. SB Hotel Management Inc., 2015 U.S. Dist. LEXIS 20955 (D.N.J. Feb. 23, 2015), a federal court in New Jersey denied a franchisee's attempt to dismiss the complaint for improper venue or, alternatively, transfer the case to Minnesota. Ramada brought an action against the franchisee, SB, in New Jersey federal court for breach of a license agreement for the operation of a Ramada Inn located in Wisconsin. In the license agreement, SB consented to the nonexclusive jurisdiction of the New Jersey courts for any dispute between the parties. In response to the ...

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Posted in Arbitration

A federal court in Pennsylvania recently ruled that a cleaning service franchisee must arbitrate his claims against a franchisor on an individual basis, upholding the franchise agreement's arbitration clause and class action waiver. Torres v. CleanNet USA, Inc., 2015 WL 500163 (E.D. Pa. Feb. 5, 2015). Torres claimed CleanNet and its two subfranchisors engaged in a scheme to misclassify franchisees as independent contractors to avoid their obligations under state labor laws. Citing the United States Supreme Court's decision in AT&T Mobility LLC v. Concepcion, the court ...

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Posted in Arbitration

In an unusual twist, an Idaho federal court granted a former franchisee's motion to dismiss, or alternatively, a motion to stay the action pending arbitration, because the franchisor's claims were subject to the franchise agreement's arbitration clause. Arctic Circle Rests. v. Bell, 2015 U.S. Dist. LEXIS 24342 (D. Idaho Feb. 26, 2015). Arctic Circle, a franchisor, filed an action to enforce certain provisions of the franchise agreement, as well as claims under trademark and unfair competition law, after Bell continued to use trademarks owned by Arctic Circle and refused to ...

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Posted in Employment

The trend of troublesome "joint employer" lawsuits against franchisors continues. In Benitez v. Demco, 2015 US Dist. Lexis 20325 (S.D.N.Y. Feb. 19, 2015), for example, a federal court in New York declined to consider a franchisor's motion to dismiss federal and New York state-law claims asserted by franchisees' employees, on the grounds that imposing joint-employer liability is a fact specific question that cannot be resolved on a motion to dismiss. Two managers of Planet Wings franchises claimed the franchisor was liable as their employer for various wage and hour violations. To ...

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A federal court in the Northern District of Georgia recently ruled in favor of the franchisor of the Moe's Southwest Grill, and related parties, in a case brought by several Moe's franchisees, alleging that Moe's made written and oral misrepresentations related to the profits that Moe's derived from franchisees' purchase of food supplies. Massey, Inc. v. Moe's Southwest Grill, LLC, 2015 U.S. Dist. LEXIS 12281 (N.D. Ga. Feb. 3, 2015). The franchisees alleged that Moe's offering circular falsely represented that neither Moe's nor its affiliates would derive income from ...

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Posted in Employment

A state appellate court has reinstated a decision of the Board of Industrial Insurance Appeals that Jan-Pro cleaning franchisees without employees or subordinates were considered covered workers under the Washington Industrial Insurance Act. Dept. of Labor and Indus. v. Lyons Enters., Inc., 2015 WL 459409 (Wash. Ct. App. Feb. 3, 2015). The Act requires employers to report and pay workers compensation premiums for covered workers. Lyons Enterprises, the master franchisee of Jan-Pro cleaning franchises, argued that franchisees should not be considered workers under the Act ...

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A federal court in California recently denied a motion by former franchisees to dismiss a franchisor's claims for breach of contract and trademark infringement based on the contractual limitations period in the parties' franchise agreement. Fantastic Sam's Salons, Corp. v. Moassesfar, 2015 U.S. Dist. LEXIS 6934 (C.D. Cal. Jan. 21, 2015). Moassesfar had operated one Fantastic Sam's salon for three years and a second for over two years without paying franchise fees. In 2014, Fantastic Sam's sent Moassesfar a notice of default and provided an opportunity to cure the financial ...

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A federal court in Pennsylvania recently barred a franchisee from introducing evidence at trial that a franchisor had fraudulently induced the franchisee to enter into a contract through extra-contractual assurances. In G6 Hospitality v. HI Hotel Group, LLC, 2015 U.S. Dist. LEXIS 5125 (M.D. Pa. Jan. 15, 2015), G6 Hospitality brought suit for breach of contract and infringement of G6's Motel 6 trademarks. As trial approached, G6 anticipated that HI would assert an affirmative defense to the contract claim by arguing that it entered into the franchise agreement only because of ...

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Posted in Damages

A federal court in New Jersey last week refused to grant judgment to a franchisor without a trial to enforce a guaranty because the target guarantor submitted evidence that, while his own signature was undisputed, the signatures of his fellow guarantors were forged. Ramada Worldwide Inc. v. Jafri, 2015 U.S. Dist. LEXIS 10050 (D.N.J. Jan. 29, 2015). There were four guarantors to the franchisee's obligations under the hotel franchise agreement in this case. The party against which the franchisor sought summary judgment opposed the motion on the theory that he would not have committed ...

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The United States District Court for the Northern District of New York has preliminarily enjoined a former franchisee from operating a competing business in violation of her covenant not to compete with the franchisor. H&R Block Tax Servs., LLC v. Strauss, Case No. 1:15-cv-0085 (N.D.N.Y. Feb. 4, 2015). Gray Plant Mooty represents H&R Block in this case. The franchisee, Strauss, had agreed that upon termination of her franchise agreement she would neither solicit clients to whom her franchise had provided tax return preparation services nor compete with H&R Block in the business of ...

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Posted in Arbitration

A federal court in Illinois recently held that it lacked subject-matter jurisdiction over a putative franchisee class action in light of the binding arbitration provision in the governing franchise agreement. Sanchez v. CleanNet USA, Inc., 2015 U.S. Dist. LEXIS 5383 (N.D. III. Jan. 15, 2015). The named plaintiff, Sanchez, filed suit against franchisor CleanNet USA and area operator CleanNet IL claiming violation of the Fair Labor Standards Act. Both defendants moved for dismissal based on a mandatory arbitration provision in the franchise agreement. In response, Sanchez ...

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In Vann v. Massage Envy Franchising, LLC, 2015 U.S. Dist. LEXIS 1002 (S.D. Cal. Jan. 6, 2015), the United States District Court for the Southern District of California found that Massage Envy Franchising was not the employer or a joint employer of its franchisees' employees, and therefore was not liable for any alleged wage and hour law violations. Vann, a former employee of two franchised spas, alleged Massage Envy exercised control over hiring and firing because it: (a) provided franchisees with operations manual containing suggested personnel policies; (b) hired district ...

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Posted in Terminations

The United States Court of Appeals for the Ninth Circuit upheld the termination of a group of franchisees based on their failure to make required payments and their abandonment of one of their franchised offices. Century 21 Real Estate LLC v. All Prof'l Realty, Inc., 2015 U.S. App. LEXIS 645 (9th Cir. Jan. 15, 2015). After Century 21 filed suit to enforce termination of the parties' franchise agreements, the franchisees asserted a variety of counterclaims, including breach of contract, unfair competition, breach of the implied covenant of good faith and fair dealing, and violation of ...

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Despite various procedural efforts by McDonald's, it remains unclear what specific conduct the NLRB contends makes a franchisor—even McDonald's—a "joint employer" with its franchisees. As is well known in franchising circles, on Dec. 19, 2014, the NLRB Office of the General Counsel (GC) issued 13 complaints involving McDonald's USA, LLC and 21 of its franchisees, consolidating 78 alleged violations of labor laws including "discriminatory discipline, reduction in hours, discharges and other coercive conduct directed at employees in response to union and protected ...

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Posted in Arbitration

Affirming a district court decision that had in turn confirmed an arbitration award for a franchisor, the United States Court of Appeals for the Seventh Circuit last Friday ruled that an arbitrator's alleged error of law would not constitute manifest disregard of the law. Renard v. Ameriprise Fin. Servs., Inc., 2015 U.S. App. LEXIS 1558 (7th Cir. Jan. 30, 2015). Ameriprise, the franchisor in this case, had won an arbitration award against the Wisconsin-based franchisee, Renard, of more than $448,000 on promissory notes. In the arbitration hearing, Renard had argued that he did not ...

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As has been widely reported in the media, the National Labor Relations Board last month filed complaints in 13 regional NLRB offices charging multiple McDonald’s franchisees with unfair labor practices relating to union organizing activities at McDonald’s franchised restaurants across the country. The NLRB also alleged that McDonald’s USA, LLC is liable for the alleged labor violations as a “joint employer” with its franchisees. The claims against the McDonald’s franchisees allege a variety of unfair labor practices, including reducing working hours ...

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The United States District Court for the District of Massachusetts granted a franchisor’s motion for a preliminary injunction seeking to prevent a group of holdover franchisees from using its trademarks, but permitted the franchisees to continue operating their business as an unaffiliated convenience store until a full adjudication on the merits. 7-Eleven, Inc. v. Grewal, 2014 U.S. Dist. LEXIS 163712 (D. Mass. Nov. 20, 2014). 7-Eleven terminated the parties’ franchise relationship after an investigation revealed that Grewal had falsified its sales data by incorrectly ...

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A New York court recently denied a franchisor’s motion to dismiss claims brought by its franchisee. Schwartzco Enters., LLC v. TMH Management, LLC, 2014 U.S. Dist. LEXIS 160856 (E.D.N.Y. Nov. 17, 2014). Schwartzco brought multiple causes of action alleging that the franchisor and related individuals participated in a fraudulent scheme in the sale of franchise and area developer rights for The Meat House system, violating numerous state laws and regulations. According to Schwartzco, the franchisor made material misrepresentations, including providing false financial ...

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Posted in Choice of Law

A federal court in the Southern District of Illinois recently struck a franchise agreement’s choice of law provision after concluding that the state in which the franchise was located had a materially greater interest in the dispute than the state whose law was chosen by contract. Show-Me’s Franchises, Inc. v. Sullivan, 2014 U.S. Dist. LEXIS 171507 (S.D. Ill. Dec. 11, 2014). In a case started by Show-Me, Sullivan brought counterclaims alleging violations of the Indiana Deceptive Franchise Practice Act, the Illinois Franchise Disclosure Act, and Indiana common law. He argued ...

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In a case defended by Gray Plant Mooty, a Minnesota federal court recently denied an injunction motion brought by a party claiming to be a putative franchisee under the Minnesota Franchise Act (MFA). Wave Form Sys., Inc. v. AMS Sales Corp., 2014 U.S. Dist. LEXIS 175927 (D. Minn. Dec. 22, 2014). Wave Form was an Oregon corporation that supplied health care providers with laser equipment and services, including medical procedures that use “GreenLight” lasers marketed by AMS Sales Corp. In 2012, Wave Form signed a two-year agreement with AMS that provided nonexclusive use of AMS’s ...

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The United States District Court for the Central District of California declined to extend the test for imposing employer liability established by the California Supreme Court in Patterson v. Domino’s Pizza, LLC, S204546 (Cal. Aug. 28, 2014) (reported on in Issue 184 of The GPMemorandum) beyond the franchise context. Ambrose v. Avis Rent a Car Sys., Inc., 2014 U.S. Dist. LEXIS 170406 (S.D. Cal. Dec. 8, 2014). Ambrose had entered into an “independent operator” agreement to operate a Budget Rent a Car business. The court found that the agreement was indistinguishable from a ...

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Posted in Damages

The Georgia Court of Appeals held that a franchisor could claim lost future royalties based on the franchisee’s breach of the franchise agreement, but denied the recovery because the franchisor had not established its lost future royalties with sufficient specificity. Legacy Academy, Inc. v. JLK, Inc., 2014 Ga. App. LEXIS 833 (Ga. Ct. App. Nov. 20, 2014). JLK, a franchisee for a Legacy Academy childcare center, informed its franchisor that it intended to terminate the parties’ relationship, and then it continued operations under a different name. Legacy Academy sued for ...

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The court in Chicago Male Medical Clinic v. Ultimate Management, Inc., determined that a “consulting agreement” was a franchise under the Illinois Franchise Disclosure Act (IFDA), and awarded the plaintiff rescission of the agreement. 2014 U.S. Dist. LEXIS 174478 (C.D. Cal. Dec 16, 2014). Chicago Male operated a medical clinic under a “Continuing Compensation and Consulting Agreement” with Ultimate Management. Approximately nine months after executing the agreement, Chicago Male sued for rescission. Chicago Male claimed it was a “franchisee” under the IFDA ...

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The United States District Court for the Northern District of California recently denied a franchisor’s motion to dismiss claims of fraud and misrepresentation, and allowed the franchisee to proceed with claims that the franchisor misrepresented the feasibility of the independent contractor business model. The parties in Andersen v. Griswold Int’l, LLC, Case No. 3:14-cv-02560 (N.D. Cal. Dec. 16, 2014), entered into a franchise agreement under which Andersen operated a nonmedical home care business. He claimed that before the sale of the franchise, Griswold made ...

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Posted in Advertising

A federal court in Wisconsin granted a franchisor’s motion for a preliminary injunction prohibiting a former franchisee from broadcasting a misleading radio advertisement about the franchisor’s business. Paul Davis Restoration, Inc. v. Everett, 2014 U.S. Dist. LEXIS 172227 (E.D. Wis. Dec. 12, 2014). Following a series of lawsuits, the franchisor, Paul Davis, sought to enforce an arbitration award against former franchisee Everett. Everett responded by running an ad, which purported to be a “business advisory,” construing the franchisor’s attempt to enforce the ...

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A federal district court in Wisconsin has granted a franchisor’s motion for a preliminary injunction against a former franchisee who continued to use a variation of the franchisor’s trademark after entering into a Franchise Termination Agreement. Dent Doctor, Inc. v. Dent Clinic, Inc., 2014 WL 7139831 (E.D. Wis. Dec. 12, 2014). Dent Clinic operated a Dent Doctor franchise from 1993 to 2012 until the parties entered into the termination agreement. The agreement required Dent Clinic to cease using the trademark DENT DOCTOR. In response, it replaced the mark DENT DOCTOR with DENT ...

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Posted in Antitrust

A federal court in New Jersey recently dismissed a claim for inducing price discrimination between competing distributors, but granted the plaintiff leave to file an amended complaint with additional factual allegations. Marjam Supply Co. v. Firestone Bldg. Prods. Co., 2014 U.S. Dist. LEXIS 158217 (D.N.J. Nov. 7, 2014). Marjam, a distributor of Firestone products, filed suit against the manufacturer of roofing systems and products, as well as against various competing Firestone distributors, for price discrimination violations under the Robinson-Patman Act. Firestone ...

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The Supreme Court of New York recently denied a manufacturer's motion to dismiss a dealer's cause of action for breach of the covenant of good faith and fair dealing on the grounds that the manufacturer may have acted improperly in placing a competing dealer in the midst of the dealer's core market segment. JJM Sunrise Auto., LLC v. Volkswagen Grp. of Am., Inc., 2014 N.Y. Misc. LEXIS 4793 (N.Y. Sup. Ct. Nov. 6, 2014). The parties had entered into a dealer agreement pursuant to which JJM became an authorized Audi dealer and operated its own dealership. JJM alleged that Audi breached the ...

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Posted in Terminations

The United States District Court for the District of Puerto Rico recently denied summary judgment motions brought by both parties in Casco, Inc. v. John Deere Construction Co. Sr Forestry Co., 2014 U.S. Dist. LEXIS 120472 (D.P.R. Aug. 26, 2014). Casco alleged that John Deere had violated the Puerto Rico Dealers Act (Law 75) when it unilaterally cancelled a purchase order for an excavator that Casco had sold to a customer. Casco asserted that the cancellation negatively impacted its cash flow and resulted in constructive termination of the distributor agreement. The core issue on the ...

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The United States District Court for the District of New Jersey recently denied a Nestle distributor's request for preliminary injunctive relief under the New Jersey Franchise Practices Act because the distributor failed to demonstrate that it maintained a "place of business" in New Jersey, within the meaning of the Act. Watchung Spring Water Co., Inc. v. Nestle Waters N. Am., Inc., 2014 U.S. Dist. LEXIS 151178 (D.N.J. Oct. 23, 2014). The court defined "place of business" to mean a location where selling is the predominant activity and where there is a substantial level of marketing ...

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The federal district court in South Dakota recently denied a defendant's motion to reconsider an order invalidating a forum-selection clause because it violated the public policy of the forum state. Black Hills Truck & Trailer, Inc. v. MAC Trailer Mfg., Inc., 2014 U.S. Dist. LEXIS 157968 (D.S.D. Nov. 6, 2014). MAC moved the court to transfer the litigation to the Northern District of Ohio based on a mandatory forum-selection clause in a distribution agreement between the parties. The court held that South Dakota's strong public policy rendered the forum-selection clause ...

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The federal court in Connecticut recently granted summary judgment in favor of a manufacturer on its motion to dismiss a distributor's claim under the Connecticut Franchise Act ("CFA"). Kinsley Group, Inc. v. MWM Energy Sys., Bus. Fran. Guide 91 15,389 (D. Conn., Sept. 23, 2014). Kinsley had been a distributor and authorized servicer of power generators manufactured by MWM since 2010. The relationship was not exclusive, however, and Kinsley derived the majority of its revenue from sales of a different manufacturer's products, in a noncompetitive sector. In 2012, MWM was acquired ...

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Posted in Transfers

Although they still lost on other grounds, parties who attempted to purchase a Mercedes Benz dealership may have made important law last month in their tortious interference lawsuit against the car company. Fresno Motors, LLC v. Mercedes Benz USA, LLC, 2014 U.S. App. LEXIS 21127 (9th Cir. Nov. 5, 2014). The plaintiffs maintained that Mercedes Benz did not provide timely notice it was exercising its right of first refusal to buy the dealership, and that the company's exercise of that right constituted interference with the plaintiff's contract to purchase the business from the ...

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Posted in Terminations

The United States Court of Appeals for the Second Circuit affirmed a district court's denial of a franchisee's request for preliminary injunctive relief under the Petroleum Marketing Practice Act (PMPA), finding that the franchisor's termination based on the franchisee's failure to timely pay fees was proper under the PMPA. Yonker Cent. Ave. Snack Mart, Inc. v. NY Fuel Distribs., LLC, Case No. 13-3841-cv (2nd Cir. Oct. 31, 2014). Under the PMPA, a franchisee is entitled to a preliminary injunction if it shows: (1) the franchise has been terminated; (2) serious questions going to the ...

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A court has denied a manufacturer's motions for judgment as a matter of law and for a new trial after a jury awarded one of its dealers nearly half a million dollars on his claim that his distribution agreement was constructively terminated, resulting in a breach of the implied covenant of good faith and fair dealing. Tilstra v. Bou-Matic, LLC, 2014 U.S. Dist. LEXIS 131531 (W.D. Wis. Sept. 19, 2014). Although the parties' agreement expressly allowed the manufacturer, Bou-Matic, to alter the territory of its dealer, Tilstra, in its sole discretion, it also required good cause for ...

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Posted in Class Actions

A federal district court in California determined that a franchisor could be held liable for violation of the California Unfair Competition Law (UCL) based upon the content of form membership agreements it had originated and distributed to its franchisees for sale to the public. In Hahn v. Massage Envy Franchising, LLC, 2014 U.S. Dist. LEXIS 147899 (S.D. Cal. Sept. 25, 2014), the plaintiffs represented a class of customers who had signed membership agreements at one of Massage Envy's franchised clinics. They argued that a provision in the agreements that required customers to ...

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Posted in Procedure

A federal court recently determined that a franchisee's affirmative defenses were barred by the doctrine of res judicata. In KFC Corp. v. Kazi, 2014 U.S. Dist. LEXIS 138278 (W.D. Ky. Sept. 30, 2014), KFC sought to recover past-due money from Kazi, the guarantor and sole shareholder of four franchisees that operated 142 terminated KFC units. Kazi asserted affirmative defenses attacking the franchisees' liability to KFC. The franchisor argued Kazi's defenses were barred because they were, or should have been, litigated during prior bankruptcy proceedings involving the ...

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Posted in Arbitration

A federal court in New Jersey recently granted a franchisor default judgment confirming an arbitration award against a former franchisee. Doctor's Assocs. Inc. v. Singh-Loodu, 2014 U.S. Dist. LEXIS 142208 (D.N.J. Oct. 6, 2014). Doctor's Associates prevailed in arbitration proceedings against Singh-Loodu, which terminated his Subway franchise, enjoined him from continuing to use its marks, and awarded monetary damages for each day he continued to operate the store. After arbitration, Doctor's Associates sought to confirm the award in federal court against both Singh-Loodu ...

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Posted in Damages

A federal court granted partial summary judgment in favor of a former franchisee after finding clear but technical violations of the Maryland and New York registration and disclosure laws, but refused to award damages. A Love of Food I v. Maoz Vegetarian USA, Inc., 2014 U.S. Dist. LEXIS 138962 (D.D.C. Sept. 30, 2014). After approximately two years of operations, franchisee A Love of Food's quick-service restaurant went out of business as a result of large operating losses and significantly higher than expected outof-pocket expenditures. A Love of Food brought suit against its ...

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Posted in Damages

The United States District Court for the Western District of Missouri awarded H&R Block Tax Services, which Gray Plant Mooty represented, $481,184.57 in attorneys' fees and costs incurred in connection with litigation arising out of Block's termination of its largest franchisee in Puerto Rico. H&R Block Tax Servs. LLC v. Acevedo-Lopez, 2014 U.S. Dist. LEXIS 139269 (W.D. Mo. Oct. 1, 2014). The court had previously awarded Block more than $1.3 million in damages and issued a permanent injunction enforcing the franchisee's posttermination obligations.

The court found that the time ...

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A Louisiana Court of Appeal recently upheld dismissal of a franchisee's complaint, which alleged that a franchisor's refusal to grant development rights and to approve the transfer of additional franchises to the existing franchisee violated the Louisiana Unfair Trade Practices Act (LUTPA). LeCompte v. AFC Enters., Inc., Bus. Franchise Guide (CCH)1 15,386 (La. Ct. App. Oct. 1, 2014). LeCompte was a franchisee for AFC Enterprises' Popeye's restaurants. He requested development rights after AFC announced its intent to expand in his local market. LeCompte's requests for ...

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In Robinson v. Wingate Inns International, the United States District Court for the District of New Jersey granted in part and denied in part the hotel franchisors' motion to dismiss a former franchisee's claims relating to two failed hotel franchises. 2014 U.S. Dist. LEXIS 139758 (D.N.J. Sept. 24, 2014). Robinson, the franchisee, brought claims against Wingate for breach of contract, breach of the covenant of good faith and fair dealing, and fraud, all based on his inability to obtain financing described in the FDD. Robinson also brought good faith and fair dealing and fraud claims ...

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In 7-Eleven, Inc. v. George, 2014 U.S. Dist. LEXIS 124270 (M.D. Fla. Sept. 4, 2014), a federal court granted 7-Eleven's motion for summary judgment on multiple claims to recover nearly $5 million against the owners of a franchise. The defendants were a married couple, Jane George and Anthony Bailey, and several LLCs controlled by one or both of them. In 2007, George entered into a franchise agreement with 7-Eleven for the operation of a convenience store, which was later assigned to SGG, an LLC she owned and operated. The franchise agreement required the establishment of an open ...

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A trial court in the District of Columbia recently held that claims alleging a franchisor had violated the district's Consumer Protection and Procedure Act (CPPA) by misrepresenting the nutritional quality of its products were not preempted by Food and Drug Administration laws. Nat'l Consumer's League v. Doctor's Assocs., Inc., 2014 D.C. Super. LEXIS 15 (D.C. Super. Sept. 12, 2014). The plaintiff, NCL, argued that the
franchisor employed marketing tactics designed to mislead consumers about the nutritional content of certain varieties of bread offered by Subway. Subway moved ...

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A federal court in the Southern District of New York recently granted in part and denied in part a franchisor's motion to dismiss claims brought by a franchisee related to financial performance representations (FPRs) allegedly made by the franchisor. Governara v. 7-Eleven, Inc., Bus. Franchise Guide (CCH) cli 15,368 (S.D.N.Y. Aug. 20, 2014). Governara asked the court to consider whether 7-Eleven's written and oral financial performance representations complied with the required FDD disclosures under Section 683 of the New York Franchise Act (NYFA), and whether its written ...

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Posted in Terminations

The United States District Court for the Middle District of Georgia has reaffirmed the general rule that a franchisor's motive to terminate a franchise is irrelevant when there are valid grounds for the termination. ACG Pizza Partners, LLC v. Mykull Enters., Inc., 2014 U.S. Dist. LEXIS 119989 (M.D. Ga. Aug. 28, 2014). The plaintiff is the franchisor of the Stevi B's franchise system, which offers all-you-can-eat pizza and salad buffets. Defendant Mykull entered into a franchise agreement for a Stevi B's business in 2007. In April 2014, Stevi B's served Mykull a notice of termination ...

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In a franchise termination case, a federal district court recently enforced a Florida forum selection clause and denied the franchisee's motion to transfer the action to a California federal court where the franchisee had amended its complaint in a previously-filed action to add claims directly challenging the termination. The parties in Benjamin Franklin Franchising, LLC v. On Time Plumbers, Inc., 2014 U.S. Dist. LEXIS 131800 (N.D. Fla. Sept. 19, 2014), had entered into a BFF plumbing services franchise agreement that contained a Florida forum selection clause. The franchise ...

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A federal district court in Massachusetts held that a franchisor was entitled to an injunction restraining its former franchisee in Puerto Rico from using its trademarks after termination. Dunkin' Donuts Franchised Rests. LLC v. Wometco Donas Inc., 2014 U.S. Dist. LEXIS 127918 (D. Mass. Sept. 11, 2014). Gray Plant Mooty represents the franchisor in this case. Dunkin' terminated the parties' franchise agreement based on Wometco's failure to pay royalties and renewal fees and brought suit against Wometco and its affiliate, the guarantor of the agreement, to enforce the ...

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On Monday, Sept. 29, 2014, California Governor Jerry Brown vetoed Senate Bill 610, a much-debated provision that would have altered all franchise relationships subject to the state's laws. In rejecting the bill, Governor Brown wrote that the new termination requirement of "substantial and material breach" of the franchise agreement was new and untested, in contrast with the "good cause" requirement in place today. More generally, he acknowledged SB 610 "would significantly impact California's vast franchise industry that relies on the certainty of well-settled laws." The ...

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Posted in Employment

McDonald's Corporation is in the legal news again, but this time with a victory. In the midst of all the fanfare about McDonald's "joint employer" battle with the National Labor Relations Board, McDonald's successfully defeated motions for conditional certification of two companion wage and hour collective actions. Pullen v. McDonald's Corp. & Wilson v. McDonald's Corp., 2014 U.S. Dist. LEXIS 128364 (E.D. Mich. Sept. 15, 2014). In the cases, two groups of plaintiffs alleged minimum wage violations under the federal Fair Labor Standards Act (FLSA) on behalf of more than 1,000 ...

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On Sept. 16, 2014, the North American Securities Administrators Association, Inc. adopted the Multi-Unit Commentary prepared by its Franchise and Business Opportunity Project Group. You can access a copy of the Commentary at: http://www.nasaa.org/wp-content/uploads/2011/08/Franchise-Multi-UnitCom mentary-effective-Adopted-Sept.-16-2014.pdf.

The Commentary represents the culmination of a process that took place over the past few years, and involved three separate public comment periods on various iterations of the document. The final version of the Commentary ...

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In Ocean City Express Co., Inc. v. Atlas Van Lines, Inc., 2014 U.S. Dist. LEXIS 127231 (D.N.J. Sept. 11, 2014), the United States District Court for New Jersey denied Atlas' motion to dismiss the New Jersey Franchise Practices Act (NJFPA) claim because the amended complaint adequately pled the "place of business" element. The court found the complaint sufficient to establish the agent's office constituted a "place of business" under the NJFPA because it was more than merely an office, warehouse, storage facility, residence, or distribution center. As pleaded, it was an actual sales ...

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According to public releases by Jimmy John's (the sandwich shop franchisor) and Signature Systems (the point of sale (POS) system provider for 216 Jimmy John's locations), malware was installed on those POS systems through use of a user name and password used for purposes of remote administration. This type of remote access has been an ongoing source of unauthorized access to POS systems for some time and has affected other franchised retail businesses. Here are six quick lessons franchisors should learn from these attacks:

  1. Know Your Vendor. The breach at Jimmy John's has been traced ...
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Posted in Arbitration

A franchisor's adoption of an arbitration policy a month after lawsuits were commenced against it could not force franchisees to arbitrate prior to pursuing litigation, the United States Court of Appeals for the Seventh Circuit ruled last week. Druco Rests., Inc. v. Steak n Shake Enters., Inc., 2014 U.S. App. Lexis 16869 (7th Cir. Aug. 29, 2014). This case arose in the context of franchisee challenges to Steak n Shake's new pricing and promotion policy, which required adherence to company pricing on menu items as well as participation in promotions. After the franchisees filed suit in ...

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Posted in Employment

Last month, a federal court in New Jersey held that a group of 7-Eleven franchisees alleged sufficient facts in their amended complaint to withstand a motion to dismiss their claim that they were employees of 7-Eleven under the Fair Labor Standards Act (FLSA). NAIK v. 7-Eleven, Inc., 2014 U.S. Dist. LEXIS 107139 (D.N.J. Aug. 5, 2014). In denying 7-Eleven's motion, the court held that the facts, as alleged by the franchisees, weighed in favor of finding an employment relationship when considering the six-factor test articulated by the Third Circuit and the economic reality of the ...

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Posted in Arbitration

A federal court in Maryland has held that an arbitration clause in a franchise agreement is ambiguous and has set a jury trial to determine whether the parties intended to arbitrate the franchisee's claims or litigate them in court. Trouard v. Dickey's Barbeque Restaurants, Inc., 2014 U.S. Dist. LEXIS 106218 (D. Md. Aug. 1, 2014). The franchisee plaintiffs in this case claimed Dickey's understated the start-up costs involved and overstated the expected profits with respect to their franchises. The franchise agreement at issue contained an arbitration clause that required the ...

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In Legacy Academy v. Mamilove, LLC, 2014 Ga. App. LEXIS 556 (Ga. Ct. App. July 16, 2014), the Georgia Court of Appeals affirmed a judgment in favor of franchisees who alleged that their franchisor, Legacy Academy, Inc., fraudulently induced them to enter into a franchise relationship by making a false earnings claim during the parties' precontract negotiations. When the franchisees first entered into discussions to open a Legacy daycare franchise, Legacy's representatives gave them a pro forma financial statement showing the net income a new franchisee could expect to earn after ...

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In an opinion generally favorable to the franchisor in a unit franchisee's attempt to impose vicarious liability on the franchisor for the actions of its master franchisee, the United States District Court for the District of Massachusetts recently granted in part and denied in part a franchisor's motion for summary judgment. Depianti v. Jan-Pro Franchising International, Inc., 2014 U.S. Dist. LEXIS 116943 (D. Mass. Aug. 22, 2014). At issue was the unit franchisee's claims of misrepresentation and unfair and deceptive business practices based on the conduct of Jan-Pro's master ...

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Posted in Employment

The trend of troublesome wage and hour lawsuits against franchisors continues. In recent months, several new cases have commenced that should serve as an ongoing reminder that when it comes to employment, franchisors should take care not to control or become entangled in their franchisees' day-to-day activities. In the recent cases, various franchisors were sued by their franchisees' employees for alleged violations of the Fair Labor Standards Act (FLSA), on the theory that the franchisor was a "single enterprise" or "joint employer" with the franchisee. Orozco v. Plackis, 2014 ...

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The United States Court of Appeals for the Ninth Circuit has affirmed a California district court's dismissal of a vicarious liability claim against a franchisor based on an advertising text message sent by its franchisee. Thomas v. Taco Bell Corp., 2014 U.S. App. LEXIS 12547 (9th Cir. July 2, 2014). The plaintiff, who received the text message advertising a Taco Bell product, alleged violation of the Telephone Consumer Protection Act (TCPA), which makes it unlawful to make automated mass-marketing communications to a cell phone. The text message was a promotion by an association of ...

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A federal district court recently granted in part and denied in part a franchisor's motion to dismiss counterclaims filed by a former franchisee. Yumilicious Franchise LLC v. Barrie, 2014 U.S. Dist. LEXIS 113049 (N.D. Tex. Aug. 14, 2014). Yumilicious brought suit against its franchisee, Why Not, LLC, based on alleged breaches of two franchise agreements. It claimed that Why Not breached the franchise agreements when it closed one of the franchised stores without authorization and when it and its guarantors failed to pay monies owed for royalties and products. Why Not filed ...

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Posted in Arbitration

The Third Circuit has announced a decision regarding the availability of classwide arbitration in an employment agreement that could have significant impact on arbitration agreements in franchising. Opalinski v. Robert Half Int'l, Inc., 2014 U.S. App. LEXIS 14538 (3rd Cir. July 30, 2014). The underlying dispute arose when two former employees of Robert Half International filed a class action complaint against it for alleged violations of the Fair Labor Standards Act. Robert Half moved to compel arbitration of the claims, which the district court granted while also holding that ...

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In a highly anticipated case involving franchisor vicarious liability, the California Supreme Court ruled, in a 4-3 decision issued today, that Domino’s is not vicariously liable for the acts of a franchisee’s employees. Patterson v. Domino’s Pizza, LLC, Case No. S204543 (Cal. Aug. 28, 2014).

The case began when Patterson, a teenage worker at a Domino’s franchise, filed an action against both the franchisee (Sui Juris) and Domino’s alleging that the assistant manager of the restaurant sexually harassed and assaulted her. Patterson claimed that Sui Juris and ...

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In Interstate Equipment Co. v. ESCO Corp., 2014 U.S. Dist. LEXIS 97263 (W.D.N.C. July 17, 2014), a court established a broad interpretation of a supplier's obligations under the North Carolina Farm Machinery Franchise Act to repurchase inventory from a dealer upon termination of the parties' relationship. In particular, the court held that: (1) the repurchase requirements applied even if the dealer originally purchased the inventory for resale at a location outside of North Carolina; (2) so long as title to inventory would be free and clear at the time it was transferred back to the ...

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Posted in Antitrust

A federal court in California denied in part a motion to dismiss a car dealer's price discrimination claim against its distributor under the Robinson-Patman Act. Mathew Enterprise, Inc. v. Chrysler Group LLC, 2014 U.S. Dist. LEXIS 95522 (N.D. Cal. July 11, 2014), involved a franchised dealer, Mathew Enterprise, that purchased its vehicle inventory directly from Chrysler at a standard invoice price. Chrysler, however, also offered earned subsidies to its dealers through "volume growth" incentive programs based on the dealer's prior sales. Although incentive programs are not ...

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Posted in Terminations

A federal court in Ohio partially granted a manufacturer's motion to dismiss certain claims in a suit challenging the termination of a distribution agreement brought by one of its former dealers. Palmer-Donavin Manufacturing Co. v. Rheem Sales Co., 2014 U.S.  Dist. LEXIS 82993 (S.D. Ohio June 18, 2014). Palmer-Donavin had been a dealer of the manufacturer Rheem's heating, ventilation, and air conditioning equipment for more than forty years pursuant to a series of written distribution agreements, the last of which had expired in 2009. After 2009, they had continued their ...

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Posted in Terminations

A federal district court in North Carolina denied a bakery goods distributor's motion to enjoin his termination because disputed issues of fact precluded a finding that he was likely to succeed on the merits of his wrongful termination claim. In Martin v. Bimbo Foods Bakeries Distribution, Inc., 2014 U.S. Dist. LEXIS 73992 (E.D.N.C. May 30, 2014), the manufacturer, Bimbo, terminated the parties' distribution agreement after discovering that Martin had created and transmitted false invoices to receive credit for extra inventory and had committed other material violations ...

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Posted in Nonrenewal

A federal court in Oklahoma recently granted in part and denied in part a motion to dismiss brought by an equipment distributor. Charles Mach. Works, Inc. v. Valley Ditch Witch, Inc., 2014 U.S. Dist. LEXIS 60522 (W.D. Okla. May 1, 2014). Oklahoma-based tractor parts and equipment manufacturer Charles Machine Works brought suit against one of its Texas distributors, Valley Ditch Witch, seeking a judgment declaring the validity of its nonrenewal of the parties' dealership agreement. Valley Ditch Witch moved to dismiss the suit on its merits and on procedural grounds, including lack ...

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Posted in Antitrust

Despite being one of two manufacturers that control 99% of the market, E.I. DuPont de Nemours and Co. has persuaded the United States Court of Appeals for the Fourth Circuit to affirm dismissal of exclusive dealing claims against it. Kolon Indus. Inc. v. E.I. DuPont de Nemours Sr Co., 748 F.3d 160 (4th Cir. Apr. 3, 2014). Kolon, a would-be competitor, claimed DuPont's multi-year supply agreements with large customers comprised an unlawful attempt or successful creation of a monopoly in the market for para-aramid fiber, a synthetic product used in body armor, tires, and other goods ...

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Posted in Antitrust

The United States Court of Appeals for the Eighth Circuit has concluded neither side could prevail on summary judgment motions in an antitrust action brought by a "small town, family-owned grocery store" against SuperValu Inc. and C&S Wholesale Grocers, Inc., two of the largest grocery wholesalers in the United States. In re: Wholesale Grocery Prods. Antitrust Litig., 652 F.3d 728 (8th Cir. May 21, 2014). This case arose out of negotiations by SuperValu and C&S to buy assets of a third grocery wholesaler, Fleming Companies, and to acquire certain territories from each other. D&G ...

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In a case of first impression, the Massachusetts Supreme Judicial Court has clarified the duty that a motor vehicle manufacturer owes a dealer to assume defense of a claim. Ferreira v. Chrysler Grp. LLC, 2014 Mass. LEXIS 336 (Mass. June 11, 2014). Ferreira purchased a new Jeep Wrangler from Somerset Auto Group, which came with a limited warranty by Chrysler. After experiencing ongoing problems with the vehicle, Ferreira sent a letter to Somerset and Chrysler alleging that both were at fault for the problems with the vehicle. In response, Somerset demanded that Chrysler assume its ...

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Posted in Antitrust

A federal district court in New York dismissed a value-added reseller's antitrust claims against its competitor based on its failure to properly define a relevant market. Techreserves Inc. v. Delta Controls, Inc., 2014 U.S. Dist. LEXIS 47080 (S.D.N.Y. Mar. 31, 2014). Techreserves operates as a reseller in the building management systems sales, installation, and maintenance markets, in which Delta is a manufacturer. Techreserves claimed that its competitors, including defendant IBC, and Delta excluded other value-added resellers from selling, installing, and servicing ...

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Posted in Antitrust

The United States District Court for the Northern District of Illinois has paved the way for what will be a closely-watched antitrust trial in American Needle, Inc. v. New Orleans Saints, 2014 U.S. Dist. LEXIS 47527 (N.D. III. Apr. 4, 2014). As reported in Issue 131 of The GPMemorandum, the United States Supreme Court in 2010 allowed plaintiff American Needle, an apparel manufacturer, to allege that the National Football League and thirty of its teams conspired, in violation of Sherman Act Section 1, to award Reebok an exclusive apparel license to make hats for all NFL teams. In a ...

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Posted in Contracts

A federal court in Washington denied a product supplier's motion for partial summary judgment on numerous claims related to an oral contract. Mastaba v. Lamb Weston Sales, 2014 U.S. Dist. LEXIS 72865 (E.D. Wash. May 27, 2014). Mastaba, a seller of frozen potato products in the Philippines, brought an action against Lamb Weston, its sole supplier of potatoes, for breach of contract, promissory estoppel, quantum meruit, unjust enrichment, negligent representation, and fraud, all based on the supplier's alleged oral representations that it would enter into a written, five-year ...

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A federal district court in New York enforced part of a noncompete covenant that existed between a franchisor and former franchisee, finding some of the provision overly broad and only enforcing the aspects necessary to protect the franchisor's legitimate business interests. Mister Softee, Inc. v. Tsirkos, 2014 U.S. Dist. LEXIS 77434 (S.D.N.Y. June 5, 2014). In moving for a preliminary injunction, Mister Softee sought, among other things, enforcement of covenants that barred former franchisee Tsirkos from competing in former and other franchise territories throughout four ...

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Posted in Terminations

A federal court in California has refused to summarily grant a declaratory judgment that a franchisor properly terminated an agreement with its franchisee. Valvoline Instant Oil Change Franchising, Inc. v. RFG Oil, Inc., 2014 U.S. Dist. LEXIS 77382 (S.D. Cal. June 4, 2014). After franchisee RFG failed to make timely payments, Valvoline terminated its license agreement. But Valvoline agreed to forgo enforcement remedies and early termination fees if RFG released all claims and entered into a new "We Feature" Agreement by which RFG would continue to operate its various locations ...

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Posted in Internet

In another recent decision a federal court in New Jersey denied the motion of Wyndham Worldwide Corporation, Wyndham Hotel Group, LLC, and Wyndham Hotel Management, Inc. (collectively, the "Wyndham Entities") to dismiss the complaint brought by the FTC for unfair or deceptive acts or practices based on breaches of the property management computer system used by the Wyndham franchisor and its franchisees. FTC v. Wyndham Worldwide Corp., 2014 U.S. Dist. LEXIS 84913 (D.N.J. June 23, 2014). The FTC alleged that franchisor Wyndham Hotels and Resorts, along with its affiliates ...

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Posted in Damages

The United States District Court for the District of New Jersey recently granted a $570,000 default judgment damage award in favor of a franchisor. Howard Johnson Int'l, Inc. v. Ebuehi, 2014 U.S. Dist. LEXIS 73560 (D.N.J. May 29, 2014). The defendants were co-owners of Viva Vista Ventures, Inc., which entered into a hotel franchise agreement with Howard Johnson. They provided a guarantee that if Viva defaulted on its obligations, they would perform. After Viva stopped operating the facility as a Howard Johnson location, the franchisor sent Viva a termination letter that triggered ...

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A New Jersey federal district court last week dismissed a franchisee's wrongful termination counterclaims alleging violation of the New Jersey Franchise Practices Act ("NJFPA"). Kumon N. Am., Inc. v. Timban, 2014 U.S. Dist. LEXIS 84907 (D.N.J. June 23, 2014). Under the NJFPA, a franchisor normally may not terminate, cancel, or fail to renew a franchise unless it provides advanced written notice of such action and the action is taken for "good cause." After Kumon asserted claims against franchisee Timban for continuing to operate his formerly franchised Kumon Math and Reading ...

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Posted in Class Actions

The United States Court of Appeals for the Ninth Circuit has affirmed a ruling from a federal California court, approving a proposed class action settlement agreement that included nearly a million dollars in fees to the plaintiffs' attorneys. Laguna v. Coverall N. Am., Inc., 2014 U.S. App. LEXIS 10259 (9th Cir. June 3, 2014). In 2009, the plaintiffs brought a class action suit against Coverall, a janitorial franchising company, alleging that Coverall misclassified California franchisees as independent contractors allowing them to avoid certain protections afforded to ...

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A federal court in Puerto Rico granted a franchisor's motion to transfer a case to the United States District Court for the Southern District of Florida based on the forum selection clause in the franchise agreements. Caribbean Rests., LLC v. Burger King Corp., 2014 U.S. Dist. LEXIS 76352 (D.P.R. June 3, 2014). Burger King and Caribbean Restaurants entered into 182 franchise agreements for Burger King restaurants located throughout Puerto Rico. When Burger King attempted to assert control over Caribbean's expenditure of funds for advertising, promotion, and public relations, by ...

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Posted in Advertising

In an 8-0 decision announced on June 12, 2014, the Supreme Court held that a company may sue a competitor for unfair competition under the Lanham Act because of false or misleading food and beverage labeling and advertising, even when the labeling and advertising otherwise meet the requirements of the Federal Food Drug and Cosmetic Act ("FDCA"). POM Wonderful LLC v. Coca-Cola Co., 189 L. Ed. 2d 141 (U.S. June 12, 2014). POM, a pomegranate juice producer that markets and sells a pomegranate-blueberry juice, sued Coca-Cola under the Lanham Act for misleading labeling of the ...

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The California Department of Business Oversight has announced that "Beginning at noon on June 18, 2014... franchise applications and exemption notices filed under the Franchise Investment Law may be filed and paid for online using the DOCQNET selfservice portal." All franchise filings may be completed online after that date.

Although CALEASI, the electronic database of franchise filings, is being phased out, information previously found there is being transferred to the DOCQNET website. Information about the DOCQNET system is available at www.dbo.ca.gov/DOCQNET.

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Posted in Terminations

In Bans Pasta, LLC v. Mirko Franchising, LLC, 2014 U.S. Dist. LEXIS 71466 (W.D. Va. May 23, 2014), a federal court in Virginia denied franchisee Bans Pasta's motion to dismiss franchisor Mirko's counterclaims for breach of contract and other claims. We reported on a previous decision in this case in Issue 178 of The GPMemorandum. Franchisee Bans Pasta accused Mirko Franchising and its representatives of negligently or fraudulently inducing it to enter into the franchise agreement. Bans Pasta notified Mirko in March 2013 that its bad acts constituted a constructive termination of ...

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On interlocutory appeal, the Eleventh Circuit reversed in part a district court's grant of summary judgment for a franchisor on the basis that the appellant-franchisee's claims of illegal and undisclosed kickbacks were barred by the one-year contractual limitations period. Massey, Inc. v. Moe's Southwest Grill, LLC, 2014 U.S. App. LEXIS 8765 (11th Cir. May 9, 2014). The appeal stems from an action filed by 39 Moe's franchisees which sought to recover monies provided by approved suppliers to Moe's CEO and affiliates. In purchasing a franchise, each of the three appellant ...

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Posted in Arbitration

The United States District Court for the District of New Hampshire recently granted a franchisor's motion to compel arbitration, finding it had not waived its rights to arbitrate a dispute by having first sought preliminary injunctive relief. Pla-Fit Franchise, LLC v. Patricko, Inc., 2014 U.S. Dist. LEXIS 69047 (D.N.H. May 20, 2014). Pla-Fit sued its former franchisee, Patricko, seeking injunctive relief for trademark infringement, a declaratory judgment that Patricko had violated the post-termination non-compete provisions of the franchise agreements between the ...

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Posted in RICO

In Jennings v. Bonus Building Care, Inc., Bus. Franchise Guide (CCH) 9115,284 (W.D. Mo. May, 7, 2014), a federal district court dismissed a lawsuit brought by four unit franchisees under the federal Racketeer Influenced and Corrupt Organizations Act ("RICO") because the franchisees could not meet any of the five elements required to sustain a RICO action. The franchisees alleged fraudulent and deceptive business practices against a total of 55 defendants associated with the Bonus Building Care franchise system, including corporate entities owned by the franchisor, multiple ...

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In Jack in the Box, Inc. v. Mehta, 2014 U.S. Dist. Lexis 68519 (N.D. Cal. May 19, 2014), the court approved the request of Jack in the Box ("JIB") to modify an existing order authorizing JIB to operate restaurants owned by previously terminated franchisees, as the court approved a private foreclosure sale of the restaurant assets by GE Capital Bank ("GECB"), a secured creditor of the franchisees, to JIB. Mehta's franchise agreements and leases were terminated by JIB due to payment defaults. In a lawsuit, JIB obtained a "turnover order" allowing it to take over operation of Mehta's ...

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In Sanford v. Maid-Rite Corp., Civil File No. 13-2250 (D. Minn. Apr. 21, 2014), the court dismissed the plaintiffs' Minnesota Franchise Act ("MFA") claims against the defendant directors of franchisor Maid-Rite for failure to demonstrate minimum contacts necessary to establish personal jurisdiction. Sanford alleged two factors in support of personal jurisdiction over the defendant directors: a prima facie case for the directors' personal liability under the MFA, and the identification of the directors in Franchise Disclosure Document filed in Minnesota. In support of the ...

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Posted in Damages

In Dunkin' Donuts Franchising LLC v. Sai Food & Hospitality, LLC, 2014 U.S. Dist. LEXIS 67512 (E.D. Mo. May 16, 2014), the United States District Court for the Eastern District of Missouri granted a franchisor's motion for attorneys' fees, costs, and expenses following a bench trial in which the court upheld the termination of a group of franchisees on the grounds that they fraudulently concealed the true ownership of their operating company prior to signing their franchise agreements. Gray Plant Mooty represents the franchisor in this matter. As reported in Issue 176 of The ...

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A New Jersey appellate court affirmed a state trial court's ruling that terminated insurance agents were not in a franchise relationship with Allstate Insurance Company and that the New Jersey Franchise Practices Act did not apply to their termination. DeLuca v. Allstate N.J. Ins. Co., 2014 N.J. Super. Unpub. LEXIS 1090 (N.J. Super. Ct. App. Div. May 13, 2014). In this case, three terminated independent insurance agents sued Allstate for wrongful termination, seeking to apply the NJFPA to their relationship. The trial court issued an order dismissing the complaints, concluding ...

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Posted in Contracts

The United States District Court for the District of New Jersey recently granted a franchisor's motion to dismiss a franchisee's counterclaims for, among other things, fraud and a breach of the New Jersey Consumer Fraud Act ("NJCFA"). Yogo Factory Franchising, Inc. v. Ying, 2014 U.S. Dist. LEXIS 61968 (D.N.J. May 5, 2014). Ying's counterclaims were premised on allegations that he was induced into purchasing franchises by pre-contract misrepresentations of earnings potential, investment costs, and services to be provided by Yogo Factory.

In dismissing the fraud claim, the court ...

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Posted in Patents

Patent litigation remains a topic of discussion in franchise circles, as more and more franchisors have been named as defendants in large cases involving some element of their franchise system technology. This week the United States Supreme Court issued two unanimous decisions likely to benefit franchisors facing patent infringement allegations. In Nautilus, Inc. v. Biosig Instruments, Inc., No. 13-369 (U.S. June 2, 2014), and Limelight Networks, Inc. v. Akamai Technologies, Inc., No. 12-786 (U.S. June 2, 2014), the Supreme Court clarified the enforceability of certain ...

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Posted in Terminations

The United States Court of Appeals for the Third Circuit recently affirmed a trial court's grant of summary judgment in favor of a hotel franchisor on its breach of contract claim, and on the franchisee's counterclaims, despite the franchisee's claims that the franchisor first breached its obligations under the franchise agreements. Red Roof Franchising, LLC v. Patel, 2014 U.S. App. LEXIS 8078 (3d Cir. Apr. 29, 2014). Red Roof terminated Patel's franchise agreements in New Jersey and Minnesota as a result of uncured failure to pay royalties and other amounts due. Red Roof then ...

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Posted in Arbitration

A federal district court in California recently denied a franchisee’s motion for a preliminary injunction to prevent a franchisor from proceeding with arbitration, finding that the arbitration provision was neither procedurally nor substantially unconscionable. The dispute in Moody v. Metal Supermarket Franchising America Inc., 2014 WL 988811 (N.D. Cal. Mar. 10, 2014), involved Metal Supermarket’s exercise of its option to purchase Moody’s assets upon termination and the proper purchase price for those assets. After Moody filed a state court action seeking a ...

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Posted in Class Actions

A federal court in California denied class certification to a customer who received an unwanted text message from a promotional campaign by a franchisee. Ryan v. Jersey Mike’s Franchise Sys., 2014 U.S. Dist. LEXIS 42677 (S.D. Cal. Mar. 28, 2014). The plaintiff, Ryan, was one of 7,659 of the franchisee’s customers who received a promotional text message relating to a loyalty card each obtained from the store. Ryan claimed that he had not given consent for such a text message, and he brought suit against both the franchisor and franchisee under the Telephone Consumer Protection Act ...

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In Anytime Fitness, LLC v. Edinburgh Fitness, LLC, 2014 U.S. Dist. LEXIS 50337 (D. Minn. Apr. 11, 2014), a federal court in Minnesota enjoined a former Anytime Fitness franchisee from violating a franchise agreements’ post-expiration covenant against competition and from using the franchisor’s proprietary customer data. After electing not to renew its franchise agreement, the franchisee had opened a new fitness club at the same location as its former Anytime franchise and used confidential customer data to solicit former Anytime clients. Anytime brought suit for breach of ...

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Posted in Trademarks

In Ledo Pizza System, Inc. v. Singh, 2014 U.S. Dist. LEXIS 46906 (D. Md. Apr. 3, 2014), a federal court in Maryland granted a franchisor’s motion for contempt against a former franchisee who failed to comply with a temporary restraining order prohibiting his continued operation of a pizza franchise following termination. The franchisor, Ledo Pizza, terminated Singh’s franchise agreement after he defaulted on several of his obligations under the contract. Ledo also filed suit for breach of contract and various violations of the Lanham Act. The court granted Ledo’s request ...

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Posted in Internet

A federal court recently denied the motion of Wyndham Hotels & Resorts to dismiss a complaint brought by the Federal Trade Commission for unfair or deceptive acts or practices based on breaches of the property management computer system used by Wyndham and its franchisees. FTC v. Wyndham Worldwide Corp., 2014 U.S. Dist. LEXIS 47622 (D.N.J. Apr. 7, 2014). The FTC alleged that franchisor Wyndham Hotels & Resorts, along with its affiliates, engaged in (1) deceptive practices by misrepresenting that it used “industry standard practices” and “commercially reasonable ...

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Posted in Procedure

A federal district court in California this month denied a restaurant foodservice supplier’s motion to intervene in a franchisor’s action to collect amounts owed by a former franchisee. Jack In The Box, Inc. v. Mehta, 2014 U.S. Dist. LEXIS 50575 (N.D. Cal. Apr. 9, 2014). Jack In The Box (“JIB”) sued Mehta, its former franchisee, for failure to pay amounts owed, and JIB took over Mehta’s restaurants pursuant to a court order in lieu of receivership that authorized JIB to operate the restaurants, collect all revenues, and pay reasonable and necessary bills for the protection ...

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Posted in Trademarks

A franchisor whose trademark was being infringed in a domain name recently obtained transfer of the domain to its control through a Uniform Domain-Name Dispute-Resolution Policy (“UDRP”) arbitration action. U.S. Structures, Inc. v. Ginger Storm, FA1401001540563 (NAF Mar. 5, 2014). Gray Plant Mooty represented the franchisor in the matter. In this case, U.S. Structures’ trademark ARCHADECK® was infringed by the domain name archadeck-chicagoland.com. Chicagoland is a common reference to the Chicago metropolitan area, where U.S. Structures has an Archadeck ...

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The Illinois Court of Appeals recently held that the "Warranty Supplemental Cost Recovery" charge that Nissan imposed on its Illinois Infiniti dealers violated the Illinois Motor Vehicle Franchise Act. Nissan N. Am., Inc. v. Motor Vehicle Review Bd., 2014 III. App. LEXIS 93 (III. App. Ct. Feb. 20, 2014). Two dealers sued after Nissan sought to recover a portion of the warranty payments made to dealers by imposing a "Warranty Supplemental Cost Recovery" surcharge on each Infinity vehicle sold to each dealer.

Section 6 of the Act describes the process by which dealers may be reimbursed ...

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Posted in Contracts

In a decision from the Western District of New York, a magistrate judge relied on the plain language of a distribution agreement to determine its scope. Precimed Inc. v. ECA Medical Instruments, 2014 U.S. Dist. LEXIS 10349 (W.D.N.Y. Jan. 28, 2014). ECA, a manufacturer of both standard and custom surgical instruments, entered into a distribution agreement for Precimed to market and sell ECA's "Products." After a disagreement as to the scope of the term "Products," the parties filed opposing claims regarding whether the distribution agreement gave Precimed exclusive rights to ...

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Posted in Terminations

A federal court in Ohio recently denied a dealer's motion for a preliminary injunction that would have required a tire manufacturer to continue supplying the dealer with products pending adjudication of the dealer's claims for wrongful termination and violation of 42 U.S.C. § 1981. In B Sr S Tires, Inc. v. Bridgestone Americas Tire Operations, LLC, 2014 U.S. Dist. LEXIS 26119 (N.D. Ohio Feb. 27, 2014), the plaintiff dealer was a thirty-plus year distributor of Bridgestone and Firestone tires and a minority-owned business that frequently fulfilled supply contracts for the U.S ...

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Posted in Encroachment

In Aston Martin Lagonda of North America, Inc. v. Lotus Motorsports, Inc., 2014 U.S. Dist. LEXIS 35909 (D. Mass. Mar. 18, 2014), a Massachusetts federal court partially granted Aston Martin's motion to dismiss the defendant-dealer's counterclaims. Aston Martin had sought a declaratory judgment that the parties' dealer agreement did not prohibit it from locating a new dealer within 8.7 miles of Lotus's existing dealership, but outside of its territory. Lotus, which had served as the sole Aston Martin dealership in New England (except for one dealership) since 1996, claimed the ...

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Posted in Antitrust

The United States District Court for the District of Colorado granted summary judgment dismissing seven claims of federal and state antitrust violations brought by a distributor of DuPont's automobile paint coatings. ITS Choice Enters., Inc. v. E.I. DuPont De Nemours Sr Co., 2014 U.S. Dist. LEXIS 24332 (D. Colo. Feb. 26, 2014). DuPont provided various forms of assistance to its distributors and, in exchange, each distributor agreed not to solicit existing business from other distributors. Between 2008 and 2009, DuPont gave significant financial assistance and other support to ...

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In McPeak v. S-L Distribution Co., 2014 U.S. Dist. LEXIS 10794 (D.N.J. Jan. 29, 2014), a federal district court held that held that a distributor had pled sufficient facts to be considered a franchisee under the New Jersey Franchise Practices Act ("NJFPA"), even though the distribution agreement specifically disclaimed that the parties were in a franchise relationship. McPeak was a distributor for a large snack food manufacturer, and the agreement specifically prohibited McPeak from using S-L's trademarks and trade name without its prior written permission. In addition, the ...

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The Office of Federal Contract Compliance Programs recently announced final rules changing federal contractors' affirmative action requirements for individuals with disabilities under section 503 of the Rehabilitation Act and protected veterans under the Vietnam Era Veterans' Readjustment Assistance Act. The final rules became effective March 24, 2014. These new rules mandate various changes to the content and implementation of contractors' affirmative action plans for these protected classes. Compliance with some changes was required by March 24, while other changes ...

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A federal district court in Ohio dismissed claims brought by two beverage distributors alleging that a successor manufacturer's termination of their distribution agreements constituted an unlawful taking under the Ohio and U.S. Constitutions. In Tri County Wholesale Distributors, Inc. v. Labatt USA Operating Co., LLC, 2014 U.S. Dist. LEXIS 903 (S.D. Ohio Jan. 6, 2014), the distributors entered into written distribution agreements with Labatt that granted them exclusive rights to distribute specified brands of alcoholic beverages in designated territories. Later, a new ...

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Posted in Antitrust

A federal court in Arizona has rejected various antitrust claims brought by a servicer of aircraft power units against a manufacturer of those units. Aerotec Int'l, Inc. v. Honeywell Int'l, Inc., 2014 U.S. Dist. LEXIS 38651 (D. Ariz. Mar. 17, 2014). The court granted summary judgment in favor of Honeywell International, a company that manufactures aircraft power units that provide on-board electrical power in commercial aircraft. Honeywell is the largest servicer of its power units. Aerotec International is an independent service provider that performs maintenance, repair ...

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In H&R Block Tax Services LLC v. Acevedo-López, 2014 U.S. App. LEXIS 2602 (8th Cir. Feb. 12, 2014), the United States Court of Appeals for the Eighth Circuit vacated the order of a district court in Missouri, which had denied a motion by H&R Block for a preliminary injunction prohibiting breach by a former franchisee of his covenants against competition. Shortly thereafter, the district court granted summary judgment to H&R Block on all of the claims and counterclaims in the case, awarding H&R Block approximately $1.5 million in damages, entering a final injunction enforcing the ...

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In responding to a motion to dismiss, the United States District Court for the Western District of Virginia recently permitted a “negligence per se” claim based on a franchisor’s FTC disclosure violation to proceed under Georgia law. Bans Pasta, LLC v. Mirko Franchising, LLC, 2014 U.S. Dist. LEXIS 19953 (W.D. Va. Feb. 12, 2014). Mirko, an Italian restaurant franchisee, alleged that the franchisor, Bans Pasta, violated the FTC Rule’s disclosure requirements by providing financial performance representations outside the context of Item 19 of the FDD. Bans Pasta filed a ...

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Posted in Contracts

In a case in which Gray Plant Mooty represented the defendant hotel management company, the federal court in North Dakota recently granted it summary judgment with respect to claims asserted by the owner of a franchised hotel. Ivesdal v. Three Rivers Hospitality, LLC, No. 1:12-cv-00073-DLH-CSM (D.N.D. Feb. 7, 2014). Hotel owner Ivesdal engaged Three Rivers to manage operations of his franchised AmericInn hotel in Dickinson, North Dakota. The parties entered into a Management Agreement governed by Minnesota law. After declining to renew the Management Agreement following ...

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Posted in Arbitration

In Doctor’s Associates Inc. v. White, 2014 U.S. Dist. LEXIS 11433 (D.N.J. Jan. 30, 2014), the federal court in New Jersey granted partial reconsideration of an order refusing to confirm an arbitration award. Doctor’s Associates, Inc. (“DAI”) had initiated arbitration against franchisee White for breach of his Subway franchise agreement. After DAI won the arbitration, it filed a lawsuit in federal court to confirm the award against both White and Coach Investments & Developers. Although Coach was not party to the arbitration, DAI argued that Coach was the alter ego of the ...

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Posted in Contracts

A federal district court in Pennsylvania recently held that a franchisor was entitled to summary judgment on a franchisee’s equitable rescission claim because the franchisee did not act promptly in bringing suit after discovering the franchisor’s alleged misrepresentations. In Al-Barqawi v. 7-Eleven, Inc., 2014 U.S. Dist. LEXIS 19601 (E.D. Pa. Feb. 18, 2014), the franchisee, Al-Barqawi, alleged that 7-Eleven representatives falsely represented to him before he signed his franchise agreement that the particular store he was purchasing did not have problems with crime ...

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In Ocean City Express Co., Inc. v. Atlas Van Lines, Inc., 2014 U.S. Dist. LEXIS 20885 (D.N.J. Feb. 19, 2014), the United States District Court for the District of New Jersey denied the plaintiff’s motion to amend its complaint and dismissed without prejudice its claim under the New Jersey Franchise Practices Act. Ocean City Express, which was a party to an agency agreement with Atlas Van Lines, failed to plead that that it had a qualifying place of business in New Jersey. It merely pled that it had a principal place of business within the state of New Jersey.

To qualify for protection under ...

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Posted in Trademarks

The United States District Court for the Northern District of Texas held that the failure of a terminated franchisee and its successor to fully deidentify a hotel and remove all signage related to its former franchise system, even signage that is difficult to access and costly to remove, constituted trademark infringement. Choice Hotels Int’l, Inc. v. Goldmark Hospitality, LLC, 2014 U.S. Dist. LEXIS 20666 (N.D. Tex. Feb. 19, 2014). The franchisee, Goldmark, acquired a former Choice Hotels franchisee’s property through bankruptcy and foreclosure and converted it from ...

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In Solanki v. 7-Eleven, Inc., 2014 U.S. Dist. LEXIS 11183 (S.D.N.Y. Jan. 29, 2014), a franchisee’s claims under the New York Franchise Sales Act have survived a franchisor’s motion for summary judgment. Solanski alleged that 7-Eleven’s presale revenue estimates should have been included in the FDD, and that its earnings estimates were false. At or shortly after the parties’ initial meeting to discuss the store, 7-Eleven provided Solanski with an FDD and a business plan outline to complete. At a subsequent meeting, Solanski presented his completed business plan, which was ...

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Posted in Bankruptcy

In In re A&F Enterprises, Inc. v. IHOP Franchising LLC, 2014 U.S. App. LEXIS 2408 (7th Cir. Feb. 7, 2014), the Seventh Circuit reversed the district court and the bankruptcy court and stayed the enforcement of the bankruptcy court orders that were on appeal. The dispute in the bankruptcy case involved when a debtor-franchisee must assume or reject a real property lease for a leased franchise location. Under bankruptcy law, a debtor must assume or reject a commercial real property lease within 120 days after the bankruptcy case is filed or the lease is deemed rejected. In contrast, a ...

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The Texas Court of Appeals recently affirmed a trial court’s ruling that a franchise agreement’s forum-selection clause was enforceable against a guarantor who had not signed the agreement. Pritchett v. Gold’s Gym Franchising, LLC, 2014 Tex. App. LEXIS 1281 (Tex. Ct. App. Feb. 4, 2014). The forum-selection clause at issue designated Texas as the exclusive venue for disputes. Pritchett, a guarantor to the franchise agreement who owned a 50% interest in the corporate franchisee, argued that the Texas court lacked personal jurisdiction over him because he did not conduct ...

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Posted in Arbitration

In Doctor’s Associates, Inc. v. Edison Subs, LLC, 2014 U.S. Dist. LEXIS 371(D. Conn. Jan. 3, 2014), the United States District Court for the District of Connecticut denied Subway’s motion to compel arbitration of claims arising out of a franchise agreement that Edison assumed pursuant to an oral assignment agreement. Edison, the defendant, did not receive or review the written franchise agreement before assuming it. After being involuntarily ejected from the franchised business premises after two years of operation, Edison filed a complaint in state court alleging breach of ...

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Posted in Arbitration

A federal court in Indiana has granted a franchisor’s motion to stay proceedings in three related lawsuits pending appeal to the Seventh Circuit. Druco Rests., Inc. v. Steak n Shake Enters., 2014 U.S. Dist. LEXIS 8198 (S.D. Ind. Jan. 23, 2014). Three franchisees had filed separate lawsuits against Steak n Shake (“SNS”) alleging breach of contract, fraud, and violations under their respective state franchise laws. After SNS sought to stay all three actions and compel arbitration, the trial court concluded the respective agreements contained only “nonbinding” ...

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In U-Bake Rochester, LLC v. Utecht, 2014 U.S. Dist. LEXIS 7106 (D. Minn. Jan. 21, 2014), the United States District Court for the District of Minnesota recently held that a plaintiff’s prior acknowledgement that it was not a franchisee barred the plaintiff from later asserting claims under Minnesota and Wisconsin state franchise statutes. U-Bake Rochester (“UBR”) executed a trademark license agreement with Utecht Bakeries that allowed UBR to use the U-BAKE trademark in connection with a retail store located in Rochester, Minnesota. After revenues plummeted in its second ...

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In Robinson v. Wingate Inns Int’l, Bus. Franchise Guide (CCH) ¶ 15,197 (D.N.J. Dec. 20, 2013), the court held that the owner of two hotel franchises failed to state actionable franchise sales fraud claims against franchisors Wingate and Wyndham. Robinson, the franchisee, entered into separate franchise agreements with each franchisor, and both businesses subsequently failed as a result of Robinson’s failure to obtain financing. When Robinson filed suit, the franchisors moved to dismiss his claims that they had violated the FTC Rule, committed fraud in the inducement, and ...

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Posted in Trademarks

A federal judge in Seattle has denied a franchisor’s motion for a contempt order to enforce a consent judgment obtained against an accused trademark infringer and his company. Two Men & A Truck/Int’l, Inc. v. T&S Transp., Inc., 2014 U.S. Dist. LEXIS 4759 (W.D. Wash. Jan. 13, 2014). In this case, Two Men and a Truck had sued the defendants for trademark infringement based on their use of various iterations of the plaintiff’s trademark, TWO MEN AND A TRUCK, in connection with moving services identical to those offered by the franchise system. In a consent judgment resolving the ...

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A California Court of Appeal recently affirmed a trial court’s ruling that subsequent evidence of franchisee misconduct warranted the dissolution of a preliminary injunction. Husain v. McDonald’s Corp., 2013 Cal. App. Unpub. LEXIS 9072 (Cal. Ct. App. Dec. 17, 2013). Early in the litigation, in which the franchisees were seeking to prevent the termination of three of their franchises, both parties moved for preliminary injunctions. The trial court granted the franchisees’ motion, concluding that there was a reasonable likelihood that the franchisees would prevail on the ...

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Posted in Arbitration

As part of the continuing saga of Awuah v. Coverall N. Am., Inc., 2013 U.S. Dist. LEXIS 171870 (D. Mass. Dec. 5, 2013), a Massachusetts federal district court recently reexamined the arbitrability of some of the plaintiffs’ state wage claims. At prior phases of the Awuah litigation, a class of plaintiffs was certified and later obtained a final judgment in their favor. This certified class excluded certain Coverall franchisees who had signed a franchise agreement with Coverall containing an arbitration provision. Following the Massachusetts Supreme Judicial Court’s 2012 ...

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In Doctor’s Associates, Inc. v. Windham, 2013 U.S. Dist. LEXIS 546 (Conn. App. Nov. 26, 2013), the Connecticut Court of Appeals found that alleged violations of the Connecticut Rules of Professional Conduct by the franchisor’s lawyers, even if they actually occurred, did not constitute sufficient grounds to overturn an arbitration award. Doctor’s Associates had initiated arbitration in this case, seeking to terminate a Subway franchise agreement based on Windham’s failure to complete required store upgrades. Windham failed to make an appearance in the arbitration ...

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Posted in Terminations

The Fourth Circuit affirmed in part the decision of the Western District of Virginia that certain post-term restrictive covenants did not apply to a former franchisee, finding that the expiration of the franchise agreement did not constitute a termination. Hamden v. Total Car Franchising Corp., 2013 U.S. App. LEXIS 23514 (4th Cir. Nov. 22, 2013). Former franchisee Hamden operated a paintless dent repair business for the entire fifteen year term of his franchise agreement. Electing to not renew the Franchise Agreement, Hamden informed Total Car Franchising (“TCF”) that he ...

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Posted in Advertising

A federal court in Indiana declined to dismiss a breach of contract claim concerning the collection of advertising and marketing funds by the franchisor of a members-only buying club franchise. In Arcangelo, Inc. v. DirectBuy, Inc., 2013 U.S. Dist. LEXIS 164941 (N.D. Ind. Nov. 20, 2013), the district court concluded that the language of the franchise agreement was not sufficiently unambiguous to resolve the fee dispute as a matter of law. Arcangelo had filed suit claiming that DirectBuy charged excessive fees for advertising and marketing under the franchise agreement, which ...

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Posted in Terminations

The United States District Court for the Eastern District of Missouri recently upheld a franchisor’s decision to terminate a group of franchisees that fraudulently concealed the true ownership of their operating company when entering into their franchise agreement. Dunkin’ Donuts Franchising LLC v. Sai Food & Hospitality, LLC, 2013 U.S. Dist. LEXIS 181752 (E.D. Mo. Dec. 31, 2013). Gray Plant Mooty represents the franchisor in this case. Dunkin’ terminated the parties’ franchise agreements and their related development agreement and sublease after an investigation ...

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A federal district court in New Mexico held that a franchisor may be liable for its franchisee’s failure to provide a safe working environment after an armed robbery resulted in the death of the franchisee’s employee. In Estate of Anderson v. Barreras, Bus. Franchise Guide (CCH) ¶ 15,181 (D.N.M. Nov. 13, 2013), the plaintiff brought a wrongful death action against the franchisee and the franchisor, Denny’s, Inc., alleging that they were liable for the employee’s death by failing to properly train personnel on emergency procedures, failing to implement adequate security ...

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A federal court in Wisconsin recently denied a dealer’s motion for summary judgment under the Wisconsin Fair Dealership Law (“WFDL”), due to a genuine fact dispute regarding the existence of a community of interest between the parties. In Wholesale Partners, LLC v. Masterbrand Cabinets, Inc., Bus. Franchise Guide ¶ 15,136 (CCH) (E.D. Wis. Oct. 4, 2013), a newly formed cabinetry retailer orally agreed to take over the dealership of an insolvent former dealer of manufacturer Masterbrand. At the same time, Wholesale Partners also agreed to take on the former dealer’s debt to ...

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Posted in Terminations

In Machine Maintenance, Inc. v. Generac Power Systems, Inc., 2013 U.S. Dist. LEXIS 14275 (E.D. Mo. Oct. 8 2013), a federal court in Missouri denied cross motions for summary judgment in a dealer termination dispute. The plaintiff, which did business as Luby Equipment, Inc., was a former nonexclusive seller and servicer of generators manufactured by Generac Power Systems. Generac terminated Luby’s Buy/Sell Agreement and Service Agreement at an in-person meeting in December 2011. Although the termination letter that followed the meeting did not specify the reason for ...

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Posted in Contracts

A Pennsylvania federal court has granted a manufacturer’s motion to dismiss a complaint for breach of distribution agreement. In Assalone v. S-L Distribution Co., Inc., 2013 U.S. Dist. LEXIS 149625 (M.D. Pa. Oct. 17, 2013), Assalone sued S-L, the manufacturer of Snyder’s snack foods, claiming that it breached the exclusivity provisions of the parties’ distributorship agreements by distributing another line of snack foods in Assalone’s territories. In 1999, Assalone entered into separate agreements with a food manufacturer and distributor of Snyder’s products ...

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Posted in Contracts

The United States District Court for the Eastern District of Wisconsin has determined that a manufacturer was contractually required to pay a commission to one of its distributors in connection with the sale of its industrial hoist equipment. Marine Travelift, Inc. v. Marine Lift Sys., Inc., 2013 U.S. Dist. LEXIS 144435 (E.D. Wis. Sept. 30, 2013). The parties had entered into a distributorship agreement that granted the distributor, Marine Lift Systems, a nonexclusive right to purchase equipment from the manufacturer, Marine Travelift, and then resell it to customers at ...

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A federal court in Illinois has granted in part and denied in part a manufacturer’s motion to dismiss claims brought under the Illinois Franchise Disclosure Act of 1987 (“IFDA”) and the California Franchise Relations Act (“CFRA”) arising from the termination of a distribution agreement. H.C. Duke & Son, LLC v. Prism Mktg. Grp., 2013 U.S. Dist. LEXIS 140254 (C.D. Ill., Sept. 30, 2013). H.C. Duke & Son and Prism Marketing Group were parties to an agreement in which Prism distributed Duke’s line of soft-serve ice cream machinery and related equipment. Duke terminated the ...

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In Nature’s Plus Nordic A/S v. Natural Organics, Inc., 2013 U.S. Dist. LEXIS 159157 (E.D.N.Y. Nov. 6, 2013), the United States District Court for the Eastern District of New York found that the local advertising requirement in a distributorship agreement did not constitute a “franchise fee” under the New York Franchise Sales Act (“NYSA”). In the case, Natural Organics, Inc. terminated a distributorship agreement when the distributor, Nature’s Plus, failed to meet the agreement’s minimum local advertising requirement and minimum gross sales requirement ...

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The Ohio Supreme Court recently affirmed an appellate court’s decision finding that the Ohio Alcoholic Beverages Franchise Act clearly permits a successor manufacturer to appoint its own distributors, provided that the successor manufacturer gives the existing distributor notice and compensation. Esber Beverage Co. v. Labatt USA Operating, Slip Op. 2013-Ohio-4544 (Ohio Oct. 17, 2013). Esber Beverage Company had been a distributor of Labatt brands for many years. The Labatt brands were acquired by Labatt USA Operating in March 2009 and Labatt notified Esber that it intended ...

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Posted in Contracts

The United States District Court for the Western District of Pennsylvania dismissed with prejudice a beer distributor’s amended complaint alleging violations of a distributorship agreement between the parties. Frank B. Fuhrer Wholesale Co. v. MillerCoors LLC, 2013 U.S. Dist. LEXIS 155253 (W.D. Pa. Oct. 30, 2013). Under the agreement, Frank B. Fuhrer Wholesale Co. was granted exclusive distribution rights for certain Coors products in a nine-county area including metropolitan Pittsburgh. The agreement allowed MillerCoors to add products to the list of those for which the ...

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In James River Cos. v. BB Buggies, Inc., No. 4:13-cv-00004 (W.D. Va. Sep. 6, 2013), the United States District Court for the Western District of Virginia denied summary judgment for BB Buggies on a dealer’s claim for failure to repurchase inventory pursuant to the Virginia Equipment Dealers Protection Act (“VEDPA”), but granted summary judgment to BB Buggies’ parent company. The parties’ relationship began in 2006 when James River entered into an oral dealer agreement with Bad Boy Enterprises, LLC and purchased several buggies. In October 2010, Bad Boy sold its assets to ...

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After remanding to the federal district court for the Northern District of Illinois, the United States Court of Appeals for the Seventh Circuit affirmed the district court’s denial of a preliminary injunction motion under the Petroleum Marketing Practices Act (“PMPA”), finding that the franchisee’s multiple insufficient funds transactions constituted “failures” under the PMPA, thus justifying termination of the relationship. Joseph v. Sasafrasnet, LLC, 2013 U.S. App. LEXIS 22395 (7th Cir. Nov. 4, 2013). In November 2010, Sasafrasnet, an authorized British ...

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Posted in Terminations

The Supreme Court of Appeals of West Virginia recently affirmed the termination of an alcohol distribution agreement based on the distributor’s repeated failure to timely pay for goods delivered by the supplier. N. Cent. Distribs., Inc. v. Moats, 2013 W. Va. LEXIS 1236 (W. Va. Nov. 8, 2013). Attempts by the supplier, Labatt, to withdraw payment from the distributor, NCDI, through electronic funds transfer failed for four consecutive months due to insufficient funds in the distributor’s account. Accordingly, Labatt notified NCDI that it had breached the parties’ ...

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The United States District Court for the District of Maryland recently granted in part and denied in part a franchisor’s motion for a preliminary injunction against a terminated individual franchisee, but declined to enjoin the franchisee’s corporate operating company. Ledo Pizza Sys., Inc. v. Singh, 2013 U.S. Dist. LEXIS 153110 (D. Md. Oct. 24, 2013). After being terminated for failing to pay past due royalties and fees, Singh, a former franchisee of the Ledo Pizza chain, opened a competing pizza franchise at the same location as his former Ledo Pizza restaurant. Ledo filed a ...

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A federal court granted a franchisor’s motion to dismiss for improper venue in Musavi v. Burger King Corp., 2013 U.S. Dist. LEXIS 154467 (C.D. Cal. Oct. 25, 2013). After Burger King terminated Musavi’s franchise agreements, the parties entered into a Limited License Agreement that permitted Musavi to operate the terminated franchises for a limited time until they could be sold. After the franchises failed to sell, Musavi filed suit in California, where his franchises were located, and challenged the enforceability of the Agreement. Burger King moved to dismiss or transfer ...

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Posted in Class Actions

A class action settlement has been approved in Swift v. DirectBuy, Inc., 2013 U.S. Dist. LEXIS 152618 (N.D. Ind. Oct. 24, 2013), in which current and former member-customers of buying club franchisor DirectBuy sued the company alleging that they did not enjoy savings commensurate with their membership fee. The plaintiffs alleged that DirectBuy failed to disclose material information regarding the true prices for its products and the fact that DirectBuy received payments from vendors, manufacturers, and suppliers but did not pass along these savings to members. After the court ...

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In BP West Coast Products LLC v. SKR, Inc., 2013 U.S. Dist. LEXIS 151764 (W.D. Wash. Oct. 22, 2013), a federal court in Washington dismissed a gas station franchisee’s claims for fraud and negligent misrepresentation, and its claims under the Washington Franchise Investment Protection Act and Washington Gasoline Dealer Bill of Rights Act. The claims were based on BP’s allegedly inaccurate statements regarding the estimated gross margins that the franchisee could earn on the sale of gasoline and other products.

In dismissing the claims, the Washington court noted that for both ...

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Although the Minnesota Franchise Act (“MFA”) may preclude an out of state franchisor from using a forum selection clause to prevent a Minnesota franchisee from filing a lawsuit in Minnesota, a New Jersey federal court ruled recently that the MFA does not mandate that all litigation involving Minnesota franchisees must be venued in Minnesota. In Ramada Worldwide, Inc. v. Grand Rios Investments, LLC, 2013 U.S. Dist. LEXIS 152140 (D.N.J. Oct. 23, 2013), Ramada initiated litigation in its home state of New Jersey against a Minnesota-based franchisee. The franchisee argued that ...

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The United States District Court for the Middle District of Florida also granted 7-Eleven a preliminary injunction in 7-Eleven, Inc. v. Kapoor Brothers Inc., 2013 U.S. Dist. LEXIS 149063 (M.D. Fla. Sept. 13, 2013). The court found that, because of this franchisee’s incurable conduct, the franchisor did not have to comply with franchise agreement provisions requiring advance notice of the termination and the opportunity to cure. Fairly soon after Kapoor Brothers entered into two franchise agreements, 7-Eleven discovered that Kapoor Brothers had underreported sales by ...

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Franchisor Ace Hardware Corporation recently prevailed on appeal—as it had in the lower court—against claims that it had committed fraud in selling two franchises. Avon Hardware Co. v. Ace Hardware Corp., 2013 Ill. App. LEXIS 743 (Ill. App. Oct. 28, 2013). The circuit court had dismissed both franchisees’ claims because cautionary language in Ace’s pro forma and UFOC documents rendered reliance on the franchisor’s alleged statements immaterial as a matter of law. The Illinois Court of Appeals affirmed.

The appellate court held that Ace Hardware’s documents did not ...

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During the same October 31, 2013, MSBA Franchise Committee meeting, Commissioner Lubin and Deputy Commissioner Cantone reiterated their pledge to form an advisory committee to review their office’s policies and procedures, as well as the state’s franchise regulations, with the intent of streamlining the renewal process. The first meeting of that group is being planned for December.

Commissioner Lubin also announced that their office had agreed that it would no longer require a franchisor’s financial statements to be current within 90 days when filed in Maryland. In an ...

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There have been further developments following the October 3, 2013, meeting of the Maryland State Bar Association’s Franchise Committee, at which Jon Cardin, a member of the Maryland House of Delegates who also is a candidate for Maryland Attorney General, presented proposed revisions to several sections of the Maryland Franchise Law. (Under the proposal, the time the Attorney General’s office would be allowed to process franchise renewals and amendments would have been substantially curtailed, Maryland based franchisors would be exempt from compliance with the law when ...

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The United States District Court for the Eastern District of New York last month entered a preliminary injunction against franchisees that diverted profits from their five 7-Eleven convenience stores in violation of their franchise agreements. 7-Eleven, Inc. v. Khan, 2013 U.S. Dist. LEXIS 146696 (E.D.N.Y. Oct. 10, 2013). 7-Eleven terminated the franchise relationship, without giving the franchisees an opportunity to cure, after an investigation revealed that the franchisees had repeatedly underreported their sales and defrauded 7-Eleven out of royalty payments over a four ...

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In an apparent response to increased competition within certain segments of the restaurant and bakery industries, the Korean National Assembly recently passed an Amendment to the Fair Transactions in Franchise Business Act creating unique franchise relationship and disclosure requirements. The new law addresses unit remodeling requirements, business (protected) territories, sales revenue projections, business hours, franchisee “trade unions” and refunds. The Amendment will become effective February 14, 2014, except for requirements involving the business ...

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Franchisors interested in selling a franchise system—whether in the near future or longer term—should take steps now to maximize its value. In the April 2013 issue of Franchising World magazine, Gray Plant Mooty attorneys Gaylen Knack, Sandy Bodeau, and John Brower highlighted key legal issues for franchisors to consider in preparing a franchise system for a sale. They examined proactive steps the selling franchisor can take that can improve the purchase price paid for the system. These include, among other actions, ensuring the franchise agreements give the franchisor ...

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The United States District Court for the Eastern District of Pennsylvania held last month that the amount at stake in an underlying arbitration should be used to determine the amount in controversy in a related federal court action for injunctive relief. Soft Pretzel Franchise Systems Inc. v. Taralli, Inc., 2013 U.S. Dist. LEXIS 127242 (E.D. Pa. Sept. 5, 2013). This dispute involved the termination of a franchise agreement for failure to report sales and to pay royalty, advertising, and legal fees. Soft Pretzel initiated an arbitration action to recover the fees owed and to obtain a ...

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Posted in Contracts

In Lenexa Hotel, LP v. Holiday Hospitality Franchising, Inc., 2013 U.S. Dist. LEXIS 125240 (D. Kan. Sept. 3, 2013), a federal district court in Kansas denied a hotel franchisor’s motion to dismiss a franchisee’s claims for breach of contract and breach of the implied duty of good faith and fair dealing, and for a declaratory judgment regarding the parties’ obligations under their license agreement. The plaintiff’s allegation was that Holiday Hospitality Franchising, the franchisor of the Holiday Inn, Crowne Plaza, and InterContinental brands, repeatedly represented ...

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Posted in Contracts

The United Stated District Court for the District of Minnesota recently dismissed several claims by a Party City franchisee premised on the franchisor’s operation of an online store. Newpaper, LLC v. Party City Corp., 2013 U.S. Dist. LEXIS 137396 (D. Minn. Sept. 25, 2013). Gray Plant Mooty represents Party City in this matter. The franchisee’s complaint alleged that the operation of an online store by the franchisor breached the franchisee’s contractual right to an exclusive territory. It also alleged that certain aspects of Party City’s online store, including its ...

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Posted in Arbitration

In Dickey’s Barbecue Restaurants, Inc. v. Mathieu, 2013 U.S. Dist. LEXIS 133204 (N.D. Tex. Sept. 18, 2013), a dispute arose when Mathieu failed to comply with various terms of his franchise agreement, including failure to (1) operate the franchised restaurant, (2) make payments, (3) meet food safety standards, and (4) purchase and sell approved products. After Mathieu advised Dickey’s Barbeque that he was ceasing operations of his franchised business, Dickey’s commenced a lawsuit to seek, among other things, a declaration that Mathieu violated the material terms of the ...

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In a recent award, a panel of three arbitrators in Canada concluded that H & R Block Canada was entitled to require franchisee Gerger Enterprises to use computer tax preparation software provided by Block. Gerger Enters. Ltd. v. H & R Block Canada, Inc., Private Arbitration Award (Aug. 1, 2013). The dispute arose when Block decided that it was desirable to have uniform tax preparation software used by all of its franchisees, which would, among other things, enable expanded communication between the company and its many franchised offices. Block therefore amended its operations ...

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Posted in Damages

A federal court in Missouri recently granted a significant award of attorneys’ fees to a franchisor based on the contractual fee-shifting provision contained in the franchise agreement between itself and the franchisee. In Coral Group, Inc. v. Shell Oil Co., 2013 U.S. Dist. LEXIS 113219 (W.D. Mo. Aug. 12, 2013), the court agreed to award over $3.1 million in attorneys’ fees and expenses incurred over an eight-year period defending against claims related to Coral Group’s operation of Shell gasoline stations and convenience stores. In a previous ruling that had been upheld by ...

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The United States District Court for the District of New Jersey recently denied a franchisor’s motion to dismiss based on an area development agreement’s forum selection clause, on the ground that the contract had created a “franchise” and controlling state law did not enforce such clauses against New Jersey franchisees. The parties in Navraj Restaurant Group, LLC v. Panchero’s Franchise Corp., 2013 U.S. Dist. LEXIS 115199 (D.N.J. Aug. 14, 2013), had entered into an area development agreement under which the developer had the right to recruit and solicit franchisees in ...

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A federal district court in Arizona recently held that a franchisor was not liable for Title VII claims brought by an employee of one of its franchisees. In Courtland v. GCEPSurprise, LLC, 2013 U.S. Dist. LEXIS 105780 (D. Ariz. July 29, 2013), the plaintiff sued a franchisee as well as the franchisor, Buffalo Wild Wings, alleging that she was subject to sexual discrimination, harassment, and retaliation by members of the restaurant’s management staff. Buffalo Wild Wings moved for summary judgment on the plaintiff’s claims and argued that it could not be held liable for her ...

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Posted in Terminations

A United States District Court in Colorado last week issued a preliminary injunction against Steak ‘n Shake franchisees who were terminated for failing to honor the system’s mandatory promotional programs. Steak ‘n Shake Enters., Inc. v. Globex Co., 2013 U.S. LEXIS 125330 (D. Colo. Sept. 3, 2013). Specifically, the franchisees refused to comply with the chain’s “$4 meal” menu, and a codefendant had failed to open stores required under an area development agreement. The injunction order prohibits the defendants from operating certain terminated restaurants and ...

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Posted in Contracts

A Wisconsin federal district court dismissed a terminated franchisee’s tort based claims premised on a pre-agreement misrepresentation by the franchisor, but refused to dismiss—for the time being—the franchisee’s unjust enrichment claim. ERA Franchise Sys., LLC v. Hoppens Realty, Inc., 2013 U.S. Dist. LEXIS 107078 (W.D. Wis. July 31, 2013). Prior to the execution of a franchise agreement, a representative from ERA allegedly told the franchisee that it would receive support and training from ERA during the franchise relationship. The franchisee claimed that ERA made ...

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The United States Court of Appeals for the Eighth Circuit last month upheld a district court’s denial of injunctive relief for a franchisor that had waited too long to enforce a former franchisee’s post-termination covenant against competition. Novus Franchising, Inc. v. Dawson, 2013 U.S. App. LEXIS 16103 (8th Cir. Aug. 5, 2013). The district court subsequently allowed the franchisee’s counterclaims under the Minnesota Franchise Act to proceed. Novus Franchising, Inc. v. Dawson, 2013 U.S. Dist. LEXIS 117717 (D. Minn. Aug. 20, 2013). This case began in 2012, when Novus ...

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Posted in Arbitration

A federal court in Louisiana has ruled that the arbitrator is the appropriate person to decide both substantive questions and questions of arbitrability under a franchise agreement requiring arbitration of “all disputes.” Planet Beach Franchising Corp. v. Zaroff, 2013 U.S. Dist. LEXIS 121908 (E.D. La. Aug. 27, 2013). This case began when the owners of four Planet Beach salons, all operated under separate franchise agreements, filed a demand for arbitration claiming that Planet Beach allegedly made a number of material misrepresentations and omissions in its sales ...

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Posted in Employment

The battle continues in the case of Awuah v. Coverall North America. As regular readers of The GPMemorandum will recall, Awuah is a class action matter involving janitorial services franchisees. The lawsuit asserts that the class of franchisees should be considered to be employees, instead of as franchisees and independent contractors, for purposes of applying minimum wage and overtime laws. As first reported in Issue 130 of The GPMemorandum (May 2010), the franchisee class survived summary judgment on its claims, sounding alarm bells throughout the franchising community. As ...

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In WW, LLC v. The Coffee Beanery, Ltd., 2013 U.S. Dist. LEXIS 100673 (D. Md. July 17, 2013), the United States District Court for the District of Maryland granted in part and denied in part Coffee Beanery’s motion for summary judgment relating to the franchisee’s claims alleged under the Maryland Franchise Act. WW alleged that Coffee Beanery violated Section 14-227 of the Act, which creates civil liability if the person who sells or grants a franchise makes an untrue statement or omission of a material fact to induce an unaware buyer to purchase a franchise. WW claimed that Coffee ...

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Posted in Contracts

In Joseph McSweeney Enterprises, LLC v. Mr. Softee Sales and Manufacturing, LLC, 2013 U.S. Dist. LEXIS 122279 (D.N.J. Aug. 17, 2013), the United States District Court for the District of New Jersey granted Mr. Softee and its affiliates’ motion to dismiss a franchisee’s claims for fraud, breach of the New Jersey Consumer Fraud Act (CFA), breach of warranty, and breach of contract based on an integration clause in the franchise agreements. The franchisee claimed that the ice cream trucks it purchased from Mr. Softee’s affiliate pursuant to its franchise agreements did not ...

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When a dealership franchise was terminated following litigation between the manufacturer and dealers, the Minnesota Court of Appeals found that the termination created new issues and new litigation was not barred. North Star Int’l Trucks, Inc. v. Navistar, Inc., 2013 Minn. App. Unpub. LEXIS 447 (Minn. App. May 20, 2013). The dealership franchisee, North Star International Trucks, had previously brought suit against Navistar in 2009, alleging eight claims, including that Navistar threatened termination of its franchise in bad faith. Though the jury made advisory findings ...

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Posted in Contracts

The United States District Court for the Southern District of Indiana recently ruled that an integration clause barred certain claims by a dealer that were premised on an alleged preagreement misrepresentation by the supplier/distributor. Volvo Trucks N. Am. v. Andy Mohr Truck Ctr., 2013 U.S. Dist. LEXIS 83881 (S.D. Ind. June 14, 2013). Mohr Truck alleged that it entered into a dealer agreement with Volvo in reliance on a preagreement oral representation by Volvo that Volvo would also grant Mohr Truck a separate Mack Truck dealership, which Volvo never awarded. Citing the alleged ...

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Posted in Contracts

The United States Court of Appeals for the Eighth Circuit affirmed a district court award of summary judgment in favor of a Minnesota supplier, finding that the supplier did not breach its contract with the appellant distributor. Watkins Inc. v. Chilkoot Distrib., Inc., 2013 U.S. App. LEXIS 13716 (8th Cir. July 8, 2013). The parties had entered into a series of two agreements through which Chilkoot became a Watkins sales associate in Canada. Chilkoot then recruited a new sales associate, the Lambert Group, which became a profitable part of Chilkoot’s downline sales network ...

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The United States District Court for the District of Massachusetts recently explained the meaning of “community of interest” as it relates to Massachusetts franchise law. C.N. Wood Co. v. Labrie Envtl. Grp., 2013 U.S. Dist. LEXIS 78977 (D. Mass. June 5, 2013). C.N. Wood Company entered into an exclusive distributorship agreement with Labrie Environmental Group, under which Wood served as Labrie’s exclusive distributor in Massachusetts and Rhode Island. The agreement had an initial term of one year, which automatically renewed unless a party gave notice of its intent to ...

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Posted in Terminations

The Eastern District of Missouri recently ruled on a number of issues in a dealer’s claims for wrongful termination. In the first decision, the court granted the manufacturer’s motion for summary judgment on a claim that it violated Missouri’s Franchise Act by failing to provide 90 days’ notice of its intent to terminate the dealership, but the court denied the supplier’s motion as to the claim that it violated the Missouri Power Equipment Act by terminating the agreement without “good cause.” Lift Truck Lease & Serv., Inc., v. Nissan Forklift Corp., 2013 U.S. Dist ...

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Posted in Antitrust

The Ninth Circuit recently affirmed summary judgment in an antitrust suit involving the sale of aftermarket automotive parts. In Gorlick Distribution Centers v. Car Sound Exhaust, 2013 U.S. App. LEXIS 14635 (9th Cir. July 19, 2013), the appeals court agreed that Gorlick had failed to raise a genuine issue of fact regarding its claim that its competitor, Allied Exhaust Systems, knowingly received discriminatory pricing in violation of the RobinsonPatman Act. Although it was clear that Allied did in fact know it was receiving favorable pricing from its supplier, Car Sound Exhaust ...

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Posted in Class Actions

Seven putative class action cases against Subway Sandwich Shops, Inc. for engaging in a false or misleading advertising campaign will be centralized in the Eastern District of Wisconsin, according to a transfer order by the Judicial Panel on Multidistrict Litigation. In re: Subway Footlong Sandwich Mktg. & Sales Practices Litig., 2013 U.S. Dist. LEXIS 81639 (E.D. Wis. June 10, 2013). The plaintiffs allege that Subway’s advertising misled them regarding the size of the Subway footlong sandwich. Specifically, they complained that Subway’s uniform standards and practices ...

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Posted in Terminations

The United States District Court for the District of Maryland has denied a franchisee’s motion for preliminary injunctive relief to prohibit the termination of its franchise agreement. Noya v. Frontier Adjusters, Inc., 2013 U.S. Dist. LEXIS 80672 (N.D. Md. June 7, 2013). Frontier Adjusters, Inc., and Noya were parties to several franchise agreements under which the franchisees operated insurance adjustment businesses, including one agreement that expired on June 9, 2013. Franchisee Noya had expressed its desire to enter into a new franchise agreement for the locations with ...

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In Palermo Gelato, LLC v. Pino Gelato, Inc., 2013 U.S. Dist. LEXIS 85925 (W.D. Pa. June 19, 2013), a federal court in Pennsylvania revisited its decision to dismiss the case for lack of subject matter jurisdiction. As reported in Issue 164 of The GPMemorandum, Palermo, a licensee of Pino, brought suit after discovering that Pino allegedly had misrepresented the origins of the gelato product it supplied. Palermo claimed that it was led to believe it was purchasing Pino’s own exclusive recipe gelato when in fact the gelato was manufactured in bulk by a wholesaler. Palermo further ...

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The United States District Court for the Eastern District of Pennsylvania has denied a motion to transfer filed by California franchisee defendants, finding the forum selection clause in their franchise agreement valid and enforceable and concluding that the defendants failed to demonstrate that the action should be moved to the Northern District of California. Maaco Franchising, Inc. v. Tainter, 2012 U.S. Dist. LEXIS 80790 (E.D. Pa. June 6, 2013). Franchisor Maaco filed the action asserting breaches of the franchise agreement. The agreement contained a choice-of-law ...

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A federal district court in Utah last week denied summary judgment for the defendant franchisor in a case involving a Legionnaires’ disease outbreak at a franchised hotel. Licari v. Best Western International, Inc., et al., 2013 U.S. Dist. LEXIS 97725 (D. Utah July 12, 2013). The court found that the plaintiff, who became ill after staying at the hotel, could proceed against the franchisor on two agency-based liability theories. First, the court found enough evidence to suggest that the franchisee was an “actual agent” of the franchisor. The most significant evidence in that ...

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In KFC Corp. v. Wagstaff, 2013 U.S. Dist. LEXIS 86758 (W.D. Ky. June 19, 2013), a district court in Kentucky held that neither the forum selection clauses in agreements underlying a personal guarantee nor Kentucky’s long-arm statute conferred personal jurisdiction over the defendant guarantors. The defendants owned or operated KFC franchises. After KFC terminated the franchises for failing to pay fees due, the parties executed, among other things, a prenegotiation agreement under which KFC would forgo suit, promissory notes under which the franchisee corporations agreed to ...

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In Depianti v. Jan-Pro Franchising International, Inc., 2013 Mass. Lexis 472 (Mass. June 17, 2013), the Supreme Judicial Court of Massachusetts ruled that in analyzing vicarious liability claims against a franchisor, a modified right of control test should be applied. In addition, the court held that a franchisor can be sued by a franchisee for alleged worker misclassification even if there is no written contract between the franchisor and the franchisee. Jan-Pro operates a multi-tier janitorial services franchise system, in which it enters into agreements with master ...

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Posted in Damages

The United States Court of Appeals for the Ninth Circuit has amended a recent opinion and voted to deny rehearing en banc in Alaska Rent-A-Car, Inc. v. Avis Budget Group, Inc., 2013 U.S. App. LEXIS 12709 (9th Cir. June 19, 2013). We previously reported on the case in Issue 165 of The GPMemorandum. In its most recent opinion, the court of appeals upheld the plaintiff licensee’s $16 million jury verdict for lost profits and lost future profits stemming from Avis’s purchase of Budget Rent-A-Car out of bankruptcy. Alaska Rent-A-Car successfully argued that Avis’s ownership and ...

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Applying Connecticut law, the United States Court of Appeals for the Second Circuit held last month that an insurance agent is not protected by the state’s franchise relationship law. Garbinski v. Nationwide Mut. Ins. Co., 2013 U.S. App LEXIS 12856 (2d Cir. June 24, 2013). In this decision, the Second Circuit reviewed and affirmed the district court’s dismissal order that we reported in Issue 159 of The GPMemorandum. Readers may recall that Nationwide, the insurance company, terminated its contract with Garbinski, who sold Nationwide insurance policies, after local media ...

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Posted in Contracts

A federal district court in New Jersey granted summary judgment to Ramada Worldwide on several counts of a breach of contract claim against a franchisee, despite the franchisee’s equitable challenge to enforcement of the parties’ franchise agreement. Ramada Worldwide Inc. v. Southport, LLC, 2013 U.S. Dist. LEXIS 91719 (D.N.J. June 27, 2013). Ramada brought a claim against Southport and other individuals for breach of a license agreement, development incentive note, and guaranty, because Southport had failed to make periodic payments required by the agreements. Ramada ...

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Posted in Encroachment

In CCF, LLC v. Pimental, 2013 R.I. Super. LEXIS 98 (R.I. Super. Ct. May 24, 2013), a Wendy’s franchisee in East Greenwich, Rhode Island, sued McDonald’s Corporation and a town official challenging the approval of various permits and approvals issued by the local planning board and zoning board that allowed for a McDonald’s drive-through restaurant across from the Wendy’s franchisee’s restaurant. On the parties’ cross-motions for summary judgment, the court found for McDonald’s. It weighed whether the Wendy’s franchisee had standing to appeal the decisions of ...

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Posted in Arbitration

A federal court in Illinois found that an arbitration agreement in a franchisor’s online employment application is valid and enforceable, and held that the arbitrator should decide whether the arbitration agreement allows class arbitration. Chatman v. Pizza Hut, Inc., 2013 U.S. Dist. LEXIS 73426 (N.D. Ill. May 23, 2013). The case was brought as a class action in state court by a delivery driver on behalf of himself and all other similarly situated employees. The plaintiff asserted claims against Pizza Hut and the franchisee under the Illinois Wage Payment and Collection Act and ...

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When two franchise agreements contained contradictory choice-of-law and forum selection clauses, the United States District Court for the Northern District of Ohio decided that Pennsylvania law should control, but that it had personal jurisdiction over the franchisee and Ohio was the appropriate forum. Mgmt. Recruiters Int’l, Inc. v. Corbin, 2013 U.S. Dist. LEXIS 69736 (N.D. Ohio May 16, 2013). In this case, franchisor Management Recruiters International, Inc. brought suit against franchisees Van Corbin and Management Consulting Group, Inc. alleging they owed fees under ...

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In Ayu’s Global Tire, LLC v. Big O Tires, LLC, 2013 Cal. App. Unpub. LEXIS 3721 (Cal. Ct. App. May 24, 2013), the California Court of Appeals, applying Colorado law, found that clear and specific language in a Uniform Franchise Offering Circular and franchise agreement undermined a franchisee’s assertion that he reasonably relied on purported precontract misrepresentations and omissions by the franchisor. In this case, a tire store franchisee claimed that he was fraudulently induced to enter into a franchise agreement with Big O Tires. He alleged that he had been assured by Big O ...

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The Minnesota federal district court recently transferred to the Northern District of Texas a putative collective action against franchisor Jani-King International and two wholly-owned subsidiaries. Von Brugger v. Jani-King of Minn., Inc., 2013 U.S. Dist. LEXIS 74548 (D. Minn. May 28, 2013). The defendants are Texas corporations headquartered in Texas. Von Brugger, the plaintiff, who worked primarily as an assistant operations manager for Jani-King of Minnesota, claims that the defendants intentionally misclassified him (and other employees) as exempt from the Fair Labor ...

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Posted in Contracts

In Damabeh v. 7-Eleven, Inc., 2013 U.S. Dist. LEXIS 66565 (N.D. Cal. May 8, 2013), a federal court in California dismissed a franchisee’s claims that 7-Eleven breached the express terms of the franchise agreement, breached the implied covenant of good faith and fair dealing, and tortiously interfered with the franchisee’s prospective business advantage when 7-Eleven terminated the franchise agreement instead of repairing damage to the franchisee’s store. The parties’ claims and defenses relied on a franchise agreement provision providing that the agreement could be ...

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Posted in Damages

A franchisor that successfully enforced its franchisees’ covenants against competition was recently prevented by the Texas Court of Appeals from recovering its legal costs of enforcement. Franlink, Inc. v GJSM Unlimited, Inc., 2013 Tex. App. LEXIS 5118 (Tex. Ct. App. Apr. 25, 2013). Franlink, the franchisor, had sued its former franchisees for injunctive relief to prevent the breach of a noncompete provision in their franchise agreements. The trial court granted the injunction, but denied its request for attorneys’ fees. The dispute on appeal centered on whether Franlink ...

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In C&M Hardware v. True Value Co., 2013 Wisc. App. LEXIS 404 (Wisc. Ct. App. May 9, 2013), the appellate court declined to enforce two exculpatory clauses in the parties’ Retail Member Agreement. C&M sued True Value for misrepresentations that were allegedly made to induce C&M to become a franchisee. The trial court granted True Value’s motion for summary judgment based on the language in two different exculpatory provisions in the parties’ contract. The court of appeals reversed the ruling on these misrepresentation claims after determining that the exculpatory language ...

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In Dunkin’ Donuts Franchising, LLC, v. SAI Food and Hospitality, LLC, 2013 U.S. Dist. LEXIS 359472 (E.D. Mo. Mar. 15, 2013), the United States District Court for the Eastern District of Missouri granted Dunkin’s motion to strike the franchisees’ jury demand, and their request for punitive damages and lost profits. Gray Plant Mooty represents the franchisor in this case. The court enforced the mutual jury trial waiver contained in the parties’ contracts on the basis that it was unambiguous and conspicuous. In addition, the court noted that the franchisees were experienced ...

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Posted in Arbitration

The Fourth Circuit overturned a district court’s decision not to enforce a franchise agreement’s arbitration clause in Muriithi v. Shuttle Express, Inc., 712 F.3d 173 (4th Cir. Apr. 1, 2013). The lower court had denied Shuttle Express’s motion to compel arbitration after concluding that the arbitration clause was unconscionable because of (1) a class action waiver; (2) a requirement that the parties split arbitration fees; and (3) a one-year limitation on claims arising under the agreement. The Fourth Circuit concluded that the district court’s first rationale was not ...

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Posted in Damages

A federal court in Texas awarded a hotel franchisor statutory damages consisting of profits, additional damages and costs, plus actual damages measured by lost royalties. Choice Hotels Int’l, Inc. v. Bhakta, 2013 U.S. Dist. LEXIS 49863 (S.D. Tex. Apr. 5, 2013). The lawsuit arose after Choice Hotels terminated a franchisee for its failure to comply with remodel requirements and to timely pay fees. Although the franchisee received a notice of termination in which Choice Hotels specifically demanded that the franchisee cease using its trademarks, the franchisee continued ...

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Posted in Insurance

A federal court in Michigan granted summary judgment to an insurance carrier following its denial of liability coverage and refusal to defend a franchisor based on the policy’s contractual liability exclusion. In Certified Restoration Drycleaning Network, LLC v. Federal Ins. Co., 2013 U.S. Dist. LEXIS 54457 (E.D. Mich. Apr. 16, 2013), the franchisor (CRDN) sought defense coverage under its general liability insurance policy for an underlying lawsuit by a franchisee. The lawsuit arose after CRDN sold a franchise to a company named East Coast Garment Restoration and then ...

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Posted in Contracts

In an action stemming from a franchisee’s alleged continued operation of a franchised restaurant after the termination of the franchise agreement, a federal district court in Georgia dismissed the franchisor’s claims for unjust enrichment, negligence, and punitive damages. Huddle House, Inc. v. Two Views, Inc., 2013 U.S. Dist. LEXIS 48754 (N.D. Ga. Apr. 4, 2013). The court stated that Georgia law precludes an unjust enrichment claim arising from a contract when the validity of the contract is undisputed. The court noted that although a party may plead an unjust enrichment ...

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Posted in Damages

In Novus Franchising, Inc. v. AZ Glassworks, LLC et al., 2013 U.S. Dist. LEXIS 36830 (D. Minn. Mar. 18, 2013), a federal district court denied Novus Franchising’s claim for lost future royalties stemming from the franchisees’ abandonment of two windshield replacement franchises. Novus calculated its lost future royalties based on the minimum monthly royalty and maintenance fees that the franchisee would have had to pay during the last six years of the franchise agreements. The court recognized that Minnesota law allows a franchisor to recover lost future royalties as long as ...

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Posted in Contracts

The United States District Court for the District of New Jersey recently granted a hotel franchisor summary judgment on its Lanham Act and breach of contract claims, and dismissed the franchisee’s claims that the franchise agreement was unconscionable and the product of negligent misrepresentation. Wyndham Hotels and Resorts, LLC v. Northstar Mt. Olive, LLC, et al., 2013 U.S. Dist. LEXIS 44468 (D.N.J. Mar. 28, 2013). Wyndham, after terminating its franchise agreement with Northstar for Northstar’s failure to pay royalties, sued Northstar to enforce the post-termination ...

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Posted in Damages

In 7-Eleven, Inc. v. Spear, 2013 U.S. Dist. LEXIS 59392 (N.D. Ill. Apr. 25, 2013), the convenience store franchisor had previously prevailed in an action against a franchisee to enforce the termination of the franchise agreement. Because it had prevailed in the underlying matter, 7-Eleven was entitled to an award of its reasonable attorneys’ fees incurred in enforcing the franchise agreement. Having previously parted ways with her attorney, the franchisee’s primary owner and personal guarantor of the franchise agreement defended against 7-Eleven’s motion for fees on a ...

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Posted in Internet

As Gray Plant Mooty reported in Issue 157 of The GPMemorandum, the international corporation that controls internet domain names, ICANN, will soon allow companies to operate hundreds of new Generic Top-Level Domains (gTLDs)—URL extensions to the right of the “dot.” Examples include product and service groups such as .coffee, .food, and .restaurant, and geographic locations such as .boston and .nyc. A few hundred of the gTLDs that are expected to be approved are “open,” as opposed to being restricted to certain companies (e.g., .google) or other groups. The first group ...

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In Strassle v. Bimbo Foods Bakeries Distribution, Inc., 2013 U.S. Dist. LEXIS 34560 (D.N.J. Mar. 13, 2013), a federal court in New Jersey declined to dismiss a claim under the New Jersey Franchise Practices Act (NJFPA) brought by a group of distributors against Bimbo, a manufacturer of bakery goods. The distributors filed a class action complaint alleging that Bimbo breached their contracts and violated the NJFPA by refusing to allow them to buy and resell various types of bread products in their designated territories.

Bimbo moved to dismiss the NJFPA claim and the distributors’ ...

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Posted in Choice of Law

The United States District Court for the District of Minnesota recently held that the selection of Minnesota law in a sales representative agreement did not have the effect of incorporating the Minnesota Termination of Sales Representative Act (MTSRA), where the facts of the case did not otherwise result in its application. North Coast Tech. Sales, Inc. v. Pentair Tech. Prods., Inc., 2013 U.S. Dist. LEXIS 28368 (D. Minn. Mar. 13, 2013). Gray Plant Mooty represented the defendant manufacturer in this case. The dispute arose when Pentair sent a notice advising the sales ...

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A federal district court in Maryland recently determined that a manufacturer did not timely exercise its right of first refusal to purchase a truck dealership from one of its dealers. Paccar Inc. d/b/a Peterbilt Motors Co. v. Elliot Wilson Capitol Trucks LLC, 2013 U.S. Dist. LEXIS 21004, (D. Md. Feb. 8, 2013). In granting the dealer’s cross motion for summary judgment, the court focused on the requirement that the dealer give notice in order to trigger the thirty-day option period set forth in the dealership agreement. Dealer Elliot Wilson claimed that the option had expired because ...

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Posted in Damages

In FECO, Ltd. v. Highway Equipment Co., 2013 Iowa App. LEXIS 94 (Iowa Ct. App. Jan. 9, 2013), the Iowa Court of Appeals affirmed a trial court’s denial of damages and attorneys’ fees to a prevailing plaintiff in a dealership termination suit. FECO had served as an agricultural equipment dealer for Highway Equipment before the latter terminated the parties’ agreement in 2002. Highway Equipment admitted that it did not have good cause for termination and that it did not provide the necessary notice of termination, as required by the Iowa dealership statute. When considering ...

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The Minnesota Court of Appeals recently affirmed rulings against a dealership which alleged violations of Minnesota distribution and dealership laws. North Star Int’l Trucks, Inc. v. Navistar, Inc., 2013 Minn. App. Unpub. LEXIS 294 (Minn. Ct. App. Apr. 8, 2013). In this case, a franchised truck dealership, North Star, alleged that truck manufacturer Navistar violated the dealership agreements between the parties as well as Minnesota’s laws against unfair practices by manufacturers, changing the competitive circumstances of a dealership agreement without good cause ...

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Posted in Antitrust

Late last month, the Supreme Court of Nebraska affirmed a jury verdict in favor of credit reporting agency Experian Information Solutions, in a lawsuit brought against it by mortgage credit report reseller, Credit Bureau Services, alleging violations of Nebraska’s unusual antitrust act. Credit Bureau Servs., Inc. v. Experian Info. Solutions, Inc., 2013 Neb. LEXIS 47 (Neb. Mar. 22, 2013). Evidence was adduced at trial that as part of its “Project Green,” Experian increased, over the course of several years, the minimum monthly purchase requirement for mortgage-related ...

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An agreement by which an automobile manufacturer and its dealer resolved a termination dispute violated New Hampshire’s dealer protection statute, the state’s highest court held this month. Strike Four, LLC v. Nissan North America, Inc., 2013 N.H. LEXIS 37 (N.H. April 12, 2013). After Nissan originally sent a notice of termination, which its dealer protested, the parties reached a settlement by which the dealer would be given a new two-year contract but would be required to sell or lose its dealership without protest if any future defaults or breaches occurred, including the ...

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An Oklahoma appellate court rejected a trial court’s decision that had found Ford Motor Company vicariously liable to disgruntled customers of a now-defunct dealership. Thornton v. Ford Motor Co., Bus. Franchise Guide (CCH) ¶ 15,020 (Okla. Civ. App. Feb. 7, 2013). The case involved an Oklahoma dealer that closed its business only seven months after Ford approved its purchase of the dealership. During the seven months of operation, the dealer’s employees executed bogus checks and failed to deliver vehicles, title certificates, or to pay balances on trade-in vehicles. The ...

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Posted in Arbitration

A previously vacated award of $1.4 million to a former Thomas Kinkade artwork dealer was not revived on appeal this month due to the same irregularities in the arbitration process that had caused a federal district court to reject the award in 2010. Thomas Kinkade Co. v. White, 2013 U.S. App. LEXIS 6537 (6th Cir. Apr. 2, 2013). As reported in Issue 129 of The GPMemorandum, the district court had found that a dealer and his appointed arbitrator’s business dealings with the supposedly “neutral” third arbitrator caused bias that ruined the arbitration. “Evident partiality or ...

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The Court of Appeals of Texas has reversed a trial court ruling and held that terminated distributors could not assert claims against their supplier under the Texas Deceptive Trade Practices Act (DTPA). AdvoCare Int’l, L.P. v. Ford, 2013 Tex. App. LEXIS 1162 (Tex. Ct. App. Feb. 5, 2013). After AdvoCare (a supplier of Ephedra® and certain other products) terminated their distributorships, several of the distributors filed suit alleging various claims including violations of the DTPA. At trial, a jury awarded them damages and attorneys’ fees under that claim. The court of ...

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In Mailing and Shipping Systems, Inc. v. Neopost USA, Inc., 2013 U.S. Dist. LEXIS 44909 (W.D. Tex. Mar. 28, 2013), the United States District Court for the Western District of Texas refused to require a distributor to protect a dealer from territorial encroachment by rival dealers based solely on the duty of good faith and fair dealing set forth in Section 1.034 of the Texas Business and Commerce Code. The plaintiff, a postage meter and mailing machine dealership with territories in Texas and New Mexico, alleged that Neopost, a distributor, breached its dealership agreement and the ...

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Posted in Antitrust

A federal district court in California this month dismissed claims by a smaller hardware store chain against Home Depot and two manufacturers of power tools. Orchard Supply Hardware LLC v. Home Depot USA, Inc., et al., Case No. 12-cv-06361-JST (N.D. Cal. April 12, 2013). The claim, which was dismissed without prejudice, was that Home Depot had demanded exclusive supply contracts with the two manufacturers, both of which then stopped supplying the plaintiff. Those allegations alone were not enough to state a viable antitrust action, the court held.

The decision rejected each of the ...

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Posted in Class Actions

In Martin v. JTH Tax, Inc. d/b/a Liberty Tax Service, 2013 U.S. Dist. LEXIS 15512 (D.S.C. Feb. 5, 2013), the United States District Court for the District of South Carolina refused to certify customers of Liberty Tax franchises as a class under Federal Rule of Civil Procedure 23. The plaintiffs alleged that Liberty Tax franchisees pressured them into paying additional fees to file unnecessary forms, and that they incurred additional tax liability as a result of the fraudulently filed forms. The court gave two reasons for refusing to certify the plaintiffs as a class. First, it found ...

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Posted in Bankruptcy

In Carroll v. Farooqi, 2013 U.S. Dist. LEXIS 22329 (N.D. Tex. Feb. 19, 2013), the United States District Court for the Northern District of Texas affirmed a U.S. Bankruptcy Court’s holding that an individual had standing to pursue an action against a franchisor under the Texas Deceptive Trade Practices Act (DTPA). The case involved an unsuccessful sale of a Salad Bowl franchise. The CEO of the fast causal franchise company (who was also its president, chairman, and CFO) contacted a potential buyer of a franchise. The buyer signed a thirty-day option contract and paid $25,000 to the ...

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Posted in Settlement

A federal court in the Northern District of Illinois ruled that a signed terms sheet between a settling franchisor and franchisee was an enforceable agreement under Illinois state law. Pinnacle Performance, Inc. v. Garbis, 2013 U.S. Dist. LEXIS 24433 (N.D. Ill. Feb. 21, 2013). This lawsuit began when the franchisor, Pinnacle Performance, filed suit against its former franchisees to enforce the covenant not to compete in the parties’ franchise separation agreement. Months into the litigation, the parties negotiated and signed a settlement terms sheet in a settlement ...

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In You Fit, Inc. v. Pleasanton Fitness, LLC, 2013 U.S. Dist. LEXIS 18106 (M.D. Fla. Feb. 8, 2013), a federal court in Florida granted the motion of You Fit, a franchisor, for a preliminary injunction under trademark law. The court found that the defendant former franchisee’s operation of FIT U health clubs was confusingly similar to the franchisor’s YOUFIT health clubs.

The court discussed the seven factors used to evaluate whether there was a likelihood of confusion, focusing primarily on the two most important—the strength of the plaintiff’s mark and any actual confusion ...

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Posted in Insurance

A federal district court in Wisconsin granted partial summary judgment to a franchisor’s directors and officers (D&O) insurance carrier following its denial of liability coverage based on key policy exclusions. In Cousins Submarines, Inc. v. Federal Ins. Co., 2013 U.S. Dist. LEXIS 17306 (E.D. Wis. Feb. 8, 2013), citing the corporate liability coverage that supplemented its standard D&O liability coverage, a sandwich shop franchisor asked its insurer (Federal) to defend it in an underlying lawsuit. The underlying lawsuit alleged that Cousins and its representatives enticed ...

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In Long John Silver’s Inc. v. Nickleson, 2013 U.S. Dist. LEXIS 18391 (D. Ky. Feb. 12, 2013), a federal court in Kentucky granted in part and denied in part a franchisor’s motion for summary judgment on a former franchisee’s counterclaims. After Long John Silver’s initiated a lawsuit against Nickleson in connection with multiple failed franchises in Minnesota, Nickleson brought various counterclaims, alleging violations of the Minnesota Franchise Act (MFA) and common law fraud, among other claims. Nickleson’s counterclaims were based on Long John Silver’s ...

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In Days Inns Worldwide, Inc. v. Royal Hospitality Group, LLC, 2013 U.S. Dist. LEXIS 19464 (D.N.J. Feb. 11, 2013), the United States District Court for the District of New Jersey upheld the validity of a forum selection clause contained in the parties’ franchise agreement. Days Inn terminated the franchise agreement after the franchisees, who were located in California, failed to pay outstanding fees. When Days Inn brought suit in New Jersey for breach of contract, the franchisees moved to dismiss the complaint on the grounds that the court lacked personal jurisdiction over them ...

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The United States Court of Appeals for the Ninth Circuit last week affirmed a judgment won by an Avis licensee in Alaska who claimed that Avis steered business toward Budget® branded locations after the acquisition of that brand in 2002. Alaska Rent-ACar, Inc. v. Avis Budget Group, Inc., 2013 U.S. App. LEXIS 4566 (9th Cir. Mar. 6, 2013). The Alaska-based plaintiff claimed that Avis violated a prior settlement agreement, which promised licensees that any rental car companies acquired by Avis in the future would maintain separate sales, marketing, and reservation operations. An ...

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Posted in Terminations

A federal district court in the Eastern District of Pennsylvania this month issued a permanent injunction against a 7-Eleven franchisee and its employees who were found to have defrauded the franchisor by underreporting store sales. 7-Eleven, Inc. v. Upadhyaya, 2013 U.S. Dist. LEXIS 29091 (E.D. Pa. Mar. 1, 2013). In this case, the franchisor had terminated the franchise without an opportunity to cure, which the court upheld on the grounds that fraud by the franchisee goes directly to the essence of the contract and cannot be cured. Finding that the defendants had failed to offer ...

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A Minnesota federal court has held that a franchisor’s lawsuit was properly filed in its headquarters state because a substantial part of the events giving rise to the claims occurred there. Great Clips, Inc. v. Ross, 2013 U.S. Dist. LEXIS 12530 (D. Minn. Jan. 30, 2013). Great Clips filed the case in Minnesota seeking a declaratory judgment that it did not breach the confidentiality/non-slander clause of a settlement agreement it had signed with a franchisee. In response to the lawsuit, the franchisee moved to dismiss and transfer on the ground that venue was not proper in Minnesota ...

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Chicago Male Medical Clinic (CMMC) brought suit against Ultimate Management, Inc. (UMI), a company that licenses and oversees a national affiliation of medical clinics, alleging, among many counts, that UMI had fraudulently induced CMMC’s investment and had violated the Illinois Franchise Disclosure Act, the Illinois Consumer Fraud & Deceptive Business Practices Act, as well as common law fraud and breach of contract. In Chicago Male Medical Clinic, LLC v. Ultimate Management, Inc., 2012 U.S. Dist. LEXIS 183257 (N.D. Ill. Dec. 28, 2012), the court addressed several motions ...

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Posted in Arbitration

The United States District Court for the Central District of California recently upheld an arbitrator’s finding that a franchisor had constructively terminated a franchise agreement in violation of the Wisconsin Fair Dealership Law (WFDL), when, among other things, the franchisor cut off the franchisee’s access to the franchise system’s record-keeping and management web portal and its external website. In Budget Blinds Inc. v. LeClair, 2013 U.S. Dist. LEXIS 7463 (C.D. Cal. Jan. 16, 2013), two neighboring Budget Blinds franchisees became embroiled in a dispute ...

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In Palermo Gelato, LLC v. Pino Gelato, Inc., 2013 U.S. Dist. LEXIS 9931 (W.D. Pa. Jan. 24, 2013), the United States District Court for the Western District of Pennsylvania dismissed a licensee’s action based on the FTC Rule for lack of subject matter jurisdiction. The parties had entered into a development and supply agreement that gave Palermo exclusive rights to sell Pino’s gelato product in certain designated counties. The dispute arose when Palermo allegedly discovered that Pino had misrepresented its manufacturing method. Palermo filed suit seeking a declaratory ...

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The United States District Court for the Middle District of Tennessee last month ruled that dispute resolution procedures in the parties’ franchise agreements survived termination of the agreements and must be followed prior to the initiation of litigation. Shoney’s N. Am., LLC v. Vidrine Rests., Inc. (M.D. Tenn. Jan. 22, 2013). Shoney’s commenced the action seeking liquidated damages arising from its termination of a number of franchise agreements with Vidrine. More than six months after Shoney’s initiated the suit, Vidrine filed a motion to stay the action pursuant to ...

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A California state appellate court upheld a finding that a franchisor was vicariously liable for its franchisees’ illegal advertising, determining that the franchisor had extensive controls over the advertising beyond that necessary to protect the franchisor’s trademarks and goodwill. In The People v. JTH Tax, Inc., 2013 Cal. App. LEXIS 37 (Cal. Ct. App. Jan. 17, 2013), the California Attorney General filed a complaint against Liberty Tax Service for several violations of consumer protection laws, including false advertising in relation to its refund-anticipation loans ...

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Posted in Announcement

Mark Kirsch and Jan Gilbert joined Gray Plant Mooty’s 32-member Franchise & Distribution Practice Group on February 1, 2013. Both will practice in the firm’s Washington, D.C. office. These two high-profile attorneys bring more than 50 years of combined experience in the franchise industry, and both have strong backgrounds in domestic and international franchising.

Kirsch focuses his practice on domestic and international franchising and distribution matters, with an emphasis on transactional and regulatory work, mergers and acquisitions, and international ...

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Posted in Arbitration

A United States District Court in Iowa has granted a franchisor’s motion to dismiss the complaint filed by its franchisee and enforced the applicable arbitration provisions. Cahill v. Alternative Wines, Inc., 2013 LEXIS 14588 (N.D. Iowa Feb. 4, 2013). The franchisee sued the franchisor and its CEO for breach of a purchase agreement and services agreement between the franchisee and the franchisor, violation of Iowa business opportunity laws, and fraud. The defendants moved to stay or dismiss, seeking to enforce the services agreement’s provision requiring arbitration in ...

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Posted in Trademarks

A Michigan federal court recently denied a franchisor’s motion for summary judgment on its trade dress infringement and unfair competition claims. Happy’s Pizza Franchise, LLC v. Papa’s Pizza, Inc., 2013 U.S. Dist. LEXIS 10130 (E.D. Mich. Jan. 25, 2013), involved a lawsuit brought by Happy’s Pizza Franchise, LLC, against Papa’s Pizza, Inc. and Phil Almaki, who once was a passive investor in one Happy’s Pizza location. Almaki later sold his interest in the Happy’s Pizza store and opened several pizza restaurants under the mark Papa’s Pizza. Happy’s claimed that ...

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A recent case from the Eastern District of Pennsylvania shows the lengths to which courts will go to enforce franchise agreements against personal guarantors and related parties. Tantopia Franchising Co. v. West Coast Tans of PA, LLC, 2013 U.S. Dist. LEXIS 8266 (E.D. Pa. Jan. 22, 2013). The relevant history began in 2002, when Tantopia Franchising Company entered into a franchise agreement with West Coast Tans (WCT) to operate a tanning salon in Philadelphia. Donald and Richard Weiss personally guaranteed WCT’s obligations under that agreement. In 2009, WCT ceased operations. A ...

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Posted in Trademarks

The Supreme Court’s decision in Already, LLC v. Nike, Inc., 568 U.S. ___, 184 L. Ed. 2d 553 (U.S. Jan. 9, 2013), is important for franchisors who may be considering bringing a trademark infringement action against a competitor (including a former franchisee) using a similar mark, as well as for recipients of such infringement claims. The unanimous court affirmed the lower courts’ rulings that, once a trademark plaintiff has voluntarily dismissed its infringement suit and issued a covenant not to sue, the district court loses federal jurisdiction under Article III of the U.S ...

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Posted in Arbitration

The Supreme Court of Washington recently upheld a trial court’s order compelling arbitration in Washington, despite clauses in a franchise agreement providing disputes would be arbitrated in Connecticut, under Connecticut law (except for Connecticut franchise law). In Saleemi v. Doctor’s Associates, Inc., 292 P.3d 108 (Wash. Jan. 17, 2013), the plaintiffs sought to compel arbitration over DAI’s termination of their Subway franchises in Washington. The trial court ruled that the forum selection and choice of law provisions of the franchise agreement were ...

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Posted in Arbitration

A United States District Court in Connecticut granted a franchisor’s motion to compel arbitration of a dispute with several of its franchisees.  EA Independent Franchisee Assoc., LLC v. Edible Arrangements Int’l, Inc., 2012 U.S. Dist. LEXIS 166082 (D. Conn. Nov. 22, 2012). The franchisee association filed a declaratory judgment action against Edible Arrangements alleging breaches of franchise agreements for the imposition of several system changes, including hours of operation and purchasing requirements, and Edible Arrangement’s failure to disclose its ...

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In Myers v. Jani-King of Philadelphia, Inc., 2012 U.S. Dist. LEXIS 172782 (E.D. Pa. Dec. 5, 2012), the United States District Court for the Eastern District of Pennsylvania dismissed the franchisees’ claim that the franchisor had breached the duty of good faith and fair dealing because the applicable state law did not recognize the existence of such a duty between parties to a franchise agreement. The franchisees brought a class-action lawsuit against Jani-King on the grounds that their franchise agreements constituted illegal employment contracts and raised their breach of ...

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Posted in Transfers

A federal court in Kentucky has upheld a franchisor’s rejection of three separate Asset Purchase Agreements (APAs) that would have transferred the franchisees’ restaurants to a third party. As part of a settlement agreement resolving various franchise agreement violations, the franchisee defendants in KFC Corp. v. Kazi, 2012 U.S. Dist. LEXIS 180424 (W.D. Ky. Dec. 20, 2012), were obligated to close any sale of their restaurants by November 30, 2012. KFC rejected the first proposed APA because it involved 100% financing, which did not meet KFC’s financial requirements. The ...

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In Lawn Doctor, Inc. v. Rizzo, 2012 U.S. Dist. LEXIS 17139 (D.N.J. Dec. 11, 2012), the United States District Court for the District of New Jersey granted Lawn Doctor’s motion for a declaratory judgment enforcing the parties’ settlement agreement and finding that Lawn Doctor’s covenant not to compete was valid and enforceable. Even though the covenant did not specifically prohibit irrigation services, a “competitive business” was defined to include “[a]ny business which operates, or grants franchises or licenses to others to operate, a business for the ...

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The United States District Court for the Northern District of Alabama recently held that Alabama’s Sales Representative Commission Contract Act, which requires timely payment of commissions to terminated sales representatives, did not apply to a franchise development agent. The plaintiff in Johnson v. Mossy Oak Properties, Inc., 2012 U.S. Dist. LEXIS 167605 (N.D. Ala. Nov. 27, 2012), was a terminated development agent for a real estate franchisor. As a development agent, Johnson was involved in the training and servicing of Mossy Oak franchisees in a specified territory ...

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In Tutor Time Learning Centers, LLC v. KOG Industries, Inc., 2012 U.S. Dist. LEXIS 162124 (E.D.N.Y. Nov. 13, 2012), the United States District Court for the Eastern District of New York denied Tutor Time’s motion for a preliminary injunction to enforce a posttermination noncompete agreement against its former franchisee. The court began by finding that Tutor Time was not irreparably harmed by potential customer confusion because the former franchisee changed its phone number and sent a letter to all existing customers informing them that it was no longer associated with Tutor ...

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Posted in Arbitration

The franchisor has gained a victory in the ongoing litigation between Coverall North America, Inc. and its franchisees. In Awuah v. Coverall North America, Inc., 2012 U.S. App. LEXIS 26461 (1st Cir. Dec. 27, 2012), the First Circuit held that a sub-group of purported class members who became Coverall franchisees by signing Consent to Transfer Agreements or Guaranties to Coverall’s franchise agreements must arbitrate their claims against Coverall. The district court had determined that this sub-group did not have to arbitrate their claims because, as a matter of contract ...

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The United States District Court for the Eastern District of California granted a franchisor’s motion for a preliminary injunction on its trademark infringement claim against a holdover franchisee after finding that it demonstrated all of the elements required for injunctive relief. 7-Eleven, Inc. v. TSC Lending Grp., Inc., 2012 U.S. Dist. LEXIS 166691 (E.D. Cal. Nov. 20, 2012). The franchisee was terminated for failing to maintain a net worth of $15,000, but it continued operating under 7-Eleven’s marks. The court held that 7-Eleven had demonstrated a likelihood of success ...

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Posted in Contracts

Jiffy Lube was recently sued by a real property company under which Jiffy Lube served as both the landlord and tenant of property located in Anne Arundel County, Maryland. Bird Realty Ltd. P’ship v. Jiffy Lube Int’l, Inc., 2012 U.S. Dist. LEXIS 177207 (D. Md. Dec. 14, 2012). Jiffy Lube entered into a prime lease for the property in 1989 and immediately thereafter entered into a sublease with the plaintiff. The plaintiff, in turn, subleased the property to a subsidiary of Jiffy Lube.  Through a series of mergers, Jiffy Lube assumed the obligations of the property as both landlord and ...

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Posted in International

In an important victory for franchisors, the Court of Appeal for Ontario has upheld a lower court’s decision dismissing Tim Hortons franchisees’ claims in a proposed class action. Fairview Donut, Inc. v. The TDL Group Corp., [2012] ONCA 867 (Dec. 7, 2012). As we reported in the April 2012 edition of The GPMemorandum, the Ontario Superior Court of Justice had dismissed a $2 billion action brought against Tim Hortons by a putative class of franchisees relating to Tim Horton's transition to a new donut production system and the pricing of its products.

The franchisees appealed the ...

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An arbitrator’s finding that a real estate brokerage franchisor violated the Connecticut Business Opportunity Investment Act has been upheld in GMAC Real Estate, LLC v. Fialkiewicz, 2012 U.S. App. LEXIS 26480 (2d Cir. Dec. 27, 2012). Franchisor GMAC Real Estate had sought to vacate the award in a Connecticut federal district court, which refused. The United States Court of Appeals for the Second Circuit affirmed late last month, finding that the arbitrator did not “manifestly disregard the law” in applying the state’s business opportunity statute.

The appeals court gave ...

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Posted in Class Actions

In Simpson v. Best Western International, Inc., 2012 U.S. Dist. LEXIS 162181 (N.D. Cal. Nov. 13, 2012) and Simpson v. Vantage Hospitality Group, Inc., 2012 U.S. Dist. LEXIS 172157 (N.D. Cal. Dec. 4, 2012), two separate federal judges ruled against two separate hotel franchisors on their respective motions to dismiss the plaintiffs’ consumer class action complaints. In each case the plaintiffs asserted that the franchisors violated a California penal statute when their reservation centers recorded Plaintiffs’ cellphone calls, and the franchisors moved to dismiss on the ...

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The Virginia State Corporation Commission issued an Order to Take Notice on November 16, 2012, stating that the Virginia Division of Securities and Retail Franchising had recommended certain revisions to Chapter 110 of Title 21 of the Virginia Administrative Code entitled “Retail Franchising Act Rules” (Virginia Franchise Rules), with a proposed effective date of March 1, 2013. For the most part, these changes are technical, but they may require some modifications to franchisors’ renewal filings in Virginia. The proposed modifications are as follows:

  • All filings must ...
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Posted in Transfers

A federal court in Maryland recently denied a truck manufacturer’s motion to dismiss its dealer’s counterclaims in an action regarding the unauthorized transfer of a dealership. In Paccar Inc. d/b/a Peterbilt Motors Company v. Elliot Wilson Capitol Trucks LLC, 2012 U.S. Dist. LEXIS 166962 (D. Md. Nov. 21, 2012), Peterbilt filed suit alleging that Elliot Wilson had materially breached its dealer agreement by selling rights to the dealership without prior approval. Elliot Wilson responded by filing counterclaims alleging that Peterbilt was aware of the potential sale and ...

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A federal district court in Minnesota has approved a manufacturer’s decision to file suit in its home jurisdiction to resolve a dispute with a distributor in Hearth & Home Technologies, Inc. v. J&M Distributing, Inc., 2012 U.S. Dist. LEXIS 170405 (D. Minn. Nov. 30, 2012). J&M, a distributor of fireplaces and other hearth products, in 2011 and 2012 had sent a series of letters to Hearth & Home Technologies (HHT) alleging that HHT gave favorable pricing to other distributors in violation of federal antitrust laws, and that HHT violated the parties’ distributorship agreement by ...

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Posted in Terminations

The United States District Court for the Northern District of California recently denied a manufacturer’s motion for summary judgment on a distributor’s claim for a violation of the New Jersey Franchise Practices Act (NJFPA). Oracle America, Inc. v. Innovative Technology Distributors LLC, 2012 Bus. Franchise Guide (CCH) ¶ 14,924 (N.D. Cal. Sept. 18, 2012). As a “value added” distributor of Sun Microsystems (Sun) technology products, Innovative Technology Distributors (ITD) sold Sun’s products in conjunction with support and customization services. When Sun was ...

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Posted in Contracts

In Andy Mohr Truck Center, Inc. v. Volvo Trucks North America, 2012 U.S. Dist. LEXIS 145057 (S.D. Ind. Oct. 9, 2012), the United States District Court for the Southern District of Indiana denied Volvo’s motion to dismiss a dealer’s breach of contract claims. According to plaintiff Mohr, Volvo represented that it would grant him a Mack Trucks franchise in a separate transaction if he first entered into an agreement to operate a Volvo Trucks dealership. Mohr accepted his appointment as a Volvo Trucks dealer based on the understanding that he could later combine that franchise with a ...

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Last month, another state appellate court in New York affirmed summary judgment in favor of two franchised Audi dealers who challenged as discriminatory Audi of America’s incentive programs designed to encourage dealers to purchase more Audi vehicles returned by customers at the expiration of their leases (so-called “lease-returns”). Audi of Smithtown, Inc. v. Volkswagen of America, Inc., d/b/a Audi of America, Inc., 2012 N.Y. App. Div. LEXIS 7586 (N.Y. App. Div. Nov. 14, 2012). The “CPO Purchase Bonus” was a payment by Audi to dealers. Existing dealers qualified for ...

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Posted in Contracts

A New York appellate court has rejected a statute of frauds defense to a claim for breach of oral exclusive distribution agreements. Last Time Beverage Corp. v. F & V Distribution Co., LLC, 2012 N.Y. App. Div. LEXIS 6092 (N.Y. App. Div. Sept. 12, 2012). This case began when two separate groups of soft drink distributors sued their common supplier for several breaches of the distribution agreement between one group of distributors (Last Time Beverage) and the original franchisor. The distributors alleged that the supplier had changed their distribution rights without additional ...

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Posted in Fiduciary Duty

In another dealership case involving Audi brand automobiles, the Appellate Division of the Supreme Court of New York overturned a decision by a lower court and granted Audi of America, Inc. summary judgment on the plaintiffs’ fiduciary duty claims. Legend Autorama, Ltd. v. Audi of America, Inc., 2012 N.Y. App. Div. LEXIS 7602 (N.Y. App. Div. Nov. 14, 2012). Audi and the plaintiffs, who were franchised Audi dealers, were parties to dealer agreements. After entering into the dealer agreements with the plaintiffs, Audi entered into another dealer agreement with a separate party that ...

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Posted in Class Actions

A federal court in California recently approved the settlement of a disability-access class action lawsuit in Vallabhapurapu v. Burger King Corp., 2012 U.S. Dist. LEXIS 154867 (N.D. Cal. Oct. 26, 2012). The settlement involved the second part of a class action originally asserted by ten plaintiffs against Burger King in Castaneda v. Burger King Corp., 2010 U.S. Dist. LEXIS 78299 (N.D. Cal. July 12, 2012), the settlement of which was reported in Issue 134 of The GPMemorandum. The approximately 86 plaintiffs in Vallabhapurapu contended that restaurants leased by Burger King to its ...

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In a case that could apply to all types of franchises, a former machinery distributor’s claims under the Maine Unfair Trade Practices Act (MUTPA) were dismissed last month in The Oliver Stores v. JCB, Inc., Bus. Franchise Guide (CCH) ¶ 14,913 (D. Maine Oct. 5, 2012). Defendant JBC brought a motion to dismiss the MUTPA claim on the grounds that the remedies of attorney’s fees and other relief under the MUTPA are not available when the parties had a commercial relationship such as a franchise or distributorship. In 1993, Maine’s legislature had amended the Maine Franchise Act to ...

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In an action brought by a hotel franchisor against a recently terminated franchisee, a New Jersey federal court dismissed without prejudice several fraud-based counterclaims asserted by the franchisee. In Wingate Inns International, Inc. v. Swindall, 2012 U.S. Dist. LEXIS 152608 (D.N.J. Oct. 23, 2012), the court rejected the franchisee’s claim that Wingate Inns had fraudulently induced her purchase of the franchise with personal assurances of profitability and support. The court noted that the franchise agreement contained integration clauses in which Swindall agreed ...

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Posted in Contracts

A Florida federal district court judge has enforced a forum selection clause set forth in a form franchise agreement attached to a Uniform Franchise Offering Circular even though neither party to the contract could produce a fully executed copy. Alloy Wheels, Inc. v. Wheel Repair Solutions Int’l, Inc., 2012 U.S. Dist. LEXIS 118600 (S.D. Fla. Aug. 21, 2012). The plaintiff franchisee alleged that it negotiated with the defendant franchisor, headquartered in Georgia, for a wheel repair franchise that included a specific, exclusive territory in South Florida. After the franchisee ...

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Posted in Retrospective

This is the sixth of our year-long series of articles reviewing the recent progeny of what we identified in December 2007 as the most significant franchise case decisions summarized in Issues 1 through 100 of The GPMemorandum. The sixth of those cases was Dunkin’ Donuts Inc. v. Priya Enterprises, Inc., 89 F. Supp. 2d 319 (E.D.N.Y. 2000), a case handled by current Gray Plant Mooty attorneys before they joined our firm. In Priya, Dunkin’ Donuts initiated a lawsuit seeking an injunction to compel Priya’s compliance with its health, safety, and sanitation standards, as required ...

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In Curves International, Inc. v. St. Paul Ungewitter, Inc., No. 62-cv-12-6568 (Minn. Dist. Ct. Oct. 17, 2012), Curves successfully enforced a one-year, ten-mile post-term noncompete agreement against a former franchisee whose franchise agreement had expired. (Gray Plant Mooty represented Curves.) The court found that Curves had met its burden of demonstrating that it would be irreparably harmed absent injunctive relief because the former franchisee had converted her Curves operation into a new women’s exercise/fitness facility using Curves equipment and serving ...

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Posted in Announcement

Sandy Bodeau recently joined Gray Plant Mooty’s Minneapolis office as a member of its Franchise & Distribution practice group and Franchise Mergers & Acquisitions team.

For more than 12 years, Bodeau has advised clients on a broad range of franchising and commercial issues. In addition to her law firm practice, her past experience includes in-house counsel work for a multi-concept retail franchisor, giving her firsthand experience with issues facing franchisors. Her current practice focuses on advising franchisors on system development and ongoing program issues, and ...

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Posted in Arbitration

In Ace Hardware Corp. v. Advanced Caregivers, LLC, 2012 U.S. Dist. LEXIS 150877 (N.D. Ill. Oct. 18, 2012), the United States District Court for the Northern District of Illinois granted franchisor Ace Hardware’s motion to compel arbitration of the fraud claims of the franchises, Advanced Caregivers. Advanced Caregivers had brought suit in federal court in Florida on behalf of itself and a putative nationwide class, alleging that Ace defrauded them in connection with their decision to acquire Ace franchises. The dispute arose after Ace requested that Advanced Caregivers sign a ...

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Posted in Arbitration

An Arizona federal district court this month ruled that a franchisor could continue to seek to compel arbitration against a member of its franchisee association, even though the association itself had first sued the franchisor in another state. Cold Stone Creamery, Inc. v. Nutty Buddies, Inc., 2012 U.S. Dist. LEXIS 142955 (D. Ariz. Oct. 3, 2012). The Arizona case filed by Cold Stone seeks a declaratory judgment against franchisee Nutty Buddies, Inc. to compel arbitration of the dispute at the heart of a separate state-court action brought earlier in Florida by the Cold Stone ...

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Posted in Terminations

Finding that the defendant franchisee failed to show likelihood of success on the merits, the United States District Court in Nebraska recently denied a motion for a preliminary injunction brought by a Home Instead franchisee who sought to keep operating under two expired franchise agreements. Home Instead, Inc. v. Florance, 2012 U.S. Dist. LEXIS 134554 (D. Neb. Sept. 20, 2012). The court relied solely on the interpretation of the language in the franchise agreements in denying the franchisee’s request to restore its pre-expiration “operational status quo.” The court ...

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A North Carolina federal court recently held that a franchise is a legitimate interest that warrants protection by a covenant not to compete. Econo-Lube N’ Tune, Inc. v. Orange Racing, LLC, 2012 U.S. Dist. LEXIS 129219 (W.D.N.C. Sept. 10, 2012). The franchisees operated an Econo-Lube franchise and had agreed not to compete or have an interest in any similar business. When the franchisor learned the franchisees had an interest in a competing business, the franchisor served them with a notice of default. The franchisees then abandoned the franchise but began operating the same ...

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In JTH Tax, Inc. v. Noor, 2012 U.S. Dist. LEXIS 138657 (E.D. Va. Sept. 26, 2012), the franchisor filed a motion for contempt against the terminated franchisees for violating a default judgment order that, in part, enjoined the franchisees from operating a tax preparation business in violation of the franchise agreement’s noncompete provision and required the franchisees to return certain information and materials belonging to the franchisor. In support of its motion, the franchisor showed that, among other things, the terminated franchisees were preparing tax returns ...

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Posted in Damages

In Six Continents Hotels, Inc. v. CPJFK, LLC, 2012 U.S. Dist. LEXIS 131675 (E.D.N.Y. Sept. 11, 2012), the franchisor of the Crowne Plaza Hotels system was awarded a large judgment against a terminated hotel franchisee that had failed to meet its financial obligations. The judge granted the franchisor’s unopposed motion for summary judgment on liability. The court ruled that franchisor Six Continents was entitled to terminate the agreement and collect damages. The court went on to find Six Continents could collect unpaid fees and liquidated damages, and it approved the formula ...

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The United States District Court for the Western District of Kentucky this month transferred an action brought by franchisor KFC Corporation against a terminated corporate franchisee and its personal guarantors, finding that while the court had jurisdiction over the corporation, it did not have personal jurisdiction over its personal guarantors. Therefore, the court transferred the entire action to the United States District Court for the Northern District of Texas. KFC Corp. v. Texas Petroplex, Inc., No. 3:11-cv-00479 (W.D. Ky. Oct. 5, 2012).

In determining that the ...

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Posted in Trademarks

The United States District Court for the Southern District of Ohio recently granted summary judgment in favor of Choice Hotels on a claim for trademark infringement by a terminated Econo Lodge franchisee. In Choice Hotels International, Inc. v. Jagaji, Inc., 2012 U.S. Dist. LEXIS 128048 (S.D. Ohio Sept. 10, 2012), the hotel franchisor sent its franchisee notices of default, citing the franchisee’s failure to respond to guest complaints and its failure to pay amounts due under the franchise agreement. Choice subsequently terminated the franchise agreement when the franchisee ...

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Posted in Terminations

In Dunkin’ Donuts Franchising LLC v. Oza Brothers, Inc., 2012 U.S. Dist. LEXIS 140595 (E.D. Mich. Sept. 28, 2012), a Michigan federal court granted summary judgment in favor of the franchisors (represented by Gray Plant Mooty) in a case against their former franchisees for breach of contract based on the underreporting of sales, tax fraud, and tax evasion. Oza Brothers owned a Dunkin’ Donuts/Baskin Robbins combination franchise in Michigan. Dunkin’ began an investigation after receiving a tip that Oza Brothers was not reporting sales made to auto dealerships. The ...

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Posted in Arbitration

In Kairy v. Supershuttle International, Inc., No., 2012 U.S. Dist. LEXIS 134945 (N.D. Cal. Sept. 20, 2012), the United States District Court for the Northern District of California granted a franchisor’s motion to stay proceedings and to compel individual arbitration of franchisees’ claims. The franchisees, who are former airport shuttle drivers, brought suit in federal court alleging that Supershuttle violated the Fair Labor Standards Act and applicable state law by failing to pay minimum wages and overtime. Supershuttle moved to compel arbitration on the grounds that ...

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Posted in Antitrust

A case that has stood as one of the only recent precedents for an antitrust tying claim in franchising was dismissed last week by the court in Burda v. Wendy’s Int’l, Inc., 2012 U.S. Dist. LEXIS 145447 (S.D. Ohio Oct. 9, 2012). Last week’s decision favors the franchisor, after the same court twice had refused to dismiss the plaintiff franchisee’s tying claims, as reported in Issues 124 and 136 of The GPMemorandum. This time, on motion for summary judgment, Wendy’s prevailed on all claims, including the challenge to the franchisor’s involvement in the supply of products to ...

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In Ford v. Palmden Restaurants, LLC, Bus. Franchise Guide ¶ 14,877 (Cal. Ct. App. July 31, 2012), a California Court of Appeal held that the plaintiff had raised a triable issue of fact as to whether Denny’s and several of its affiliated corporate entities could be held jointly liable for the injuries he sustained at a franchised restaurant. The plaintiff brought a negligence action against the franchisee and the Denny’s entities after being attacked by members of a street gang who were known to frequent the premises. The lower court granted summary judgment in favor of Denny’s ...

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The United States District Court for the District of Connecticut recently held that a terminated insurance agent could not claim the protection of the Connecticut Franchise Act (CFA). In Garbinski v. Nationwide Mut. Ins. Co., Bus. Franchise Guide (CCH) ¶ 14,872 (D. Conn. July 24, 2012), Garbinski entered into an Independent Contractor Agent’s Agreement with Nationwide. Under that agreement, Garbinski had the right to sell Nationwide insurance products to his customers, but also the right to sell products offered by other insurers. After Garbinski was charged in connection ...

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In a case litigated by Gray Plant Mooty, the United States Court of Appeals for the Sixth Circuit recently reversed a federal trial court’s judgment in favor of a franchisee in a dispute over a development contract on the grounds that its claims were barred by the agreement’s two-year limitations provision. The franchisee in Progressive Foods, LLC v. Dunkin’ Donuts, Inc., 2012 WL 3241696 (6th Cir., Aug. 9, 2012), had opened three stores under a six-store development contract before Dunkin’ terminated the deal for nonpayment of fees associated with the agreement. The ...

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Posted in Class Actions

In 2008, a group of over 300 current and former franchisees of SuperShuttle International, Inc., a shared-ride airport taxi shuttle service, commenced an action against the franchisor. The franchisees claimed that they were employees of the franchisor and were improperly denied a minimum wage and overtime compensation under the New York Labor Law and the Fair Labor Standards Act. In Reid v. SuperShuttle Int’l, Inc., 2012 U.S. Dist. LEXIS 113117 (E.D.N.Y. Aug. 10, 2012), the United States District Court for the Eastern District of New York granted the plaintiffs’ motion to ...

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Posted in Trademarks

Wine & Canvas, an Indiana franchisor whose franchisees organize parties where guests can enjoy cocktails during painting classes, sued YN Canvas, which operated a Wine & Canvas location in San Francisco. Wine & Canvas Development, LLC v. YN Canvas CA, LLC, et al., 2012 U.S. Dist. LEXIS 111273 (S.D. Ind. Aug. 7, 2012). The nature of the parties’ relationship was in dispute, including whether the arrangement was a license or a franchise. The suit alleged trademark infringement, unfair competition, breach of contract, and a number of other claims. The complaint named several ...

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In Hamden v. Total Car Franchising Corp., 2012 U.S. Dist. LEXIS 111432 (W.D. Va. Aug. 7, 2012), a Virginia federal district court held that where a franchise agreement expired at the end of its term, the post-termination non-compete clause was unenforceable because the clause only applied in situations where the agreement was terminated prior to expiration. The parties’ franchise agreement expired in May 2011, but the franchisee continued operating as a franchisee because he did not realize the term had ended. After receiving a reminder from the franchisor of his right to renew ...

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Posted in Renewals

In a case in which Gray Plant Mooty represented H&R Block, the United States Court of Appeals for the Eighth Circuit reversed a district court holding that Block was required to continue performing its obligations under certain franchise agreements in perpetuity. H&R Block Tax Services LLC v. Franklin, 2012 WL 3870574 (8th Cir. Sept. 7, 2012). The franchise agreements at issue provided that they would “automatically renew” for successive five-year terms, but that the franchisee could elect not to renew if it gave 120 days’ notice. After the agreements had remained in force for ...

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In Allegra Network LLC v. Cormack, 2012 U.S. Dist. LEXIS 117014 (E.D. Mich. Aug. 20, 2012), the court granted a preliminary injunction enforcing a post-termination covenant against competition. The franchisor terminated the franchise rights of an Insty-Prints Center based on its failure to pay royalty and advertising fees, report royalty figures, and use only the franchisor’s marks. When the franchisees began operating a competing business in the same location as their terminated franchise, the franchisor sought a preliminary injunction to enforce the noncompetition ...

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An Indiana district court recently allowed a terminated distributor to allege that a manufacturer had violated a state deceptive franchise practices act by terminating its distributor agreement without good cause, even though the distributor’s challenge to the agreement’s unilateral termination provision was time-barred under the terms of the agreement itself. Irvin Kahn & Son, Inc. v. Mannington Mills, Inc., 2012 U.S. Dist. LEXIS 116308 (S.D. Ind. Aug. 17, 2012). The plaintiff, a wholesale distributor of floor coverings, entered into a 1999 distributor agreement ...

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Posted in Contracts

The United States District Court for the Eastern District of California recently granted summary judgment to a franchisor on a franchisee’s claim that it had breached the franchise agreement, thus relieving the franchisee of the obligation to pay fees. In Century 21 Real Estate LLC v. All Professional Realty, Inc., 2012 U.S. Dist. LEXIS 111744 (E.D. Ca. August 7, 2012), All Professional Realty, Inc. owned and operated several Century 21 franchises in California and Hawaii. After several years of operation, All Professional closed one of its California locations and stopped ...

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An Illinois court recently dismissed a case brought by a celebrity sports journalist against a hotel franchisor arising out of alleged privacy violations. Erin Andrews v. Marriot International, Inc., No. 10-L-8186 (Cook County Circuit Court, state of Illinois, August 10, 2012). In a case defended by Gray Plant Mooty, Erin Andrews filed a lawsuit in Illinois against Radisson Hotels International, Inc. (and other hotel companies) alleging that she was illegally viewed in the nude by an individual who stalked her and altered the peephole in her guest room door at various hotels in ...

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Posted in Damages

The United States District Court for the District of New Jersey recently granted summary judgment in favor of the franchisor of the Wingate Hotels system on its claim for damages (including liquidated damages) arising from the early termination of a franchise agreement by a franchisee. In Wingate Inns International, Inc. v. P.G.S, LLC, 2012 U.S. Dist. LEXIS 115745 (D.N.J. Aug. 16, 2012), the franchisee entered into a franchise agreement for a ten-year term. The agreement stated that the franchisee would pay liquidated damages capped at $250,000 if it terminated the franchise ...

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Posted in Terminations

Affirming a preliminary injunction reported in Issue 144 of The GPMemorandum, the United States Court of Appeals for the Seventh Circuit has found that a five-unit Steak N Shake franchisee would suffer “irreparable harm” if terminated for failing to comply with new policies governing pricing. Stuller, Inc. v. Steak N Shake Enterprises, Inc., 2012 U.S. App. LEXIS 17921 (7th Cir. August 24, 2012). The court based its ruling on evidence submitted by the franchisee that the pricing policy “would be a significant change to its business model and it would negatively affect its ...

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The United States District Court for the Western District of Wisconsin recently upheld the jury waiver provision in a franchise agreement under the Wisconsin Fair Dealership Law (WFDL). In Novus Franchising, Inc. v. Superior Entrance Systems, Inc., et al., 2012 U.S. Dist. LEXIS 115640 (W.D. Wis. August 15, 2012), Novus Franchising and defendants Superior Entrance Systems, Inc. (SES) and Knute Pedersen were parties to a franchise agreement for the operation of a Novus business. Although SES’s affiliate, defendant Superior Glass, Inc. (SGI), did not sign the franchise ...

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Posted in Contracts

Last month, the United States District Court for the Central District of Illinois granted summary judgment to a franchisee of five Steak N Shake restaurants in a contract dispute over the franchisor’s policy requiring all franchisees to “follow set menu and pricing (with the exception of breakfast items), and to offer all company promotions published.” Stuller, Inc. v. Steak N Shake Enterprises, Inc., 2012 U.S. Dist. LEXIS 97414 (C.D. Ill. July 12, 2012). According to the plaintiff, the policy was “contrary to longstanding custom, practice, policy, agreement, and ...

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Posted in Contracts

McLane Foodservice, Inc., a regional distributor of raw produce to Taco Bell restaurants, was named as a defendant in several customer lawsuits arising out of a 2006 E. coli outbreak that was allegedly traced to lettuce served at the restaurants. McLane subsequently filed suit against Ready Pac Produce, Inc., who processed produce for Taco Bell, and Tanimura & Antle, Inc., the entity that procured the raw produce processed by Ready Pac. McLane sought to recover inventories, profits, and goodwill that it lost as a result of the outbreak. McLane also asserted claims for ...

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The United States District Court for the District of New Jersey also recently refused to grant injunctive relief to enforce a covenant against competition contained in a franchise agreement. In Lawn Doctor, Inc. v. Rizzo, 2012 U.S. Dist. LEXIS 89678 (D.N.J. June 27, 2012), the franchisor sought a preliminary injunction requiring the defendant franchisees to comply with their post-termination obligations. The parties agreed to all the relief sought by Lawn Doctor, except enforcement of the covenant that required the franchisees to refrain from operating a competing business in ...

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Posted in Trademarks

In Phelan Holdings, Inc. v. Wendy’s International, Inc., 2012 U.S. Dist. LEXIS 101643 (M.D. Fla. July 3, 2012), the United States District Court for the Middle District of Florida dismissed three trademark-related claims because the plaintiff failed to cite properly to statutory causes of action. The dispute arose in connection with the alleged misuse of plaintiff’s service mark “you can’t fake fresh.” (The plaintiff operates seafood restaurants under the mark “Pincher’s Crab Shack.”) The court granted leave for the plaintiff to amend its complaint, but ...

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A franchisor’s motion to strike a franchisee’s demand for jury trial was granted after a California federal district court found a contractual jury waiver to be enforceable. In Century 21 Real Estate LLC v. All Professional Realty, Inc., 2012 U.S. Dist. LEXIS 93895 (E.D. Cal. July 6, 2012), the court considered Century 21’s motion to strike the demand for a jury trial made by its former franchisee, All Professional Realty, Inc. Century 21 had filed an action based on All Professional’s use of Century 21’s trademarks after the parties’ real estate brokerage franchise ...

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Taco Bell Corp. has won an important ruling in a California federal district court against class action claims involving unauthorized text messages. In Thomas v. Taco Bell Corp., 2012 U.S. Dist. LEXIS 107097 (C.D. Cal. June 25, 2012), the court granted summary judgment dismissing the claims against the franchisor, despite its role in the franchisee advertising association that had approved the text messaging component of the promotion. The texting was alleged to violate a federal statute prohibiting certain unauthorized communications.

In granting summary judgment, the ...

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The California Court of Appeals recently affirmed dismissal of a franchisee’s claims for violation of the California Franchise Investment Law (CFIL) and breach of contract, both of which were based on a franchisor’s alleged oral promise to grant an additional franchise territory in the future. In Celsi v. H&R Block Tax Services, LLC, 2012 Cal. App. Unpub. LEXIS 5275 (July 17, 2012), an H&R Block franchisee entered into a franchise agreement that gave it the right to operate a business in a specific franchise territory. At the same time, the franchisee also executed an addendum ...

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A federal court recently dismissed a franchisee’s antitrust claims but permitted its fraud claims to proceed. In Ohio Learning Ctrs., LLC v. Sylvan Learning, Inc., 2012 U.S. Dist. LEXIS 102784 (D. Md. July 24, 2012), a Maryland federal court considered claims for fraud and antitrust violations arising out of plaintiffs’ purchase of a Sylvan Learning Center franchise. The plaintiffs’ fraud claims alleged that, in connection with the sale of the center at issue, the defendants made numerous misrepresentations and material omissions as to the true financial condition of the ...

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In a decision with implications for lawyers representing franchisees, a New Jersey court recently disqualified a firm because of a conflict of interest. In Mody v. The Quiznos Franchise Company, 2012 N.J. Super. LEXIS 1719 (N.J. Super. Ct. App. Div. July 18, 2012), the New Jersey appellate court disqualified the Marks & Klein, LLP (“M&K”) law firm from representing the plaintiffs in a lawsuit against Quiznos after M&K hired an attorney, Andrew Bleiman, who had represented various Quiznos-related entities in litigation relating to franchise disputes. Significantly, the ...

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Posted in Choice of Law

A federal court recently granted summary judgment to a franchisor despite rejecting the franchisor’s choice of law argument. In Red Roof Franchising, LLC v. AA Hospitality Northshore, LLC, 2012 U.S. Dist. LEXIS 90564 (D.N.J. June 28, 2012), the United States District Court for the District of New Jersey upheld the termination of a franchisee who ceased making payments under its franchise agreement before completely abandoning the business. The franchisee had operated a Red Roof Inn in Minnesota under an agreement that contained a Texas choice of law provision. Prior to the end of ...

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A Minnesota federal district court has enjoined a former franchisee’s use of its franchisor’s trademarks and certain proprietary products, but has refused to prevent the defendant from operating a competing business. In Novus Franchising, Inc. v. Dawson, 2012 U.S. Dist. LEXIS 103025 (D. Minn. July 25, 2012), Novus, the franchisor, terminated Dawson’s franchise rights and alleged that Dawson breached that agreement’s post-termination obligations by operating a competitive automotive glass replacement and repair business under the name of CarMike, and by using the ...

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Ohio recently revised its business opportunity law, effective September 30, 2012. Notably, the scope of the law was expanded to increase the threshold for the definition of the initial payment, clarify the process for agreement cancellation, and prohibit any “venue or choice of law provision that deprives a purchaser who is an Ohio resident” from the benefits of the law. Although any franchisor who complies “in all material respects” with the FTC’s franchise rule is exempt from the Ohio business opportunity law, any franchisor who does not materially comply with the FTC ...

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Posted in Arbitration

An association representing its 35 regional franchisee members brought an arbitration proceeding against franchisor Fantastic Sams for breach of contract and other claims on behalf of its members. In Fantastic Sams Franchise Corp. v. FSRO Association Ltd., 683 F.3d 18 (1st Cir. June 27, 2012), FSRO sought declaratory and injunctive relief, but not damages. Fantastic Sams filed a motion in federal court to stay the arbitration and to compel the Association’s members to arbitrate their claims individually. The court granted that motion in part, finding that 25 of the members’ ...

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Posted in Damages

An appeals court in Ohio has set aside for now a large class action damages award that had been entered against an automobile manufacturer. In Westgate Ford Truck Sales, Inc. vs. Ford Motor Company, 2012 Ohio App. LEXIS 1707 (Ohio App. 8th Cir. May 3, 2012), the court reviewed the terms of a discount program provided by Ford Motor Company to the Plaintiff-Appellee, Westgate Ford Truck Sales, and other dealers. Ford’s Competitive Price Assistance Program (CPA) allowed dealers to petition Ford for discounts from the wholesale price of trucks in order to maintain a competitive edge in ...

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Posted in Terminations

The Sixth Circuit Court of Appeals recently affirmed a preliminary injunction precluding a wine manufacturer from terminating two distributors as part of a nationwide reorganization plan. In Tri-County Wholesale Distribs., Inc. v. The Wine Group, Inc., 2012 U.S. App. LEXIS 13415 (6th Cir. June 29, 2012), the court found that the plaintiff distributors were likely to prevail on the merits of their argument that The Wine Group did not have “just cause” to terminate them under the Ohio Franchise Act. The Act states that “just cause” requires more than “[a] unilateral ...

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Posted in Arbitration

In Mac Tools v. Diaz, U.S. Dist. LEXIS 56197 (S.D. Ohio Apr. 23, 2012), the U.S. District Court for the Southern District of Ohio enforced an arbitration provision against a distributor’s wife even though she did not sign the distribution agreement at issue. Although the wife did not sign the agreement, she did invest personal funds in her husband’s Mac Tools distributorship and participated in the acquisition and development of the business. When the distributorship failed, she brought suit against Mac Tools in state court, alleging that it had fraudulently induced her and her ...

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In R+C+G Station v. Urbieta Oil, Inc., 2012 U.S. Dist. LEXIS 79033 (S.D. Fla. June 7, 2012), a Florida federal court held that the plaintiff was not a franchisee under the Petroleum Marketing Practices Act (PMPA). R+C+G Station (RCG), former operator of a Valero gasoline service station and convenience store, executed a three-year agreement with Urbieta Oil, Inc. Without notice, Urbieta terminated the parties’ agreement and closed the location operated by RCG. RCG sued for violations of the PMPA, which limits the circumstances in which franchisors may terminate a ...

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Posted in Antitrust

Mary Kay sued a former national sales director (the next level up from a Mary Kay consultant) for enforcement of a contractual covenant against competition. The director, Amy Dunlap, in turn brought a counterclaim against Mary Kay. Dunlap alleged that Mary Kay had violated Texas’s Deceptive Trade Practices Act (DTPA) and further claimed that the noncompete agreement was an illegal restraint of trade under the Sherman Act. In Mary Kay, Inc. v. Amy Dunlap, 2012 U.S. Dist. LEXIS 86499 (N.D. Tex. June 21, 2012), the court addressed Mary Kay’s motion to dismiss Dunlap’s ...

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Posted in Antitrust

The United States District Court for the Eastern District of Virginia recently granted a manufacturer’s motion for summary judgment on a claim of monopolization brought against it by a competitor. In Kolon Industries, Inc. v. E.I. DuPont de Nemours & Co., Bus. Franchise Guide ¶ 77,857 (E.D. Va. Apr. 5, 2012), Kolon claimed that DuPont monopolized the United States para-aramid market, in which DuPont sold its Kevlar product, through the use of long-term, multi-year supply agreements with high volume para-aramid purchasers.

To prove its claim, Kolon had to show that DuPont ...

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Posted in Contracts

In Jaguar Land Rover North America, LLC v. Manhattan Imported Cars, Inc., 2012 U.S. App. LEXIS 8260 (4th. Cir. Apr. 23, 2012), the United States Court of Appeals for the Fourth Circuit affirmed a district court’s summary judgment ruling in favor of an automobile supplier, holding that the supplier was not required to make certain incentive payments to the dealership. The appeals court declined to enforce a contract integration clause that purported to cancel and supersede any agreements previously executed between the parties.

In connection with their agreement to add a Land ...

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Posted in Antitrust

Last month saw two state appellate courts issue similar but not identical opinions regarding the treatment of vertical resale price (RPM) agreements. The decisions reflect the continued lack of consistency regarding the treatment of RPM under federal antitrust law and under various state antitrust laws, as well as the compliance difficulties faced by businesses with national resale networks.

On May 4, 2012, the Kansas Supreme Court in O’Brien v. Leegin Creative Leather Products, Inc., 2012 Kan. LEXIS 246 (Kan. May 4, 2012), reversed a decision granting summary judgment to ...

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Posted in Damages

In Laethem Equipment Company, et al. v. Deere & Company, 2012 U.S. App. LEXIS 12135 (June 13, 2012), the U.S. Court of Appeals for the Sixth Circuit held that Michigan’s comparative-fault scheme did not require a reduction in the jury’s award of damages to the plaintiffs – two agricultural dealerships and their owners – and the Michigan Farm and Utility Equipment Act (“MFUEA”) did not require the dealerships to make an election of remedies between their breach of contract claims and their statutory claims.

Francis Laethem owned and operated two agricultural dealerships ...

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Posted in Terminations

The United States District Court for the Southern District of New York recently dismissed breach of contract and related claims brought against a manufacturer/supplier in connection with its termination of a long-time distributor because the parties had not signed a formal written distribution contract. In National Gear & Piston, Inc. v. Cummings Power Systems, LLC, 2012 U.S. Dist. LEXIS 72879 (S.D.N.Y. May 17, 2012), the defendant, a manufacturer and supplier of automotive components, had been selling products on a wholesale basis to the plaintiff-distributor since 1998 ...

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In John R. Atchely and Michael Gilroy v. Pepperidge Farm, Inc., 2012 U.S. Dist. LEXIS 30878 (E.D. Wash. March 8, 2012), the United States District Court for the Eastern District of Washington found that a genuine issue of material fact existed as to whether Pepperidge Farm charged plaintiffs a franchise fee under the Washington Franchise Investment Protection Act by deducting from commissions owed to plaintiffs a fee for services related to a pallet delivery program. Under the program, Pepperidge Farm delivered shrink-wrapped pallets of bakery products directly to large ...

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Posted in Internet

The Internet is undergoing a dramatic change that has significant implications for the use and protection of trademarks. June 13, 2012 marked “Reveal Day,” when the international corporation that controls domain names, Internet Corporation for Assigned Names and Numbers (ICANN), published identifying information about applications for 1,930 new Generic Top-Level Domains (gTLDs).

Until now, web addresses have, for the most part, ended in such familiar gTLD extensions as .com, .net, and .org. There are currently 22 such extensions. There are also 280 country code ...

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Posted in Contracts

In Window World of Chicagoland, LLC v. Window World, Inc., 2012 U.S. Dist. LEXIS 71615 (N.D. III. May 23, 2012), the franchisee entered into multiple licensing agreements with Window World that granted him exclusive trade areas in certain Illinois counties. The franchisee alleged that representatives of Window World assured him that his exclusive territories would be protected by the use of buffer areas around them and that if a territory adjacent to any of his exclusive territories was to be sold, he would have the "right of first refusal" to purchase the territory. When the ...

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A California federal court recently granted in part a franchisor's motion to dismiss the franchisee's single claim for breach of the implied covenant of good faith and fair dealing. In Dos Beaches, LLC v. Mail Boxes Etc., Inc., 2012 U.S. Dist. LEXIS 73248 (S.D. Cal. May 25, 2012), the franchisee claimed that Mail Boxes Etc. breached the implied covenant by (1) selecting a poor location for the franchise, (2) negotiating a lease that prevented the display of the UPS logo, (3) interfering with lease modifications, (4) refusing to provide marketing materials, (5) refusing to grant a ...

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A Pennsylvania district court judge held a former franchisee in contempt for "blatantly violating" the court's injunction order and continuing to operate a competing business after terminabon of a franchise agreement. In Marblelife, Inc. v. Stone Resources, Inc., 2012 U.S. Dist. LEXIS 68223 (E.D. Pa. May 16, 2012), Stone Resources was a Marblelife franchisee in the business of restoring and repairing granite surfaces until the agreement expired in April 2010. The franchisee and its principal agreed that, upon expiration, they would not operate a competing business for two ...

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Posted in Arbitration

In Senior Services of Palm Beach, LLC v. ABCSP Inc., 2012 U.S. Dist. LEXIS 79038 (S.D. Fla. June 7, 2012), a Florida federal court dismissed the case brought by Senior Services of Palm Beach against ABCSP Inc., a franchisor of home health care businesses, and granted ABCSP's motion to compel arbitration in California. Gray Plant Mooty represented franchisor ABCSP in this case.

Senior Services owned an ABCSP franchise in southern Florida. It brought suit against ABCSP over various disputes relating to its franchise agreement. ABCSP filed a motion to compel arbitration, arguing that ...

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Posted in Retrospective

Continuing our yearlong series of articles looking back at the ten cases we identified as the most significant franchise decisions summarized in the first 100 issues of The GPMemorandum, we now cPnsider the evolution of encroachment claims since the Eleventh Circuit's decision in Burger King v. Weaver (1999), in which the court found the Scheck decision to be "logically unsound." We reported in our ten-year anniversary issue in 2007 that "once-routine encroachment claims based on a duty of good faith and fair dealing have been few and far between" since the court's decision in the ...

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Posted in Arbitration

In NIACCF, Inc. v. Cold Stone Creamery, Inc., 2012 U.S. Dist. LEXIS 70256 (S.D. Fla. May 21, 2012), the U.S. District Court for the Southern District of Florida stayed an action brought by NIACFF, a national organization of Cold Stone franchisees, against Cold Stone pending the outcome of a motion to compel arbitration of the individual franchisees' claims. NIACCF sued Cold Stone in federal court regarding Cold Stone's alleged failure to provide accounting and disclosures related to its receipt of third-party payments, such as vendor rebates and gift cards. Cold Stone moved to ...

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Posted in Contracts

In DNB Fitness, LLC v. Anytime Fitness, LLC , 2012 U.S. Dist. LEXIS 74287 (N.D. III. May 30, 2012), a federal district court only partly granted a franchisor's motion to dismiss, as the court refused to enforce a clause that required mediation before the filing of a lawsuit. The case was a challenge to Anytime Fitness' practice of charging franchisees when they enrolled their health club members in a website called "Anytime Health." Several franchisees sued Anytime for breach of contract and alleged a failure of appropriate disclosure. The plaintiffs also alleged that Anytime used its ...

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Posted in Arbitration

The power to determine the appropriateness of a class arbitration was conferred on an arbitrator last month in a somewhat unusual context in Medicine Shoppe International, Inc, v. Edlucy, Inc., et al., 2012 U.S. Dist. LEXIS 67133 (E.D. Mo. May 14, 2012). This decision arose on franchisor Medicine Shoppe International's (MSI's) federal court motion to enjoin a collective arbitration, as the franchisor argued that separate arbitration agreements necessitated individual arbitration proceedings. In this case, it was MSI that was in the position of arguing that the court (rather ...

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On March 29, 2012, the State of Washington amended its Franchise Investment Protection Act to align it with the FTC Franchise Rule. These amendments became effective June 7, 2012, and made the following changes to the act:

  • Changed the term "offering circular" to "disclosure document" throughout the statute;
  • Brought the definition of "prospective franchisee" in line with the FTC Franchise Rule definition;
  • Changed the time period for which a prospective franchisee must have a disclosure document from 10 business days to 14 calendar days; and
  • Added a provision stating that a ...
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In a recent decision, a federal district court in the Eastern District of Pennsylvania granted summary judgment to a franchisor on a terminated franchisee’s counterclaim. In Vino 100, LLC v. Smoke on the Water, LLC, 2012 U.S. Dist. LEXIS 46465 (E.D. Penn. Mar. 30, 2012), a wine/tobacco store franchisee had been terminated for failure to pay royalties and for breaching its lease agreement for the franchised business premises due to nonpayment. As a defense and counterclaim to the franchisor’s action for damages, the franchisee asserted that the franchisor had made an unlawful ...

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In Dickey’s Barbecue Restaurants, Inc. v. GEM Investment Group, LLC, 2012 U.S. Dist. LEXIS 54448 (N.D. Tex. Apr. 18, 2012), a federal court in Texas denied a franchisor’s motion for a preliminary injunction to enforce noncompetition covenants. The defendants had signed an agreement with Dickey’s Barbecue to develop three franchised restaurants in the state of Washington. During the construction of their first restaurant, the defendants dropped out of training and established an independent restaurant at their formerly franchised location.

Despite a contractual ...

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Posted in Settlement

A Michigan federal court found a former franchisee in contempt of a court order after she failed to take affirmative steps to transfer the telephone number of her terminated franchise to the franchisor. In Allegra Network LLC v. Bagnall, 2012 U.S. Dist. LEXIS 48918 (E.D. Mich. Apr. 6, 2012), the franchisor filed a motion for preliminary injunction after learning that the franchisee was operating a competing printing business at the location at which it had previously operated its franchise. To settle that matter, the parties entered into a stipulated injunction in which the former ...

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Posted in Terminations

In Husain, et al. v. McDonald’s Corp., et al., 2012 Cal. App. LEXIS 515 (Cal. Ct. App. Apr. 30, 2012), a California appellate court upheld the trial court’s grant of a preliminary injunction allowing McDonald’s franchisees to continue operating their franchises during the pendency of a lawsuit against the franchisor. The plaintiffs owned and operated multiple McDonald’s franchises in Northern California. They brought suit and asked the trial court to force McDonald’s to allow them to continue operating their franchises during the pendency of the litigation, which the ...

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In a case litigated by Gray Plant Mooty, the United States District Court for the Western District of North Carolina recently granted a franchisor’s motion for a preliminary injunction to prevent a former franchisee from operating a competing business. In Outdoor Lighting Perspectives Franchising, Inc. v. OLP-Pittsburgh, Inc., 2012 U.S. Dist. LEXIS 53583 (W.D.N.C. Apr. 17, 2012), Outdoor Lighting Perspectives Franchising (“OLP”) sought a preliminary injunction to enforce the covenant against competition in the franchise agreement. The clause prevented the ...

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In Anago Franchising, Inc. v. IMTN, Inc., 2012 U.S. App. LEXIS 8120 (7th Cir. Mar. 29, 2012), Anago Franchising terminated one of its subfranchisors, IMTN. After termination, Anago discovered that IMTN had sent a letter to many of its customers advising them that it would no longer be operating under the franchisor’s name, but instead would operate under a competing trademark and software system. Anago commenced an action, claiming that IMTN’s use of its trademarks in the letter would cause confusion regarding IMTN’s continued affiliation with Anago. Specifically, Anago ...

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A U.S. District Court in Georgia granted a franchisor’s motion to dismiss certain claims because of a contractual limitations period, but allowed the plaintiffs’ RICO claims to move forward. In Massey, Inc., et., al., v. Moe’s Southwest Grill, LLC., et. al., 2012 U.S. Dist. LEXIS 53676 (N.D. Ga. April 17, 2012), Plaintiffs claimed that the franchisor failed to properly disclose to plaintiffs that its owner held an interest in a designated supplier. Although the owner held an interest in the supplier as early as 2001, the franchisor failed to disclose that interest until its ...

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Posted in Trademarks

Last month, the United States Court of Appeals for the Fourth Circuit issued a highly anticipated ruling on the legality of the use of others’ trademarks in Google’s keyword ad/sponsored links program, AdWords. The case is Rosetta Stone Ltd. v. Google, Inc., 2012 U.S. App. LEXIS 7082 (4th Cir. Apr. 9, 2012). The appellate court reversed most of a 2010 ruling by a federal district court in Virginia, which had granted summary judgment in Google’s favor on all claims. The lawsuit claimed that the search giant committed direct and contributory trademark infringement and trademark ...

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In Ohio Learning Centers, LLC et al. v. Sylvan Learning, Inc. et al., No. RDB-10-1932, 2012 U.S. Dist. LEXIS 57151 (D. Md. Apr. 24, 2012), the United States District Court for the District of Maryland granted an Ohio-based franchisee’s motion to dismiss for lack of personal jurisdiction in a case brought against it and the franchisor by another Ohio-based franchisee, holding that the defendant franchisee did not have sufficient minimum contacts with the state of Maryland. The plaintiff franchisee had sued both the franchisor and defendant franchisee in Maryland alleging ...

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Posted in Retrospective

This is the fourth in our year-long series of articles reviewing the recent progeny of what we identified in our December 2007 ten-year anniversary edition as the most significant franchise case decisions summarized in Issues 1 through 100 of The GPMemorandum, which covered the period from late 1997 through 2007. The fourth of those key cases was actually a series of decisions in a class action named Collins v. International Dairy Queen et al., which was venued in federal court in Macon, Georgia, from 1994 through 2000. Our firm represented IDQ and its subsidiary, franchisor American ...

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Posted in International

In a far-reaching decision with important implications for franchisors operating in Canada, the Ontario Superior Court of Justice last month dismissed a $2 billion action brought against franchisor Tim Hortons by a putative class of Canadian franchisees. Fairview Donut Inc. v. The TDL Group Corp., 2012 ONSC 1252 (Can LII). The decision addresses the pricing of products within a franchise system and the competitive impacts of vertical pricing and distribution under Canadian law. The court also provided the first guidance on a number of recent amendments to Canada’s Competition ...

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In a case handled by Gray Plant Mooty, Outdoor Lighting Perspectives Franchising, Inc. (“OLP”) filed suit against a former franchisee and its owners arising out of the operation of a competing business and the evasion of post-expiration obligations contained in the defendants’ franchise agreement. Outdoor Lighting Perspectives Franchising, Inc. v. OLP-Pittsburgh, Inc., Amy Perlmutter and Outdoor Living Pittsburgh, LLC, 2012 US Disc. LEXIS 25861 (W.D.N.C. Jan. 26, 2012). OLP sought a preliminary and permanent injunction against the defendants and all others in active ...

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In Hardee’s Food Systems, Inc. v. Hallbeck, No. 4:09CV00664 AGF (E.D. Mo. Feb. 28, 2012), the United States District Court for the Eastern District of Missouri granted summary judgment to Hardee’s on a claim that its decision to produce purportedly “lewd” television advertisements constituted an abuse of its discretion in overseeing the Hardee’s National Advertising Fund. (Gray Plant Mooty represented the franchisor in this case.) Although the franchise agreement gave Hardee’s “sole discretion” over the advertising and marketing activities financed by the ...

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Posted in Contracts

In Smoothie King Franchises, Inc. v. Southside Smoothie & Nutrition Center, Inc., 2012 U.S. Dist. LEXIS 24436 (E.D. La. Feb. 27, 2012), the franchisor of the Smoothie King system brought an action to enforce post-termination noncompetition clauses. The defendant-former franchisees filed various counterclaims based on allegations that they were required to engage in false and deceptive advertising by selling their products as “real whole fruit” smoothies, when the product allegedly contained other ingredients. After the court granted Smoothie King’s request to ...

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Posted in Terminations

In Ohio Learning Centers, LLC v. Sylvan Learning, Inc., 2012 U.S. Dist. LEXIS 41718 (D. Md. Mar. 27, 2012), the United States District Court for the District of Maryland upheld the franchisor’s termination of franchisees who ceased making payments under their license agreement while continuing to use the franchisor’s trademarks. The plaintiffs had entered into contracts with Sylvan to purchase and operate a former company-owned learning center as a franchise and executed two promissory notes to complete the transaction. When the plaintiffs ceased making the required ...

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Posted in Renewals

A federal court in South Dakota was asked to interpret the renewal language of three franchise agreements as amended after a class action lawsuit involving Little Caesar and its franchisee. Sioux Falls Pizza Co., Inc. v. Little Caesar Enterp., Inc., 2012 U.S. Dist. LEXIS 34687 (D.S.D. Mar. 14, 2012). At issue last month was whether Little Caesar could refuse to renew the franchises based on the franchisee’s prior litigation against the franchisor over the Hot-N-Ready concept. The franchisee claimed in the first litigation that it created the Hot-N-Ready concept and sued Little ...

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In Tankersley, et al. v. Lynch, et al., 2012 U.S. Dist. LEXIS 27762 (E.D. Mich. Mar. 2, 2012), a federal court in Michigan denied a motion for summary judgment brought by two former franchisees claiming that the franchisor’s officers were liable for an arbitration award obtained against the franchisor for violations of the Michigan Franchise Investment Law (“MFIL”). The plaintiffs owned and operated a Collision of Wheels (“CoW”) mobile auto body repair franchise. The franchise relationship soured, and the plaintiffs brought an arbitration demand claiming that CoW ...

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In McDonald’s Restaurants of Florida, Inc. v. Doe, 2012 Fla. App. LEXIS 3807 (Mar. 9, 2012), a Florida court of appeals overturned a trial court ruling that had required McDonald’s to produce its training and operations manuals in discovery relating to a vicarious liability claim. The plaintiff had argued that the manuals were necessary to show that McDonald’s had control over the franchised restaurant where an assault had taken place. The trial court, while recognizing that the manuals contained trade secrets, ordered their production pursuant to a confidentiality ...

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Posted in International

China’s Ministry of Commerce (MOFCOM) has adopted new Administrative Measures that clarify issues in question since MOFCOM published its original Administrative Measures in 2007. The new Measures became effective April 1, 2012. Our colleague Chen Biaochong, of the Jun He law firm in Beijing, has provided a summary of the new Measures, which have yet to be published in English. The principal changes are:

  • Article 5.4 of the 2007 Administrative Measures requires franchisors to disclose information about an affiliate of the franchisor if the affiliate supplies products or ...
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Posted in International

Regulations interpreting the disclosure requirements for franchisors which offer and sell franchises in Manitoba were proclaimed April 7 and will become effective October 1, 2012. Even franchisors that are offering master franchises for territories which may include Manitoba should consider amending their Canadian FDDs to reflect the Manitoba requirements. The law applies “if the franchised business is operated, or is to be operated, partly or wholly in Manitoba.” The new legislation is substantively very similar to other franchise disclosure regulations in Canada.

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Posted in Retrospective

Continuing our yearlong series of retrospective articles looking back at the ten cases we identified as the most significant franchise decisions summarized in the first 100 issues of The GPMemorandum, this article will examine the impact of the Eleventh Circuit Court of Appeals’ decision in McDonald’s v. Robertson (1998). That decision was significant not for its result—the court upheld the trial court’s entry of post-termination injunctive relief for the franchisor—but for the type of proof the franchisor was required to present in order to obtain the relief. The ...

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In Dos Beaches, LLC vs. Mail Boxes Etc., Inc., 2012 U.S. Dist. LEXIS 18619 (S.D. Cal. Feb. 15, 2012), a California federal court considered a second attempt by Mail Boxes Etc. (“MBE”) for dismissal of a former franchisee’s complaint alleging a litany of grievances and various claims that MBE violated certain state franchise laws. The first complaint was dismissed without prejudice with leave to amend. After amendment, the court again dismissed most of the former franchisee’s complaint (without prejudice), noting that the claims are “simply inadequate,” give ...

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Posted in Antitrust

Last month, the United States District Court for the Western District of Arkansas dismissed state and federal antitrust claims brought by Coffee.org against Green Mountain Coffee relating to the distribution of the “K-cup” single-serve coffee capsule, which is used with a patented coffee machine owned by Green Mountain. Coffee.org, Inc. v. Green Mountain Coffee Roasters, Inc. et al., 2012-1 Trade Cases ¶ 77,790 (W.D. Ark. Feb. 15, 2012). Coffee.org, an online retailer of coffee and coffee-related products, alleged that Green Mountain acquired essentially all ...

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In Getty Petroleum Marketing, Inc. v. 2211 Realty, LLC, 2012 U.S. Dist. LEXIS 19346 (D. Mass. Feb. 16, 2012), a Massachusetts federal court considered a dispute arising out of the termination of a dealership agreement. Pursuant to the agreement, which Getty assigned to Green Valley Oil, defendant 2211 Realty operated a Lukoil station in Rhode Island. The plaintiffs terminated the agreement based on 2211 Realty’s alleged failure to pay for fuel deliveries, and initiated a lawsuit to enforce termination. 2211 Realty brought counterclaims alleging, among other things, breach of ...

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Posted in Encroachment

In Kia Motors America, Inc. v. Glassman Oldsmobile Saab Hyundai, Inc., 2012 U.S. Dist. LEXIS 7346 (E.D. Mich. Jan. 23, 2012), a federal district court held that Kia’s decision to add a new dealership to the defendant’s assigned geographic area did not implicate the “anti-encroachment” provision of the Michigan Motor Vehicle Dealers Act. Under the statute, a distributor that seeks to place a new dealer within the “relevant market area” of an existing dealer must satisfy certain procedures. In 1998, at the time the parties executed their agreement, the statute defined ...

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Posted in Terminations

In Long-Lewis Sterling Western Star Of Bessemer v. Sterling Truck Corporation, 2012 U.S. App. LEXIS 3130 (Feb. 17 2012), an auto dealer sued a distributor and manufacturer under the Alabama Motor Vehicle Franchise Act, claiming that the dealer had been coerced to participate in a program that conditioned the purchase of 2008 model year vehicles upon the purchase of the 2007 model. In affirming the lower court’s grant of summary judgment in favor of the manufacturer, the Eleventh Circuit panel first found that a 2010 amendment to the Act modifying the definition of “coerce” did ...

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Posted in Antitrust

A federal district court in New York has denied a plaintiff’s motion to dismiss antitrust counterclaims for discriminatory pricing by a seller to competing buyers. In Dayton Superior Corp. v. Spa Steel Products, Inc., 2012 U.S. Dist. LEXIS 4283 (N.D. N.Y. Jan. 13, 2012), the plaintiff originally sued the defendant for breach of contract to recover $1.2 million that the defendant allegedly owed the plaintiff for goods sold and delivered. The defendant brought counterclaims with its amended answer, including a counterclaim under the Robinson-Patman Act based on the allegation ...

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Posted in Arbitration

A recent decision from the Maine federal district court underscores the need to review provisions in franchise agreements to ensure that they do not have unintended consequences. In Oliver Stores v. JCB, Inc., 2011 U.S. Dist. LEXIS 149718 (D. Maine Dec. 29, 2011), the magistrate judge granted a motion to compel arbitration of two of the three counts of the complaint, but held that the remaining count survived because of the agreement’s savings clause. The savings clause provided that “[i]f any provision herein contravenes the laws or regulations of any state or other ...

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Posted in Contracts

In DaimlerChrysler Motors Company, LLC v. Manuel, et al., 2012 Tex. App. LEXIS 1489 (Tex. Ct. App. Feb. 24, 2012), a Texas appellate court affirmed the trial court’s finding that DaimlerChrysler (Chrysler) breached the best efforts provision of its contract with its dealer. In this case, Chrysler entered into an agreement with the dealer for a new Chrysler-Jeep dealership in South Arlington, Texas. The agreement stated that Chrysler granted the dealership subject to the possibility that it could be protested by another dealer, which would delay its establishment. The contract ...

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Posted in Arbitration

The Washington Court of Appeals recently upheld a lower court decision affirming an arbitration award against a franchisor after the trial court refused to enforce the venue requirements in the franchise agreement’s arbitration clause. In Saleemi v. Doctor’s Associates, Inc., 2012 Wash. App. LEXIS 96 (Wash. Ct. App. Jan. 24, 2012), the defendant-appellant (DAI) was the franchisor of Subway restaurants. Saleemi was a franchisee with three restaurants in the state of Washington. DAI alleged that the plaintiff had breached its franchise agreement by violating its ...

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Posted in Renewals

The California Court of Appeals, Second Appellate District, affirmed a trial court’s ruling that a franchisor did not breach the franchise agreements with its former franchisees by refusing to renew their franchises on the same terms found in their original franchise agreements. G.I. McDougal, Inc. v. Mail Boxes Etc., Inc., 2012 Cal. App. Unpub. LEXIS 243 (Cal. Jan. 12, 2012). As described earlier in this memorandum, MBE was the franchisor of packaging and shipping businesses that was acquired by United Parcel Service, which changed the franchise name to “The UPS Store.” ...

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The California Court of Appeals, Second Appellate District, has reversed a trial court’s grant of summary judgment in favor of a franchisor regarding its former franchisees’ claims for negligent misrepresentation and violation of the California Franchise Investment Law and the California Corporations Code. D.T. Woodard, Inc. v. Mail Boxes Etc., Inc., et al., 2012 Cal. App. Unpub. LEXIS 242 (Cal. Jan. 12, 2012). Mail Boxes Etc., Inc. (MBE), a franchisor of packaging and shipping businesses, was acquired by United Parcel Service, which changed the franchise name to “The UPS ...

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In Country Inns & Suites By Carlson, Inc. v. Camarillo Hospitality, LLC, Case No. SACV 11- 1802 AG (ANx) (N.D. Cal. Jan. 9, 2012), a case handled by Gray Plant Mooty, the franchisor filed a motion for preliminary injunction seeking to prevent the defendant from using and/or infringing upon its registered trademarks in promoting its new hotel as the “Camarillo Country Inn & Suites.” The hotel had been operated as a Country Inn & Suites By Carlson system hotel for over twelve years, but the former franchisee had recently been terminated and the property repossessed by its lender. In ...

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In Fantastic Sams Salons Corp. v. Maxie Enterprises, Inc. and Paul Rubin, 2012 U.S. Dist. Lexis 8106 (M.D. Ga. Jan. 24, 2012), a former Fantastic Sams franchisee continued to operate a hair salon at its Fantastic Sams location after termination of the franchise agreement. In response to Fantastic Sams’ suit to enforce its noncompete agreement, the franchisee argued that the noncompete should be declared invalid under Georgia law. The clause at issue prohibited the former franchisee from “directly or indirectly participating as an owner, partner, member, director, officer ...

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In Novus Franchising, Inc. v. Livengood, 2012 U.S. Dist. LEXIS 2610 (D. Minn. Jan. 8, 2012), a Minnesota federal court denied the franchisees’ motion to dismiss Novus’ claim for breach of contract based on the franchisees’ continued operation of their business during the post-term noncompete period, failure to pay required fees and royalties, underreporting of revenues, and failure to submit accurate financial information. The dispute arose when Novus learned that the franchisees had underpaid their royalties by roughly $10,000 through the end of the franchise term ...

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In Outdoor Lighting Perspective Franchising, Inc. v. Home Amenities, Inc., et al., 2012 U.S. Dist. LEXIS 5406 (W.D.N.C. Jan. 18, 2012), the United States District Court for the Western District of North Carolina granted Outdoor Lighting Perspectives Franchising, Inc.’s (OLP’s) motion for a preliminary injunction, enjoining a former franchisee from continuing to operate a competing business within its former territory or that of another franchisee for a period of two years. Gray Plant Mooty represented OLP.

The court concluded that a “franchisor’s goodwill and ...

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Posted in Arbitration

The United States District Court for the Southern District of Ohio recently enforced a franchise agreement’s arbitration provision, rejecting a franchisee’s claim of unconscionability. In Rodriguez v. Tropical Smoothie Franchise Development Corp., 2012 U.S. Dist. LEXIS 750 (S.D. Ohio, Jan. 4 2012), a franchisee brought suit against the franchisor of the Tropical Smoothie chain alleging that Tropical Smoothie violated state franchise disclosure laws, resulting in failure of the franchisee’s business. Tropical Smoothie moved to dismiss or stay the proceedings and ...

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Posted in Bankruptcy

In In re Wagstaff Minnesota, Inc., 2012 U.S. Dist. LEXIS 372 (D. Minn. Jan. 3, 2012), the United States District Court for the District of Minnesota reversed a United States Bankruptcy Court decision by holding that a comprehensive set of Workout Agreements involving four separate contracts (Reinstatement Agreement, Addendum to Reinstatement Agreement, Letter Agreement, and KFC Franchise Agreement, collectively “Workout Agreements”) should be interpreted as forming one executory contract. Under the Bankruptcy Code, all defaults under an executory contract must be ...

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In KFC Corp. v. JRN, Inc., 2012 U.S. Dist. LEXIS 6127 (W.D. Ky. Jan. 19, 2012), a federal district court denied a franchisor’s motion for a preliminary injunction seeking to prevent the continued operation of multiple franchises. KFC had terminated ten franchises owned by JRN, Inc., one of its largest franchisees, for not meeting a remodel schedule agreed to after its franchise agreements had gone into effect. KFC sued to enforce the terminations, taking the position that a breach of these ancillary agreements also constituted a breach of the underlying franchise agreements. The ...

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Posted in Retrospective

This is the second in our series of articles reviewing the progeny of what we identified in our December 2007 ten-year anniversary edition as the most significant franchise case decisions summarized in Issues 1 through 100 of The GPMemorandum, which covered the period from late 1997 through 2007. The second of those ten significant rulings was United States v. Days Inns of America, Inc., which actually represented a series of cases brought around the country against franchisors under the building accessibility requirements of the Americans With Disabilities Act. (Gray Plant Mooty ...

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Posted in International

On February 1, 2012, amendments to China’s Commercial Franchise Registration Administrative Measures will become effective, clarifying the 2007 Measures. Among the clarifications in the 2011 Measures are:

  1. Foreign franchisors must register with the Chinese Ministry of Commerce (MOFCOM) in Beijing, not one of the provincial Commerce Ministries.
  2. Amendments to registrations must be filed when Chinese company registration information for the franchisor changes, when a change in the status of the franchisor’s intellectual property rights occurs, and when a change in the ...
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Posted in Trademarks

In Big O Tires, LLC v. Felix Bros. Inc., 2011 U.S. Dist. LEXIS 143087 (D. Colo. Dec. 13, 2011), a federal district court in Colorado denied a franchisor’s motion for summary judgment on its trademark and trade dress claims against the owners of three Big O Tires franchises in California. The defendants had elected not to renew their franchise agreement for one of the units, and requested early termination of the remaining two units. After Big O, the franchisor, declined that request, the defendants continued to operate their remaining two franchises and changed the name of their third ...

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The United States District Court for the District of New Jersey recently enforced a franchisor’s noncompete agreement in two consolidated cases. In the first case, Jackson Hewitt Inc. v. H.E.A.T. Enterprises, LLC, 2011 U.S. Dist. LEXIS 144759 (D.N.J. Dec. 15, 2011), the court had previously issued an injunction against the corporate defendant and its owner. Jackson Hewitt then asked the court to apply the injunction against two individuals, Elter and Fournier, who were associated with the business but were not signatories to the franchise agreement. Jackson Hewitt alleged ...

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The United States District Court for the Middle District of Florida recently dismissed a hotel franchisee group’s claim against several hotel franchisor entities for violation of the New Jersey Consumer Fraud Act (NJCFA). Amar Shakti Enters., et al. v. Wyndham Worldwide, Inc., et al. , 2011 U.S. Dist. LEXIS 146903 (M.D. Fla. Dec. 21, 2011). The franchisee group brought a variety of claims against the franchisors of multiple hotel brands in connection with the franchisors’ alleged practices of automatically enrolling hotel guests in brand loyalty programs and automatically ...

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Posted in Trademarks

A United States District Court in California last month dismissed Pinkberry’s case against parties who registered the trademark “Pinkberry” in Japan, concluding the Lanham Act did not extend to defendants’ activities outside the United States. Pinkberry, Inc., et al., v. JEC International Corp., et al., 2011 U.S. Dist. LEXIS 140669 (C.D. Cal. Dec. 7, 2011). The defendants registered the trademark at issue in Japan but never used it. After unsuccessfully attempting to purchase the right to the trademark from defendants, Pinkberry initiated a proceeding in Japan to ...

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Posted in Trademarks

In Century 21 Real Estate, LLC v. Destiny Real Estate Properties, et al., 2011 U.S. Dist. LEXIS 147075 (N.D. Ind. Dec. 19, 2011), the United States District Court for the Northern District of Indiana held that a holdover franchisee’s continued unauthorized use of a franchisor’s trademark constitutes use of a counterfeit mark, which allows the franchisor to seek additional damages and attorneys’ fees and costs under the Lanham Act. To establish counterfeiting, a plaintiff must prove that the mark is identical with or substantially indistinguishable from a registered mark ...

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Buffalo Wild Wings (BWW) recently prevailed on its motion for a preliminary injunction to enjoin three franchisees from continuing to use BWW’s trademarks after the termination of their franchise agreements. Buffalo Wild Wings Int’l, Inc. v. Grand Canyon Equity Partners LLC, 2011 U.S. Dist. LEXIS 141921 (D. Minn. Dec. 9, 2011). BWW terminated the franchisees for nonpayment, but allowed them to find a purchaser pursuant to a Limited Reinstatement Agreement. The Agreement would automatically expire and the franchisees would be required to immediately cease using the marks if ...

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The Consumer Financial Protection Bureau (CFPB) has announced that it will assume certain enforcement responsibilities for the FTC’s Franchising Trade Regulation Rule. Details of how enforcement responsibilities will be shared with the FTC have been awaiting confirmation of a chair of the CFPB. Richard Cordray was named chair last week by President Obama.

Under Section 1063 (i) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB was required to publish in the Federal Register by July 21, 2011, a list of the rules and orders for which it would assume ...

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Posted in Insurance

A federal court in California denied a commercial general liability insurance carrier’s motion for summary judgment seeking a declaration that it had no duty to defend a former franchisee sued for trademark violations by the franchisor. Tower Ins. Co. of New York v. Capurro Ent., Inc., 2011 U.S. Dist. LEXIS 144436 (N.D. Cal. Dec. 15, 2011). Certa Pro, a national franchisor of painting and decorating services franchises, had entered into a franchise agreement with defendant Capurro. After termination, Capurro began marketing a new business using Certa Pro’s marks, including ...

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Franchisors who wish to exhibit at the June 2012 International Franchise Expo (IFE), being held for the first time this year in New York, may have the opportunity to do so without registering their franchises in the state. In October, the New York Office of the Attorney General published a unique franchise registration exemption under its “general” exemption powers pursuant to N.Y. Gen. Bus. L. § 684(1). Although the exemption will not allow franchisors to “sell” franchises or distribute Franchise Disclosure Documents, for $150 per day franchisors can attend the 3-day IFE ...

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In Samica Enterprises, LLC v. Mail Boxes Etc., Inc., 2011 U.S. App. LEXIS 25530 (9th Cir. Dec. 1, 2011), the court affirmed a district court’s grant of summary judgment in favor of two franchisors who were sued by a large number of their franchisees under California law relating to their initial investment in the franchises and the franchisors’ administration of the franchise system. More than 200 franchisees of The UPS Store and Mail Boxes Etc. franchise systems brought various claims under the California Franchise Investment Act (CFIL) and common law against UPS and MBE. The ...

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Posted in Retrospective

This is the first of our year-long series of articles reviewing the progeny of what we identified in our ten-year anniversary edition in December 2007 as the most significant franchise case decisions summarized in Issues 1 through 100 of The GPMemorandum, covering the period from late 1997 through 2007. The first of those cases was the groundbreaking decision on appeal in Broussard v. Meineke Discount Muffler Shops, 155 F.3d 331 (4th Cir. 1998). The decision issued by the Fourth Circuit in that case reversed a large judgment that had been entered against the franchisor, primarily ...

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Posted in Contracts

In Green Desert Oil Group, et al. v. BP West Coast Products, et al., 2011 U.S. Dist. LEXIS 131140 (N.D. Ca. Nov. 14, 2011), the U.S. District Court for the Northern District of California granted a supplier’s motion to dismiss, finding that the plaintiffs failed to state a claim upon which relief could be granted regarding their claims of breach of contract, negligence, and violation of unfair competition laws.

The plaintiffs, who are gas station franchisees, brought a class action lawsuit against BP West Coast Products LLC and BP Products North America, Inc. (BP), the franchisor of ...

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Posted in Discrimination

In Hardee’s Food Systems, Inc. v. Hallbeck, 2011 U.S. Dist. LEXIS 127169 (E.D. Mo. Nov. 3, 2011), the court granted Hardee’s motion to dismiss allegations by a group of its franchisees of breach of the implied covenant of good faith and fair dealing. (Gray Plant Mooty represented the franchisor in this case.) The franchisees alleged that Hardee’s had treated them differently from other Hardee’s franchisees by (a) failing to allow a reduction in license fees, (b) failing to provide advertising support, and (c) not allowing the complaining franchisees to close their ...

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Posted in Arbitration

A federal district court dismissed a complaint brought by international franchisees against a franchisor, a senior federal judge, and an arbitrator challenging the handling of arbitrations brought in the United States. Bletas v. Deluca, 2011 U.S. Dist. LEXIS 133132 (S.D.N.Y. Nov. 15, 2011), arose out of a longstanding dispute between Subway and its franchisees in Greece for nonpayment and standards violations. Subway terminated the franchise agreements and then initiated arbitration proceedings against the franchisees in the United States to enforce the terminations and ...

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In Izzy Poco v. Town of Springfield, et al., 2011 U.S. Dist. LEXIS 125080 (D. Utah Oct. 28, 2011), the court held that Springfield town officials were entitled to qualified immunity for enforcing an ordinance that banned franchises from opening in town. In 2006, Springfield, Utah passed an ordinance banning “formula restaurants” that were “required by contractual or other arrangement to provide any of the following: substantially identical named menu items, packaging, food preparation methods, employee uniforms, interior décor, signage, exterior design, or name as any ...

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Posted in Trademarks

In Super 8 Worldwide, Inc. v. Riro, Inc., 2011 U.S. Dist. LEXIS 134163 (D. Neb. Nov. 18, 2011), the United States District Court for the District of Nebraska denied a motion to strike filed by the defendant, a terminated Super 8 franchisee. The franchisor brought suit against the terminated franchisee for trademark infringement and trademark dilution based on the former franchisee’s use of confusingly similar marks after termination. The former franchisee moved to strike, as scandalous, immaterial, and impertinent, portions of the complaint averring that the franchisor’s ...

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A federal district court in Minnesota recently clarified that the reach of the Minnesota Franchise Act does not extend to protect entities operating outside Minnesota. In Johnson Brothers Liquor Co. v. Bacardi U.S.A., Inc., 2011 U.S. Dist. LEXIS 132768 (D. Minn. Nov. 17, 2011), plaintiff Johnson Brothers was a Minnesota entity whose out of state subsidiaries entered contracts with Bacardi and Brown-Forman Corporation to distribute their products in states other than Minnesota. Bacardi and Brown-Forman terminated their distributorship agreements with Johnson Brothers’ ...

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Posted in Bankruptcy

In In re Wagstaff Minnesota, Inc., 2011 U.S. Dist. LEXIS 124889 (D. Minn. Oct. 26, 2011), the United States District Court in Minnesota denied an appellee’s request to authorize an appeal of a Bankruptcy Court’s decision directly to the Eighth Circuit Court of Appeals. The normal appeal process for decisions from a bankruptcy court is to appeal first to either a bankruptcy appellate panel for the particular circuit or to the U.S. District Court for the particular district, then to the applicable circuit court of appeals, and then to the U.S. Supreme Court. Under certain ...

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A federal court in New York has granted a franchisor’s motion to dismiss a count of unjust enrichment by a construction company hired by a franchisee. Vertex Construction Corp. v. T.F.J. Fitness, L.L.C., 2011 U.S. Dist. LEXIS 135453 (E.D.N.Y. Nov. 23, 2011). The defendant, Retrofitness, is the franchisor of fitness facilities. The co-defendant franchisee entered a construction contract with the plaintiff for a “build-out” of its facility. Retrofitness was not a party to the construction contract. The construction company alleged that it was underpaid for its services by ...

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Posted in Employment

In Doctors’ Associates, Inc. v. Uninsured Employee’s Fund, 2011 Ky. LEXIS 166 (Ken. Nov. 23, 2011), the Kentucky Supreme Court held that Subway franchisor DAI was not responsible for paying workers’ compensation claims on behalf of a franchisee who failed to maintain workers’ compensation insurance. The injured worker was employed by a Subway franchisee at the time of injury, and the state Uninsured Employers’ Fund paid benefits to the worker. The Fund then brought a claim against DAI seeking repayment of the benefits. At issue was a Kentucky statute that imposes ...

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Posted in Damages

The United States District Court in New York City last week rejected a franchisee’s attempt to avoid judgment against it for damages and interest, as the court held that counterclaims the franchisee belatedly sought to assert were not timely and could not support an offset in any event. Gallagher’s NYC Steakhouse Franchising, Inc. v. NY Steakhouse of Tampa, Inc., 2011 U.S. Dist. LEXIS 139175 (S.D.N.Y. Dec. 5, 2011). This unusual case saw the franchisee-defendant not deny breach of the franchise agreement’s royalty obligations, not contest the amount it owed in past-due ...

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Posted in Retrospective

The first issue of The GPMemorandum was dated December 19, 1997. Today we publish Issue 150. To mark this milestone edition, we preview here a series of articles we will bring to you next year during our fifteenth year of publication. The series of articles will provide a bit of perspective on what has happened with the most important topics in franchise law since we celebrated the tenth anniversary of The GPMemorandum four years ago.

In Issue 101, published in December of 2007, we set forth a list of what we viewed as the ten most important of the 700 cases we had summarized for our franchisor ...

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A franchisee’s attempt to assert a claim against its franchisor arising out of the sale of franchise development rights failed recently in an Illinois federal court. The court’s ruling was based on the economic loss rule. Ace Hardware Corp. v. Landen Hardware, LLC, 2011 U.S. Dist. LEXIS 136247 (N.D. Ill. Nov. 28, 2011). Under Illinois law, economic losses allegedly resulting from the tort of negligent misrepresentation cannot
be asserted unless the supplier of the incorrect information is in the business of supplying information for the guidance of others in their business ...

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In Travelodge Hotels, Inc. v. Perry Developers, Inc., 2011 U.S. Dist. LEXIS 134478 (D.N.J. Nov. 22, 2011), Travelodge filed suit in New Jersey federal district court pursuant to a non-exclusive forum selection clause contained in the license agreement with its terminated licensee. In response to the lawsuit, the licensee moved to transfer the case to the Eastern District of Missouri, where its hotel was located. In opposing the transfer, Travelodge argued that the licensee waived its right to seek a transfer based upon convenience by agreeing to the forum selection clause in the ...

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In contrast to the Minnesota district court ruling discussed in the previous summary, the United States Court of Appeals for the Ninth Circuit last week ruled that the Washington Franchise Investment Protection Act (FIPA) does apply to protect a non-Washington franchisee. Red Lion Hotels Franchising, Inc. v. MAK, LLC, et al., 2011 U. S. App. LEXIS 24152 (9th Cir. Dec. 7, 2011). Reversing in part a Washington federal court’s grant of summary judgment, the Ninth Circuit remanded the case to the district court to determine the merits of the FIPA counterclaims brought by a ...

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In Western Sizzler Corp. v. Pinnacle Business Partners, LLC, 2011 U.S. Dist. LEXIS 135353 (M.D. Fla. Nov. 23, 2011), the court awarded a partial summary judgment in favor of the defendant, Pinnacle, which operates a “Sizzlin Grill” in a former franchise location of the Western Sizzlin® franchise system. The location displayed the mark Western Sizzlin from 1995 to 2004, during which time it operated as a licensed franchise location. In 2005, when Pinnacle took over the location, the restaurant was operated under the mark Sizzlin Grill. The franchisor, Western Sizzler, and ...

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Posted in Contracts

The District of New Jersey recently dismissed a franchisee’s claim for breach of the implied covenant of good faith and fair dealing against BP, a large oil producer and gas station franchisor. Alboyacian v. BP Products North America, Inc., et. al., 2011 U.S. Dist. LEXIS 134453 (D.N.J. Nov. 22, 2011). BP was a party to several commission agreements for the sale of gasoline by BP through third-party gas station operators. Those agreements had previously been found subject to the relationship protections of the New Jersey Franchise Practices Act (NJFPA). Upon expiration of the ...

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The United States Court of Appeals for the Seventh Circuit affirmed summary judgment last month in favor of a supplier and its replacement distributor in an interesting case brought by a terminated distributor under the Connecticut Franchise Act. Echo, Inc. v. Timberland Machines & Irrig., Inc., 2011 U.S. App. LEXIS 21502 (Oct. 25, 2011). After Echo terminated its dealer, Timberland Machines & Irrigation Equipment (TMI), Echo filed suit to collect past amounts due. TMI brought a counterclaim for violation of the Connecticut Franchise Act and brought a third-party complaint ...

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Posted in Terminations

In Smith’s Sports Cycles, Inc. v. American Suzuki Motor Corporation, 2011 Ala. LEXIS 181 (Ala. Oct. 14, 2011), the Supreme Court of Alabama denied the franchisee’s claim that franchisor Suzuki wrongfully terminated its franchise agreement. After Suzuki terminated the franchisee for failing to adhere to its standards regarding the neatness and appearance of the dealership facility, the franchisee sued, claiming that Suzuki violated Alabama’s Motor Vehicle Franchise Act. The Alabama statute allows a franchisor to terminate a franchisee for “good cause,” which ...

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Posted in Arbitration

In Zammer v. Herman Miller, Inc., 2011 U.S. Dist. LEXIS 119900 (E.D. Penn. Oct. 18, 2011), Zammer entered into an agreement with his employer, Herman Miller, under which he could purchase his dealership provided he met certain performance goals. Herman Miller terminated Zammer’s contract on the grounds that he had failed to meet those goals. Despite the presence of a mandatory arbitration clause in the contract, Zammer brought suit against Herman Miller. Herman Miller successfully moved to compel arbitration. The arbitrator found in favor of Herman Miller on all but one of ...

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Posted in Terminations

The Second Circuit has affirmed a lower court’s decision finding no agreement between Tiffany and Beautiful Jewellers for the exclusive distributorship of Tiffany goods in India. Beautiful Jewellers Private Limited v. Tiffany & Co., 2011 U.S. App. LEXIS 19147 (2d Cir. Sept. 16, 2011). Beautiful Jewellers, which had been a Tiffany distributor for ten years, contended that it had reached a “verbal” agreement to be an exclusive distributor “as long as Tiffany sold products in India.” This arrangement, however, was not supported by any written agreement. Unsigned draft ...

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In Scholl’s 4 Season Motor Sports, Inc. v. Illinois Motor Vehicle Review Board, et al., 2011 Ill. App. LEXIS 979 (Ill. Ct. App. Sep. 8, 2011), an Illinois dealer of ATVs and snowmobiles appealed a ruling by the Illinois Motor Vehicle Review Board that the state’s Motor Vehicle Franchise Act does not apply to off-road vehicles such as ATVs and snowmobiles.  The dealer had sought the protection of the Act in connection with a discount program and an impending termination by snowmobile manufacturer Arctic Cat. The central issue presented by the dealer was whether the Act’s definition ...

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Posted in Terminations

In Continental Cars, Inc. v. Mazda Motor of America, Inc., 2011 U.S. Dist. LEXIS 101888 (W.D. Wash. Sept. 9, 2011), a federal court in Washington held that state regulations did not trump contractual terms that were more favorable to a dealer. The case was triggered by the felony conviction of the dealership’s principal owner. Mazda then terminated the dealership pursuant to Washington law regulating relations between auto manufacturers and dealers, which provides for termination of the dealership for “good cause.” The dealership agreement, on the other hand, provided for ...

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In James D. Cohen v. Roll-A-Cover, LLC, 2011 Conn. App. LEXIS 473 (Conn. App. Sept. 20, 2011), defendants—manufacturers of a Roll-A-Cover residential pool cover system—appealed the trial court’s holding that they had violated Connecticut’s Business Opportunity Investment Act and Unfair Trade Practices Act (CUTPA) through the sale of New Jersey territories to a distributor. The plaintiff/distributor had signed a distribution agreement for the exclusive rights to distribute the pool cover product in New Jersey. During negotiations, Roll-A-Cover had made certain ...

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Posted in Terminations

In Atlantis Petroleum, LLC v. Getty Petroleum Marketing, Inc., et al.,  2011 U.S. Dist. LEXIS 105437 (E.D. Penn. Sept. 15, 2011), the United States District Court for the Eastern District of Pennsylvania reiterated the principle that motive is irrelevant in termination cases, so long as a valid reason exists to terminate a dealership agreement.

The plaintiff, a gasoline distributor that also managed service stations, sued the defendant-owner of service stations for breach of the Petroleum Marketing Practices Act, claiming that the defendant had improperly terminated the ...

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Posted in Arbitration

In Minnesota Supply Co. v. Mitsubishi Caterpillar Forklift America Inc., et al., 2011 U.S. Dist. LEXIS 113913 (D. Minn. Sep. 30, 2011), a Minnesota-based equipment dealer was a party to three different agreements with three different, but related, suppliers.  The first agreement had an Ohio forum selection clause.  The second had Virginia choice of law and forum selection clauses.  In 2009, those suppliers merged, consolidating the supply of both equipment lines in a single source, but retaining their separate distribution agreements.  In 2010, the dealer entered into an agreement ...

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Posted in Antitrust

Once again, the Senate Judiciary Committee has taken a step toward the passage of legislation to overturn the effect of Leegin Creative Leather Products, Inc. v. PSKS, Inc. On November 3, 2011, the U. S. Senate Committee reported the passage of the proposed “Discount Pricing Consumer Protection Act,” a bill sponsored by Senator Kohl of Wisconsin. This is the same bill that has been introduced in prior years, as reported in The GPMemorandum. We will continue to monitor the progress (if any) of this legislation. 

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In Utility Trailer Sales of Kansas City, Inc. v. MAC Trailer Manufacturing, Inc., et al., 2001 U.S. App. LEXIS (10th Cir. Oct. 5, 2011), MAC and Utility entered into a dealer agreement, which granted Utility the right to “be the only dealer authorized or licensed by MAC in the [Kansas City] area” to sell MAC trailers. The dealer agreement also provided that neither MAC nor any other MAC dealer was prohibited from selling MAC trailers in the Kansas City area. 

Several years after executing the dealer agreement, Utility filed a complaint in federal district court alleging that MAC ...

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Posted in Damages

The United States District Court for the Eastern District of Missouri recently issued an important decision for franchisors seeking to recover damages caused by a franchisee’s abandonment of the franchise. In Hardee’s Food Systems, Inc. v. Hallbeck, 2011 U.S. Dist. LEXIS 107038 (E.D. Mo. Sept. 21, 2011), Hardee’s sued the Hallbecks when they abandoned their franchised restaurant before the expiration of their franchise agreement. (Gray Plant Mooty represents the franchisor in this case.) Hardee’s sought to recover damages caused by that abandonment, including the ...

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Posted in Contracts

In AAMCO Transmissions, Inc. v. Trovato, 2011 U.S. Dist. LEXIS 111943 (S.D. Cal. Sept. 28, 2011), a California federal court denied a motion to dismiss AAMCO’s claim for breach of contract based on a franchisee’s failure to accurately report sales and failure to allow AAMCO to inspect its books and records. The dispute arose when AAMCO learned that the franchisee had completed a $2,400 transaction for a customer, which it did not report to AAMCO. During a resulting audit, AAMCO’s inspectors found two books with receipts for transactions that were not reported. When the ...

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In Cousin Subs Systems Inc. v. Better Subs Development Inc. et al., 2011 U.S. Dist. LEXIS 112903 (E.D. Wis. Sept. 30, 2011), Cousins Subs brought multiple claims against a former franchisee/area developer for breach of contract and failure to pay a promissory note after its two restaurants failed and area development stalled. The franchisee, in turn, brought counterclaims for alleged representations made by a sales consultant (though the court noted the consultant’s relationship with Cousins Subs was not entirely clear). The franchisee based its damages claim on what it likely ...

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In Moua, et al. v. Jani-King of Minnesota, Inc., 2011 U.S. Dist. LEXIS 104026 (D. Minn. Sep. 12, 2011), the United States District Court for the District of Minnesota granted summary judgment in favor of a cleaning service franchisor on a franchisee’s claim of fraud. The case was originally brought as a class action (see Issue 130 of The GPMemorandum) and the bulk of the plaintiffs’ claims, including a claim for violation of the Minnesota Franchise Act, later were dismissed (see Issue 147).

In the most recent decision, the court addressed a single remaining plaintiff’s claim that ...

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The New Jersey Franchise Practices Act (NJFPA) makes it unlawful for a franchisor to terminate or fail to renew a franchise agreement without good cause. In BP Prod. N. Am., Inc. v. Hillside Service, Inc., 2011 U.S. Dist. LEXIS 10473 (D.N.J. Sept. 14, 2011), a federal district court in New Jersey noted that the NJFPA was not limited to “those situations in which the franchisor seeks to arbitrarily and capriciously terminate the franchise agreement. . . .” It held that the NJFPA also requires the franchisor to renew franchise agreements with New Jersey franchisees regardless of ...

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Posted in Contracts

In JMF, Inc., et al. v. Medicine Shoppe International, Inc., 2011 U.S. Dist. LEXIS 106100 (D.N.D. Sept. 19, 2011), the federal district court for North Dakota denied, in part, a franchisor’s motion for summary judgment, finding that issues of fact existed regarding whether the franchisor had offered new franchises in North Dakota sufficient to trigger a “most favored nations” (MFN) clause contained in the plaintiffs’ franchise agreements. Defendant Medicine Shoppe International, Inc. (MSI), the franchisor of nationwide prescription pharmacies, in 2009 announced an ...

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A Connecticut federal court has declined to dismiss a complaint filed by a franchisee association against Edible Arrangements alleging breach of contract, breach of a duty of good faith and fair dealing, and violation of the Connecticut Unfair Trade Practices Act after the franchisor filed a motion for reconsideration. EA Independent Franchisee Association v. Edible Arrangements, International, Inc., Case 3:10-cv-01489-WWE (D. Conn. Sept. 21, 2011). The original ruling was the topic of a special edition of The GPMemorandum in August 2011 (Issue 145). Edible Arrangements ...

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Posted in Arbitration

A federal court in Pennsylvania recently granted a franchisee’s motion to compel arbitration, while simultaneously granting the franchisor’s motion for a preliminary injunction. AAMCO Transmissions, Inc. v . Dunlap, 2011 U.S. Dist. LEXIS 91130 (E.D. Pa. Aug. 16, 2011), involved a lengthy dispute over the franchisor’s termination of the franchise agreement. In 2007, AAMCO sued to enforce termination, which resulted in a settlement agreement allowing Dunlap to operate the franchises for their remaining terms for the limited purpose of giving him an opportunity to sell ...

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A Minnesota federal court recently granted a franchisor’s motion for summary judgment on certain claims pertaining to the franchisor’s alleged violations of the Minnesota Franchise Act. In Ellering v. Sellstate Realty Sys. Network, Inc., 2011 U.S. Dist. LEXIS 75852 (D. Minn. July 13, 2011), the issue presented was whether the franchisor was registered to sell franchises in Minnesota and whether the franchisor had misrepresented the potential earnings of the area franchise agreement. The plaintiff-franchisees claimed that the franchisor was not registered when it sold ...

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Posted in Trademarks

The United States District Court for the Western District of Missouri recently granted a preliminary injunction against a franchisee and ordered the franchisee to cease using the franchisor’s trademarks due to the poor condition of the franchisee’s store.  The case is American Dairy Queen Corp. v. McMurray, No. 11-00859-CV-W-GAF (W.D. Mo. Sept. 2, 2011). Gray Plant Mooty represented American Dairy Queen (ADQ) in the action. 

ADQ brought the action after store inspections revealed health and food safety violations at the store. The decades-old contract between the parties did ...

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Posted in Employment

In Howell v. Papa John’s Int’l., 2011 U.S. Dist. LEXIS 90972 (N.D. Ohio Aug. 16, 2011), the plaintiff alleged that his employment with a Papa John’s franchisee was terminated improperly in violation of the Americans with Disabilities Act. The plaintiff sued Papa John’s, claiming it was responsible for its franchisee’s employment decision. Papa John’s moved for summary judgment on the grounds that it had never employed the plaintiff and was not responsible for its franchisee’s conduct. The court agreed, finding that the plaintiff had failed to present any evidence ...

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Posted in Defamation

In reinstating franchisees’ claims for defamation, the Florida Court of Appeals recently held that statements made by a franchisor on its website are not protected by the “litigation privilege.” Ball v. D’Lites Enterprises, Inc., 65 So. 3d 637 (Fla. Ct. App. July 27, 2011). When the franchisees sued their franchisor regarding representations as to the nutritional content of its products, the franchisor placed a statement on its website stating that the products sold by the franchisees under the franchisor’s trademarks were unauthorized and constituted a “hoax” ...

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Posted in Terminations

In a case we have been tracking in The GPMemorandum, income tax preparation franchisor Liberty Tax Service achieved a victory in a dispute concerning whether it properly terminated a former franchisee under Connecticut law on non-payment grounds. The court in Sherman St. Assocs., LLC v. JTH Tax, Inc., 2011 U.S. Dist. LEXIS 97073 (D. Conn. Aug. 30, 2011), found in Liberty’s favor on its counterclaims against franchisee Sherman Street Associates for breach of the parties’ franchise agreements, a promissory note, and a personal guaranty. The court held that Sherman Street’s ...

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Posted in Arbitration

The United States Supreme Court’s arbitration-friendly decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (U.S. 2011), was extended this month to a group of “franchisees” who sought to claim they were really employees. Green v. SuperShuttle International, Inc., 2011 U.S. App. LEXIS 18483 (8th Cir. Sept. 6, 2011). The franchisees in this case are current and former shuttle drivers who alleged (on a class basis) violations of the Minnesota Fair Labor Standards Act. As reported in Issue 135 of The GPMemorandum, the federal district court compelled arbitration on an ...

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Posted in Employment

Last year, we reported on a ruling that shocked the franchise community when a Massachusetts district judge compared a franchise to a modified Ponzi scheme and held, in a putative class action case, that a commercial janitorial services franchisor had misclassified its franchisees as independent contractors when they were employees. Awuah v. Coverall North America, Inc., 707 F. Supp. 2d 80 (D. Mass. 2010). We subsequently reported on a later damages ruling in which the district court appeared to favor Coverall’s arguments, but ultimately certified various damages questions to ...

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In Ammirato v. Duraclean Int’l., Inc., 2011 U.S. Dist. LEXIS 75305 (E.D.N.Y. July 13, 2011), the United States District Court for the Eastern District of New York held that a franchisor was not vicariously liable for a franchisee’s default on loans. A Duraclean franchisee (not a party to this case) obtained a series of loans from plaintiffs to finance cleaning projects by the Duraclean “National Team,” a marketing program whereby the franchisee would obtain large national accounts. When the franchisee failed to repay the loans, plaintiffs sued Duraclean International ...

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In Solis v. McDonald’s Corp., 2011 N.Y. Misc. LEXIS 3366 (N.Y. Sup. Ct. July 11, 2011), a New York state court denied McDonald’s summary judgment on a vicarious liability claim, concluding that there was a question of fact regarding whether the franchisor exercised sufficient control over its franchisee’s day-to-day operations to be held liable for the franchisee’s negligent acts. The case arose out of injuries suffered by the plaintiff when he fell on a staircase inside a McDonald’s restaurant entrance. The plaintiff sued the franchisee and McDonald’s, seeking ...

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Posted in Contracts

In Good Feet Worldwide, LLC v. Larry Schneider, 2011 U.S. Dist. LEXIS 83865 (S.D. Cal. August 1, 2011), the court held that the statute of frauds was satisfied even though the franchisee did not sign a franchise agreement. A dispute arose between the franchisor and franchisee that eventually required a determination of whether the forum selection clause was enforceable because the entire franchise agreement itself was not signed by the franchisee. The franchisor argued that the statute of frauds was satisfied because the specific franchisee in question had “signed documents ...

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A Minnesota federal district court has dismissed nearly all claims in Moua v. Jani-King of Minnesota, Inc., 2011 U.S. Dist. LEXIS 98455 (D. Minn. Aug. 30, 2011). This case originally was brought as a class action by a group of individuals who provide cleaning services or janitorial work at client accounts. After class certification was denied (see Issue 130 of The GPMemorandum), the parties apparently agreed that the defendant franchisor would move for summary judgment as to three of the individual plaintiffs before further summary judgment motions were filed. The plaintiffs ...

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Posted in Arbitration

A federal district court for the Northern District of Illinois recently refused to dismiss, in favor of arbitration, a distributor’s claim for unlawful termination. In Metro Premium Wines v. Bolger Vineyards, Inc., 2011 U.S. Dist. LEXIS 65306 (N.D. Ill. June 14, 2011), a producer of wines terminated a 20-year-old oral distribution relationship with its exclusive distributor in the Chicago area. The distributor’s suit alleged that the winemaker had conspired with another distributor to eliminate the plaintiff and to take over its customer contacts and other confidential ...

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Posted in Antitrust

A recent decision by a federal trial court in San Francisco construed California law in a manner that may have implications for franchisors and suppliers who find themselves in litigation in that state. In Nicolosi Distributing, Inc. v. BMW of North America, 2011 U.S. Dist. LEXIS 44544 (N.D. Cal. Apr. 19, 2011), a distributor of automotive paint entered into an exclusive multi-year supply agreement with German Motors, a San Francisco BMW dealership and repair shop. German Motors is certified by BMW as a “Certified Collision Repair Center” (“CCRC”), which is, in effect, an ...

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Posted in Terminations

After Coca-Cola North America terminated three distributors and filed suit to collect amounts due for products that had been delivered but not paid for, the distributors filed numerous counterclaims. In Coca-Cola North America v. Crawley Juice, Inc. et al.,  2011 U.S. Dist. LEXIS 52813 (E.D.N.Y. May 17, 2011), a federal court in New York dismissed each of those counterclaims. The defendants alleged that former Coca-Cola employees fraudulently induced them to purchase and invest in underdeveloped or vacant territories in exchange for oral promises of marketing and other support ...

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Posted in Terminations

Issue 141 of The GPMemorandum on the April 14, 2011, reported on the dispute that developed because Compressor & Pump Repair Services (CPR) refused to sign Kaeser Compressors, Inc.’s (Kaeser) current form of dealership agreement. CPR had been Kaeser’s exclusive dealer in the territory for over 20 years, but when Kaeser requested that CPR sign its current form of dealership agreement, which provided for a non-exclusive territory, CPR refused. Kaeser sought a declaration that it had good cause to terminate the dealership agreement under the Wisconsin Fair Dealership Law (WFDL ...

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Posted in Terminations

In Estes Automotive Group, Inc. v. Hyundai Motor America, 2011 U.S. Dist. LEXIS 32525 (C.D. Cal. Mar. 25, 2011), a California federal district court granted Hyundai’s motion for summary judgment against a dealer who alleged that Hyundai constructively terminated its dealership in violation of the federal Automobile Dealers Day in Court Act (ADDCA). The dealer sued for damages after it defaulted on a construction loan and a floor plan financing agreement with Hyundai’s credit subsidiary, Hyundai Capital America. To succeed under the ADDCA on a claim for termination without ...

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Posted in Terminations

A federal district court in Kentucky recently held that a manufacturer’s provision of three-and-a-half months prior notice of termination if its distributor failed to meet certain performance levels did not serve to extinguish the manufacturer’s underlying right to terminate the relationship at will, as provide for in the parties’ previous written agreement. Although the distribution agreement between the parties in Link-Belt Construction Equipment Co. v. Road Machinery & Supplies Co., 2011 U.S. Dist. LEXIS 41404 (E.D. Ky. Apr. 15, 2011), had expired by its terms, the ...

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Posted in Antitrust

In a June opinion, the Eighth Circuit Court of Appeals affirmed summary judgment for C.R. Bard, Inc. dismissing an antirust action brought against it and several other defendants by a class of direct purchasers of urological catheters. Saint Francis Medical Center v. C.R. Bard, Inc., 2011 U.S. App. LEXIS 11552 (8th Cir. June 15, 2011). The plaintiff Saint Francis, a Missouri hospital and member of a Group Purchase Organization (GPO), alleged on behalf of the class that Bard, a supplier of catheters, abused its dominant position in the United States catheter market in violation of ...

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Posted in Discrimination

In Santiago-Sepulveda v. Esso Standard Oil Co., Inc., 2011 U.S. App. LEXIS 8478 (1st Cir. Apr. 26, 2011), the First Circuit affirmed a lower court’s decision in favor of franchisors Esso and Total Petroleum. Esso withdrew from the Puerto Rico market and sold its assets to Total. Total offered existing Esso franchisees its current form franchise agreements. Unhappy with those agreements, Esso franchisees sued for an injunction to prevent Esso from moving forward with the sale. They also argued that the terms offered by Total were not in good faith and discriminatory under the ...

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Posted in Terminations

In South Shore Imported Cars, Inc. v. Volkswagen of America, Inc., 2011 U.S. App. LEXIS 13715 (1st Cir. July 5, 2011), the First Circuit affirmed a district court’s holding that the termination of an automobile dealer’s franchise agreement following a manufacturer’s refusal to consider the franchisee’s eleventh-hour buyout proposal did not violate Massachusetts law. In December 2008, the franchisee’s bank cancelled its revolving credit agreement for financing inventory purchases from VW. This cancellation was an undisputed breach of the franchise agreement ...

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Posted in Terminations

In Diesel Machinery, Inc. v. The Manitowoc Crane Group, 2011 U.S. Dist. LEXIS 35370 (D. S.D. Mar. 31, 2011), a federal court in South Dakota granted partial summary judgment in favor of a manufacturer, finding that a notice of termination of a distributor agreement does not constitute a termination and that a notice of termination may be withdrawn prior to its effective date. In 2005, the defendant manufacturers of mobile hydraulic cranes entered into an agreement with Diesel Machinery, Inc. (DMI), a dealer/distributor in South Dakota, to grant DMI the right to sell and service ...

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A Girl Scouts organization has successfully sued to enjoin Girl Scouts USA (GUSA) from taking away its territory, convincing the Seventh Circuit that the action violated Wisconsin’s Fair Dealership Law (WFDL). In Girl Scouts of Manitou Council, Inc. v. Girl Scouts of the USA, Inc., 2011 U.S. App. LEXIS 10911 (7th Cir. May 31, 2011), the appeals court reversed a district court and granted summary judgment to the local organization. The Seventh Circuit rejected the lower court’s reasoning that application of the WFDL would violate GUSA’s First Amendment freedom of expression ...

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The Wisconsin Supreme Court recently held that it could not exercise general personal jurisdiction over a foreign parent corporation in Rasmussen v. General Motors Corp. et al., 2011 Wisc. LEXIS 343 (Wisc. July 1, 2011). The plaintiffs argued the court had general personal jurisdiction over one defendant’s parent corporation, Nissan Japan, based on the acts of its wholly owned subsidiary, Nissan North America. In order to exercise personal jurisdiction over an out-of-state defendant, the plaintiff must show that the defendant comes within the ambit of the state’s long-arm ...

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In a surprising decision that conflicts with numerous previous opinions on the same topic, a senior judge in the District of Connecticut declined to dismiss a complaint filed by a franchisee association against Edible Arrangements alleging breach of contract, breach of a duty of good faith and fair dealing, and violation of the Connecticut Unfair Trade Practices Act. EA Independent Franchisee Association v. Edible Arrangements, International, Inc. 2011 U.S. Dist. Lexis 78008 (D. Conn. July 19, 2011). Significantly, the franchisee association brought these claims in the form of ...

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In Sylvan Learning, Inc. v. Learning Solutions, Inc., 2011 U.S. Dist. LEXIS 64492 (S.D. Ala. June 17, 2011), a federal court in Alabama granted in part and denied in part a preliminary injunction against a licensee for continuing to operate business locations following the licensor’s termination of the license agreements. The defendant operated three Sylvan Learning centers under separate license agreements, two in Mississippi and one in Alabama. Richard Blow, a signatory to all the license agreements and partial owner of the defendant entity, was convicted of felony bank ...

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Posted in Employment

A Georgia appellate court recently ruled that there was no employer-employee relationship between a Massachusetts unit franchisee and a commercial cleaning franchisor—reversing the trial court’s grant of summary judgment to the unit franchisee. In Jan-Pro Franchising Int’l, Inc. v. Depianti, 2011 Ga. App. LEXIS 543 (Ga. Ct. App. June 23, 2011), the franchisor, Jan-Pro, brought a declaratory judgment action seeking to clarify the employment status of a Massachusetts franchisee. The trial court granted the franchisee’s motion for summary judgment, determining that ...

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In A Love of Food I, LLC v. Maoz Vegetarian USA, Inc., 2011 U.S. Dist. LEXIS 73539 (D. Md. July 7, 2011), the federal district court in Maryland this month declined to dismiss several claims brought by a Maryland-based franchisee under the New York Franchise Sales Act (NYFSA) and the Maryland Franchise Registration and Disclosure Law (MFDL). The franchisee alleged that Maoz, a New York-based franchisor of quick-service vegetarian restaurants, had made misrepresentations in its UFOC that induced the franchisee to enter into the franchise agreement. Specifically, the franchisee ...

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In Hayes v. Jani-King of Jackson, 2011 U.S. Dist. LEXIS 66736 (S.D. Miss. June 22, 2011), a Mississippi federal district court denied a franchisor’s motion for summary judgment on a vicarious liability claim, concluding that under Mississippi law there was a question of fact regarding whether a janitorial cleaning service franchisor exercised sufficient control over its franchisee to be held liable for the franchisee’s negligent acts. The case arose out of an injury to the plaintiff who, after entering a restroom recently cleaned by the franchisee, slipped on the wet ...

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Posted in Arbitration

A Michigan federal court recently decided that an arbitration provision contained in a franchise agreement governed claims arising out of a subsequent, related agreement. The parties in Braverman Props., LLC v. Boston Pizza Rests, 2011 U.S. Dist. LEXIS 68536 (W.D. Mich. June 27, 2011), had a franchise agreement that included an arbitration provision requiring arbitration of “any and all controversies, claims and disputes between [the parties] arising out of or related to this Agreement.” The franchise agreement also gave the franchisor, Boston Pizza Restaurants, a right ...

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A federal district court in Illinois granted a franchisee’s motion for a preliminary injunction preventing a quick service restaurant franchisor from requiring the franchisee to comply with pricing and promotional policies. Stuller, Inc. v. Steak N Shake Enterprises, Inc., 2011 U.S. Dist. LEXIS 66455 (C.D. Ill. June 22, 2011). As reported in the June 10, 2011, edition of The GPMemorandum, the franchisee is challenging Steak N Shake’s new policy that requires franchisees to follow set menu and pricing on some items, and to participate in system promotions. The franchisee ...

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Posted in Class Actions

A federal district court in the Southern District of California recently decertified a class of former 7-Eleven franchisees seeking to recover federal excise tax refunds issued to 7-Eleven. Grayson v. 7-Eleven, Inc., 2011 U.S. Dist. LEXIS 62211 (S.D. Cal. June 10, 2011). The parties had stipulated to the certification of a class of former 7-Eleven franchisees who sold prepaid long distance telephone cards that were subject to a three percent federal excise tax, who terminated their franchise agreements, and to whom 7-Eleven refused to pay any portion of its excise tax refund. After ...

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Posted in Arbitration

Does an arbitration clause have to use the word “binding” to be binding?  That was the question raised in Akaoma v. Supershuttle Int’l Corp., 2011 U.S. App. LEXIS 12763 (4th Cir. June 22, 2011). The parties arbitrated a dispute under a franchise agreement, and the defendant franchisor succeeded on all but one claim. The federal district court granted the franchisor’s motion to confirm the arbitration award. On appeal to the Fourth Circuit, the franchisee challenged the district court's holding that the arbitration was binding, on the grounds that the ...

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In Free Green Can, LLC v. Green Recycling Enterprises, LLC, 2011  U.S. Dist. LEXIS 65132 (N.D. Ill. June 20, 2011), the federal district court for the Northern District of Illinois dismissed claims against an individual investor in the franchisor, refusing to pierce the corporate veil and find an individual personally liable as an alter ego. In 2009, Free Green Can (FGC), an Illinois-based franchisor of a recycling concept, entered into a franchise agreement with Green Recycling Enterprises (GRE), a Nebraska-based limited liability company. The parties’ relationship was ...

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Posted in Employment

In Awuah v. Coverall North America, Inc., 2011 U.S. Dist. LEXIS 63381 (D. Mass. June 15, 2011), a case followed closely by the franchise industry, two franchisees who prevailed on their claims in arbitration that they had been misclassified as independent contractors under Massachusetts law were awarded reasonable attorneys’ fees and costs. Following the conclusion of the arbitration hearing, the two franchisees sought an award of all attorneys’ fees and costs from the court related to summary judgment in the underlying litigation on the misclassification issue, their ...

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In Victory Lane Quick Oil Change, Inc. v. Darwich, 2011 U.S. Dist. LEXIS 70062 (E.D. Mich. June 29, 2011), a federal court in Michigan granted a franchisor’s motion for a preliminary injunction against its former franchisee for breaching the noncompete provision in the parties’ franchise agreement and violating the Lanham Act. Although the franchisee’s principal argued that he sold his oil change business to his brother, who was now operating it as Saline Quick Lube, the court noted that the franchisee remained the tenant of record on the lease for the premises. As a result, the ...

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The federal district court for the Northern District of Illinois recently rejected a franchisee’s counterclaims, relating to the franchisor’s omission of same store sales information for the franchised unit purchased by the franchisee. In 7-Eleven, Inc. v. Spear, 2011 U.S. Dist. LEXIS 67415 (N.D. Ill. June 23, 2011), a convenience store franchisee was terminated for consistent failure to maintain a minimum net worth for the franchised store, as required by the franchise agreement. The franchisor obtained summary judgment on its action to enforce termination, leaving only ...

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Posted in Arbitration

In Wild v. H&R Block Tax Services LLC, AAA Case No. 77 114 266 10 (June 15, 2011), a panel of arbitrators upheld the termination of an H&R Block franchisee who had refused to convert to H&R Block’s proprietary tax return preparation software when Block made that software mandatory for all system offices. (Gray Plant Mooty represented the franchisor in this case.) Although the franchisee had been allowed to use other tax return preparation software for many years, the panel held that Block should not be penalized for its patience as it sought to convince its franchisees to voluntarily ...

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Posted in Damages

A federal court in North Carolina has awarded franchisor Choice Hotels International, Inc. liquidated damages after granting its motion for reconsideration. Choice Hotels Int’l, Inc. v. Smith Hotel Props., LLC, 2011 U.S. Dist. LEXIS 48928 (E.D.N.C. May 6, 2011). In an earlier opinion, the court found in favor of the franchisor on its motion for summary judgment with regard to its claims for trademark infringement, unfair competition, and unfair and deceptive trade practices against a franchisee that was terminated for nonpayment. The court also found in favor of Choice Hotels ...

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Posted in Arbitration

In Wild v. H&R Block, Inc., 2011 U.S. Dist. LEXIS 55140 (D. Colo. May 12, 2011), a franchisee unsuccessfully sought a temporary restraining order to enjoin a pending arbitration between it and franchisor H&R Block. The franchise agreement between the parties provided that if a final award in arbitration was not rendered within 180 days of the notice of arbitration, either party could terminate the arbitration and pursue the matter in court, and the decision deadline in this case became March 9, 2011. The arbitration hearing was set for March 1-3, 2011, but because the hearing was set ...

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In Vysovsky v. Glazman, 2011 U.S. Dist. LEXIS 51909 (S.D.N.Y. May 11, 2011), eight franchisees sued franchisor U.S. Pack Courier Services and various individuals for violations of the New York Franchise Act. The franchisees claimed that they paid franchise fees for unregistered franchises, a violation of the statute, and that they were entitled to damages, including the reimbursement of their franchise fees. After a jury found for the franchisees, the franchisor moved for judgment as a matter of law on the grounds that (among other things) the claims were barred by the three year ...

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Posted in Class Actions

In Vallabhapurapu v. Burger King Corp., 2011 U.S. Dist. LEXIS 48804 (N.D. Cal. May 6, 2011), a California federal district court denied a motion to dismiss brought based on standing and the failure to join necessary parties. The case is part of a series of attempted class action lawsuits against Burger King as a franchisor of 96 restaurants leased to franchisees in the state of California. The complaint alleges that the restaurants are inaccessible to customers in wheelchairs, in violation of the Americans with Disabilities Act, the California Civil Rights Act, and the California ...

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Posted in Contracts

A federal district court in Georgia recently rejected a franchisor’s attempt to introduce expert testimony regarding the proper grammatical interpretation of the sentence in its franchise agreement defining “Net Sales.” In Coyote Portable Storage, LLC v. PODS Enterprises, Inc., 2011 U.S. Dist. LEXIS 51899 (N.D. Ga. May 16, 2011), several franchisees sued for breach of contract, claiming that their franchisor had improperly calculated royalties, and had thus overcharged them. The franchise agreements at issue calculated royalties as a percentage of “Net Sales,” ...

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In @Wireless Enterprises, Inc. v. AI Consulting, LLC, 2011 U.S. Dist. LEXIS 51973 (W.D.N.Y. May 16, 2011), a New York federal district court granted summary judgment in favor of the franchisor and its corporate officer dismissing the former franchisee’s counterclaims for breach of contract, breach of the covenant of good faith and fair dealing, actual fraud, constructive fraud, and tortious interference, among others. The franchisor had terminated the franchise agreement for a retail cell phone store and sued the franchisee for monies owed. The franchisee countersued based ...

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Posted in Bankruptcy

In In re Quattrin, 2011 Bankr. LEXIS 1941 (Bankr. N.D. Cal. May 26, 2011), the debtor was a franchisee in the Total Car Franchising Corporation (“Total Car”) system at the time he filed for bankruptcy. During the bankruptcy case, the franchise agreement was terminated. The debtor subsequently received his bankruptcy discharge, which gave rise to the discharge injunction against the collection of discharged debts. Total Car thereafter sought to enforce its post-termination remedies under the franchise agreement, including enforcement of the two year non-competition ...

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In Wakeman v. Aqua2 Acquisition, Inc., 2011 U.S. Dist. LEXIS 47498 (D. Minn. May 3, 2011), in which Gray Plant Mooty represented the franchisor of the AutoQual system, a Minnesota federal court last month denied the franchisee plaintiff’s request to stay the court’s judgment and injunction pending appeal. As reported in Issue 140 of The GPMemorandum, the court in February had confirmed an arbitrator’s award despite a clarification to which Wakeman, a former AutoQual franchisee, objected. Specifically, the court enjoined Wakeman and a defined group of people working in ...

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A federal court in Illinois has let stand a franchisee’s complaint about the new menu and pricing policy of its franchisor. Stuller, Inc. v. Steak N Shake Enterprises, Inc., 2011 U.S. Dist. LEXIS 57704 (C.D. Ill. May 31, 2011). Rejecting parts of a federal magistrate judge’s recommendation, the district court denied the franchisor’s motion to dismiss two counts of the complaint. In those two counts, the franchisee is challenging the Steak N Shake franchisor’s new policy that requires franchisees to follow set menu and pricing on some items, and to participate in system ...

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Posted in Arbitration

Plaintiffs hoping to avoid having to comply with contractual arbitration clauses were given a glimmer of hope in Brooks v. Fetch! Pet Care, Inc., 2011 N.J. Super. LEXIS 1236 (N.J. Super. Ct. App. Div. May 13, 2011). In this case, the New Jersey Superior Court reversed the trial court’s dismissal of the plaintiffs’ complaint and remanded the case for further discovery. The trial court held that the constitutional Supremacy Clause and Federal Arbitration Act (“FAA”) required enforcement of the mandatory arbitration provision in the parties’ franchise agreement, which ...

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Posted in Trademarks

In Eva’s Bridal Ltd v. Halanick Enterprises, Inc., 2011 U.S. App. LEXIS 9539 (7th Cir. May 10, 2011), the United States Court of Appeals for the Seventh Circuit affirmed a district court’s decision that the plaintiffs abandoned their trademark because they had granted a naked license under which the plaintiffs had no “reasonable control over the nature and quality of the goods, services, or business on which the [mark] is used” by the defendants. The plaintiffs had granted various family members licenses to use their trademark Eva’s Bridal to operate bridal salons in the ...

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Posted in Bankruptcy

In In re Stone Resources, Inc., 2011 Bankr. LEXIS 1166 (E.D. Pa. Mar. 28, 2011), the franchisor, MarbleLife, moved for relief from the automatic stay against the debtor, its former franchisee, seeking to enforce an earlier preliminary injunction order granted in its favor by the U.S. District Court for the Eastern District of Pennsylvania. The preliminary injunction order prohibited the debtor from continued operation in violation of a covenant not to compete contained in the expired franchise agreement between the parties. MarbleLife’s primary argument to establish ...

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A federal court in New York held that it lacked federal diversity jurisdiction over an action to confirm a $60,000 arbitration award. In re Doctor’s Associates, Inc. v. Navindra Gharbaran, 2011 U.S. Dist. LEXIS 33693 (S.D.N.Y. Mar. 30, 2011). The franchisor, Doctor’s Associates, Inc., had obtained an award against a former franchisee that included damages of $60,000 and an injunction prohibiting the former franchisee from continuing to operate her restaurant as a Subway franchise. The federal court denied the petition to confirm the award because the amount in controversy ...

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In Bricker v. R & A Pizza, Inc., 2011 U.S. Dist. LEXIS 39017 (S.D. Ohio Apr. 8, 2011), an Ohio federal district court granted a motion by franchisor Domino’s Pizza to dismiss the claims of its franchisee’s former employee. The court held that the former employee’s complaint failed to state plausible claims against the franchisor under Title VII and  for sexual harassment, retaliation, and negligence under state law. Each of those claims requires that there be an employer/employee or agency relationship between the worker and the franchisor, and the court found no allegations to ...

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Posted in Damages

A federal court in Illinois has granted summary judgment to franchisor Hardee’s on its claim for money damages against a franchisee, rejecting the defense that the franchisee’s failure to pay should be excused by bad economic conditions. Hardee's Food Systems, Inc. v. Shree Krishna Foods, L.L.C., 2011 U.S. Dist. LEXIS 40542 (C.D. Ill. Apr. 14, 2011). The case arose after the franchisee defaulted under its franchise agreements by failing to pay amounts due, and Hardee’s terminated the agreements. The parties subsequently entered into a temporary license agreement under ...

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Posted in Settlement

In Prosperity Systems, Inc. v. Ali, 2011 U.S. Dist. LEXIS 43884 (D. Md. Apr. 22, 2011), a Maryland federal court granted a franchisor’s motion to dismiss a franchisee’s counterclaim alleging that the franchisor breached a settlement agreement entered between the franchisor, franchisee, and other unrelated entities. That agreement granted Ali a PIZZA BOLI’S franchise and required franchisor PSI to insert language in the franchise agreement stating that it would treat Ali the same as all other franchisees. The agreement also required its signatories  to use their best ...

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Posted in Damages

In Meineke Car Care Ctrs., Inc. v. RLB Holdings, LLC, 2011 U.S. App. LEXIS 7809 (4th Cir. Apr. 14, 2011), the U.S. Court of Appeals for the Fourth Circuit reversed the judgment of the federal district court in the Western District of North Carolina, which had held that future damages could not be recovered by the franchisor. Meineke, a franchisor of automotive car care centers, terminated RLB Holdings’ franchise agreements based upon its abandonment of its shops. Meineke brought suit against RLB in North Carolina state court, alleging that RLB breached the franchise agreements and ...

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Posted in Arbitration

The Seventh Circuit Court of Appeals recently upheld the dismissal of a franchise-related lawsuit in light of the existence of a binding arbitration provision. In Faulkenberg v. CB Tax Franchise Systems, LP, 2011 U.S. App. LEXIS 6391 (7th Cir. Mar. 29, 2011), a disgruntled franchisee brought suit against its tax preparation franchisor after closing its five franchised outlets. The franchisee-plaintiff alleged, among other things, that the franchisor violated the Illinois Franchise Disclosure Act by failing to register its offering circular in the state prior to the sale. The ...

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Posted in Antitrust

The United States District Court for the Western District of Kentucky recently granted in part but denied in part a motion brought by tire retreading franchisor, Bridgestone Bandag, LLC, to dismiss a four-count complaint brought by Shamrock Marketing, Inc., alleging that Bandag implemented an unlawful tying arrangement in violation of Sections 1 and 2 of the Sherman Act. Shamrock Marketing, Inc. v. Bridgestone Bandag, LLC, 2011 U.S. Dist. LEXIS 25109 (W.D. Ky. Mar. 11, 2011). Shamrock is a family-owned Kentucky corporation that supplies “curing envelopes” and other ...

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Posted in Terminations

In another Ohio case brought under the same statute as referenced immediately above, the court granted summary judgment on the plaintiff beer distributors’ claims that they were terminated improperly by a successor manufacturer. The Bellas Company v. Pabst Brewing Co., 2011 U.S. Dist. LEXIS 24781 (S.D. Ohio Mar. 11, 2011). After a new entity acquired all of the stock of Pabst Brewing Co. under a Stock Purchase Agreement, the new entity terminated the plaintiff distributors without providing sixty days notice prior to termination as required under the existing distribution ...

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In Kamco Industrial Sales, Inc. v. Lovejoy, Inc., 2011 U.S. Dist. LEXIS 25240 (E.D. Pa. Mar. 10, 2011), a commissioned sales representative sued the manufacturer for whom it sold products, alleging breach of contract and breach of the implied covenant of good faith and fair dealing. The sales representative agreement at issue required the plaintiff to sell the defendant’s power transmission products on an exclusive basis. The agreement term automatically renewed on a year to year basis, unless either party gave 60 days’ notice of nonrenewal. The agreement also contained a ...

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Posted in Terminations

In Progressive Septic, Inc. v. SeptiTech, LLC, 2011 U.S. Dist. LEXIS 27381 (D. Md. Mar. 15, 2011), a financially distressed manufacturer of septic systems sold the bulk of its assets to a new investor group. In the asset purchase agreement, the buyer explicitly declined to assume both the seller’s liabilities and its existing product distribution agreements. The buyer’s newly formed entity did adopt the trade name of the seller, however, and it hired several of the same management-level employees and continued to manufacture and distribute septic systems. The plaintiff was a ...

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Posted in Contracts

A Colorado federal district court recently held that the Colorado Uniform Commercial Code governed a dealership agreement in Precision Fitness Equip., Inc. v. Nautilus, Inc., 2011 U.S. Dist. LEXIS 13576 (D. Colo. Feb. 2, 2011). This case required the court to consider the admissibility of extrinsic evidence to interpret a contract provision, an issue that may be decided differently depending on whether the UCC or the common law applies. To make this determination, Colorado courts look to whether the primary purpose of the contract is the sale of goods or services. Since the Colorado ...

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Posted in Terminations

The dispute in Kaeser Compressors, Inc. v. Compressor & Pump Repair Services, 2011 U.S. Dist. LEXIS 15111 (E.D. Wis. Feb. 14, 2011), developed because Compressor & Pump Repair Services (“CPR”) refused to sign the current form of dealership agreement offered by its supplier, Kaeser. CPR had been Kaeser’s exclusive dealer in the territory for over 20 years, but when Kaeser requested that CPR sign its current form of dealership agreement, which provided for a non-exclusive territory, CPR refused. Consequently, Kaeser brought a declaratory judgment action asking the court to ...

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Posted in Contracts

In Boon Rawd Trading International Co., Ltd. v. Paleewong Trading Co., 2011 U.S. Dist. LEXIS 24963 (N.D. Cal. Mar. 8, 2011), a California federal district court recently granted a supplier’s motion for summary judgment on all claims in a contract dispute with a long-time United States importer and distributor of its Singha Beer products. Although it was undisputed that the parties never had a written contract or even an oral agreement, the distributor claimed that an implied contract under California Civil Code § 1621 had manifested over the course of the parties’ 30-year ...

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Posted in Antitrust

The United States Court of Appeals for the Fourth Circuit recently reversed the dismissal of a claim brought by a competing manufacturer that alleged DuPont attempted to wield, and did wield, monopoly power over the U.S. para-aramid fiber market in violation of Section 2 of the Sherman Act.  E.I. du Pont de Nemours and Co. v. Kolon Industries, Inc., 2011 U.S. App. LEXIS 4752 (4th Cir. March 11, 2011). DuPont had brought a trade secrets suit against Kolon, a relative newcomer to para-aramid production. Kolon counterclaimed that DuPont had monopolized and had attempted to monopolize the ...

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In Echo, Inc. v. Timberland Machines & Irrigation, Inc., et al., 2011  U.S. Dist. LEXIS 4574 (N.D. Ill. Jan. 18, 2011), the United States District Court for the Northern District of Illinois granted  a supplier’s motion for summary judgment against its former distributor, finding that the Connecticut Franchise Act did not offer the distributor its protections because the parties were not in a franchise relationship. Echo, an Illinois-based supplier of power equipment products, terminated its distributor agreement with Timberland, a Connecticut-based distributor, and filed ...

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Posted in Damages

The Iowa Court of Appeals has overturned a trial court’s decision and allowed a dealer to recover monetary damages under the Iowa Farm Implements Dealer Law. The case is FECO, Ltd. v. Highway Equip. Co., Inc., Bus. Franchise Guide (CCH) ¶ 14,522 (Iowa Ct. App. Dec. 22, 2010). The manufacturer had admitted that it did not have good cause to terminate the dealership agreement. At issue then was the interpretation of various provisions of the statute, including its Section 322F.7, which sets forth a list of violations. Section 322F.8 in turn states that monetary damages are allowed for a ...

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Posted in Damages

A recent decision in Warren Distributing Co. et al. v. Inbev USA and Anheuser-Busch, Inc., 2011 U.S. Dist. LEXIS 19721 (D.N.J. Feb. 28, 2011), demonstrated the significant limitations that courts may impose on the award of attorneys’ fees to prevailing parties. In this case  under New Jersey law, after more than three years of litigation and a 13-day jury trial, the plaintiffs, who are former beer distributors for Anheuser-Busch, were awarded  damages of $390,000 for Anheuser-Busch’s violations of New Jersey’s Malt Alcoholic Beverage Practices Act. However, Anheuser-Busch ...

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Posted in Antitrust

The United States Supreme Court in its 2007 Leegin decision ruled that resale price controls by manufacturers and others would be judged under the more lenient standard of the rule of reason, at least under federal antitrust law. Since then, other than in the post-remand developments in Leegin itself, most of the legal activity has been at the state level. Two states recently reached different results in their enforcement efforts, however, and the Supreme Court refused to grant further review of the final judgment in Leegin.

First, on January 11, California entered into a consent ...

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Posted in Terminations

The Ohio Alcoholic Beverages Franchise Act (“ABFA”) precludes a manufacturer from terminating a distributor of alcoholic beverages without consent or just cause. The statute specifies that “a manufacturer’s sale, assignment, or other transfer of the manufacturer’s product or brand to another manufacturer over which it exercises control” does not constitute just cause to terminate a distributor, but that just cause is not required for termination that occurs within 90 days of  “a successor manufacturer[’s] acqui[sition of] all or substantially all of the ...

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Posted in Class Actions

A California federal court recently dismissed a putative franchisee class action against IHOP for violation of California’s Unfair Competition Law in Hameed v. IHOP Franchising, LLC et al., No. 2:10-cv-02276 (E.D. Cal. Feb. 10, 2011). Hameed, an IHOP franchisee in Sacramento, sued IHOP on behalf of a class of IHOP franchisees, alleging that IHOP violated California’s Unfair Competition Law by, among other things, denying him monetary aid pursuant to IHOP’s Development Impact Assistance Program (DIAP). The DIAP provides money to an existing franchisee who is impacted ...

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Posted in Arbitration

A Minnesota federal court recently confirmed an arbitrator’s award despite a clarification to which the losing former franchisee objected. In Wakeman v. Aqua2 Acquisition, Inc., 2011 U.S. Dist. LEXIS 14672 (Feb. 14, 2011), in which Gray Plant Mooty represented the franchisor of the AutoQual system, the franchisor had sought to prevent the former franchisee from operating a competing business in violation of his franchise agreement’s post-termination restrictive covenant. AutoQual commenced an arbitration proceeding to enforce that restrictive covenant, and it ...

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A Delaware state court has resolved an ongoing dispute regarding the control of advertising strategy in the KFC franchise system. In KFC Nat'l Council & Advertising Cooperative, Inc. v. KFC Corporation, No. 5191-VCS (Del. Ch. Jan. 31, 2011), the dispute was between KFC and its franchisees over the authority of the KFC National Council and Advertising Cooperative (NCAC) to determine the national advertising strategy for the KFC brand. KFC argued that it had sole authority to develop advertising plans, and the NCAC (whose governing body consists of 13 franchisee representatives ...

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Posted in Trademarks

In Masters v. UHS of Del., Inc., No. 09-3543 (8th Cir. Jan. 6, 2011), the Eighth Circuit affirmed a jury verdict finding that UHS, the owner of psychiatric hospitals, willfully infringed on the plaintiff’s service mark and breached a licensing agreement with the plaintiff. Although this was not a franchise case, the scenario could easily arise in franchising. Under the parties’ license agreement, the plaintiff licensed its service mark to UHS for a certain use. But UHS expanded its use of the mark beyond the scope of the license by using it to promote other programs. The licensor ...

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A federal court in Maryland granted a franchisor’s motion to dismiss franchisees’ counterclaims in an interesting case challenging the adequacy of the franchisor’s disclosure regarding payments from its affiliate. The Cleaning Authority, Inc. v Neubert, 2011 U.S. Dist. LEXIS 13949 (D. Md. Feb. 11, 2011). Franchisor TCA had filed separate actions against each of the defendants for termination of their franchise agreements. The franchisees countersued, alleging that they were fraudulently induced to enter into the franchise agreements because the Uniform Franchise ...

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Last month a Massachusetts federal court narrowly interpreted a settlement agreement and determined that KFC was required to provide a notice and opportunity to cure for each separate operational deficiency under that agreement. KFC Corp. v. Springfield Food Sys., 2011 U.S. Dist. LEXIS 14218 (D. Mass. Feb. 14, 2011). At issue was the language in the settlement agreement that said that after KFC provided written notice of default to the franchisees, they “shall have ten (10) days from the date of the notice to cure the default. PROVIDED, HOWEVER, that KFC shall not be obligated to ...

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Posted in Procedure

Once again, a jury trial waiver has been upheld by a federal court, this time in Michigan. In ERA Franchise Systems LLC v. Bowers Realty and Associates, Inc., 2011 U.S. Dist. LEXIS 14474 (E.D. Mich. Feb. 14, 2011), the court enforced the language of the parties’ franchise agreement. The franchisor had sued the franchisee for breach of the agreement, and Bowers’ answer included a demand for a jury. ERA moved to strike the demand, arguing that the franchise agreement’s express waiver provision controlled.  

To strike a jury waiver provision in the Sixth Circuit, the contesting party ...

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Posted in Noncompetes

In Singas Famous Pizza Brands Corp. v. New York Advertising LLC, 2011 U.S. Dist. LEXIS 14524 (S.D.N.Y. Feb. 14, 2011), the court granted franchisor Singas a preliminary injunction to prevent its franchisee from running two competing businesses in violation of an in-term and post-term covenant not to compete. This case arose when the franchisee’s husband started a business called Queens New York Famous Pizza, in which the franchisee participated. In holding that the standards for an injunction were met, the court cited the fact that the Queens restaurant provided nearly ...

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Posted in Antitrust

Two states reached different results last month concerning separate resale price controls. First, on January 11, California entered into a consent decree with a cosmetics manufacturer that had been prohibiting discounting by internet dealers. California v. Bioelements, Inc., No. 10011659 (Cal. Sup. Ct. Jan. 11, 2011). Although the manufacturer was required to stop controlling internet discounts, this result was achieved by settlement rather than a court decision, so its weight can be (and is being) questioned. Then, three days later, New York lost its court case against a ...

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Posted in Damages

In a case litigated by Gray Plant Mooty on behalf of Radisson Hotels International, Inc., a Minnesota federal court recently awarded more than $300,000 to compensate franchisor RHI for past due fees and liquidated damages owed by a former franchisee. In Radisson Hotels Int’l, Inc. v. KaanAm, LLC, 2011 U.S. Dist. LEXIS 3208 (D. Minn. Jan. 12, 2011), RHI had terminated a New York franchisee’s license agreement because of nonpayment. RHI sued in Minnesota seeking to recover past due fees owed for the time that the franchisee operated the hotel, along with liquidated damages for lost ...

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In Ellering v. Sellstate Realty Sys. Network, Inc., 2010 U.S. Dist. LEXIS 5015 (D. Minn. Jan. 19, 2011), a Minnesota federal court dismissed a claim by an area representative (the Ellerings) against the franchisor’s sales agent, Krien, finding that Krien did not tortiously interfere with an area representative agreement between the franchisor and the Ellerings that gave the Ellerings the exclusive right to represent the franchisor in soliciting prospective unit franchisees in Minnesota. After Krien allegedly solicited potential unit franchisees in Minnesota, the ...

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In Jackson Hewitt, Inc. v. DJSG Utah Tax Serv., LLC, 2011 U.S. Dist. LEXIS 2397 (D.N.J. Jan. 10, 2011), a New Jersey federal court issued a preliminary injunction against two former out-of-state tax services franchisees, denying their motions to dismiss or to transfer venue and ordering them to comply with their post-termination obligations. The former franchisees were located in Arizona and Utah, but their franchise agreements contained provisions in which they consented to personal jurisdiction in New Jersey and forum selection clauses designating the federal court in New ...

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Posted in Noncompetes

In Rita’s Water Ice Franchise Co., LLC v. S.A. Smith Enterp., LLC, 2011 U.S. Dist. LEXIS 2595 (E.D. Pa. Jan. 11, 2011), a Pennsylvania federal court recently granted the franchisor’s motion for preliminary injunction against a former franchisee, finding the post-termination covenant not to compete to be reasonable, and that success on the merits was likely. The franchisee operated a Rita’s Water Ice franchise before starting its own competing dessert business at the same location. The Rita’s franchise agreement contained a covenant restricting the former franchisee ...

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Posted in Noncompetes

In American Dairy Queen Corp. v. Fortune Street Research and Writing, Inc., 2010 U.S. LEXIS 119782 (W.D. Ky. Nov. 10, 2010), franchisor ADQ, represented by Gray Plant Mooty, moved for summary judgment that it was entitled to liquidated damages under its franchise operating agreements with the franchisee, which had been operating three Dairy Queen restaurants. When ADQ learned that the franchisee was operating a chain of competing Rally’s restaurants in Kentucky, it issued notices of default and gave the franchisee an option to cure by selling either the Dairy Queen or the ...

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The Illinois Franchise Disclosure Act (IFDA) imposes a one-year statute of limitations that begins to run when the franchisee becomes aware of facts or circumstances reasonably indicating a claim under the statute. In RWJ Mgmt. Co. v. BP Prods. N. Am., Inc., 2011 U.S. Dist. LEXIS 2928 (E.D. Ill. Jan. 12, 2011), franchisor BP filed a motion for summary judgment, asserting that the franchisees’ claims that BP had violated the IFDA registration requirements and committed fraud were barred because of the IFDA statute of limitations. BP argued that the limitations period began to run on ...

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Posted in Choice of Law

In Hockey Enter., Inc., v. Total Hockey Worldwide, LLC, 2011 U.S. Dist. LEXIS 2201 (D. Minn. Jan. 10, 2011), a Minnesota federal court dismissed a Florida franchisee’s claim against franchisor Total Hockey Worldwide, LLC, its parent, and a number of its officers for breach of the Minnesota Franchise Act. A Florida-based franchisee of two hockey-training businesses had filed suit against the Total Hockey defendants alleging, among other things, that they violated the Minnesota Franchise Act by failing to register the franchisor in Minnesota and making several false ...

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Posted in International

Last week, New Brunswick became the fourth province in Canada to enact a franchise disclosure law. Because the law became effective before many franchisors have updated their disclosure documents, franchisors either will have to update now to comply with the New Brunswick Franchises Act or postpone sales of franchises in New Brunswick until they update their disclosure documents.

What does this mean for franchisors offering and selling franchises in New Brunswick? All franchisors offering and selling franchises in New Brunswick must provide a disclosure document to a ...

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Posted in Antitrust

Last week the United States District Court for the Western District of Washington dismissed two of the four counts—including an antitrust claim—brought by a disgruntled franchisee in Danforth & Associates, Inc. v. Coldwell Banker Real Estate, LLC, 2011 U.S. Dist. LEXIS 10882 (W.D. Wash. Feb. 3, 2011). In addition to dismissing a claim for breach of contract, the court made a brief and specific ruling that a claim under Section 1 of the Sherman Antitrust Act cannot be based on an alleged conspiracy between a franchisor and a franchisee. For this reason, the court ruled that the ...

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The United States District Court in Colorado recently denied dismissal of a franchisee’s fraud claim in connection with the franchisor’s failure to provide an updated Franchise Disclosure Document when the franchisee was granted additional territory. In McKinnis v. Fitness Together Franchise Corp., 2010 U.S. Dist. Lexis 133976 (D. Colo. Dec. 6, 2010), the plaintiff—a Fitness Together master franchisee—claimed that the franchisor committed fraud by selling the plaintiff an additional master franchise territory and requiring that the sale be accomplished by ...

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Posted in Arbitration

Last week, a state appellate court in California issued what appears to be an important ruling upholding a franchisor’s right to arbitrate in another state against a California franchisee. MKJA, Inc. v. 123 Fit Franchising, LLC, 2011 Ca. App. LEXIS 6 (Cal. App. 4th Dist., Div. 1 Jan. 4, 2011). This appeal was from a California state court’s order that had lifted a stay of the franchisee’s California litigation. The trial court had found that the franchisee could not afford to arbitrate in Colorado, thus the stay previously issued under California Code Civ. Pro. §1281.4 had been ...

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In Hetrick v. Ideal Image Development Corp., 2010 U.S. Dist. LEXIS 135065 (M.D. Fla. Dec. 21, 2010), a Florida judge recently denied franchisor Ideal Image’s motion for summary judgment on the franchisee’s claim that certain representations made during the sale of the franchise violated the Florida Deceptive and Unfair Trade Practices Act. The Hetricks claimed that during meetings discussing their purchase of a franchise, an Ideal Image representative made representations (not included in Item 19 of its UFOC) regarding the profitability of certain existing franchises ...

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Posted in Terminations

In Dunkin’ Donuts Franchised Restaurants LLC, et al. v. Strategic Venture Group, Inc., et al., 2010 LEXIS 119417 (D. N.J. Nov. 10, 2010), a case handled by Gray Plant Mooty attorneys, the U.S. District Court for the District of New Jersey entered a declaratory judgment finding that Dunkin’ Donuts had good cause under the New Jersey Franchise Practices Act to terminate the defendants’ franchise agreements for failing to “obey all laws” in connection with the operation of the franchises.

Dunkin’ terminated the defendants’ franchise agreements based on their failure ...

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Posted in Class Actions

A federal district court judge in National Franchisee Association v. Burger King Corp., 2010 U.S. Dist. LEXIS 123065 (S.D. Fla. Nov. 19, 2010), has dismissed for failure to state a claim a class action suit brought by Burger King franchisees challenging the franchisor’s ability to set maximum prices on products. The franchisees claimed that Burger King’s decision to set a $1.00 maximum price for certain items to be included on the $1.00 Value Menu breached its express and implied duties of good faith and fair dealing, was not permitted under the franchise agreements, and violated ...

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Posted in Employment

A federal district court in Mississippi recently issued a reminder that franchisors should not establish or control their franchisees’ employment policies, practices, or decisions and should not participate in hiring or managing their franchisees’ employees. In  Reese v. Coastal Restoration and Cleaning Services, Inc. d/b/a SERVPRO of Pearl River/Hancock & SW Harrison Counties et al., 2010 U.S. Dist. LEXIS 132858 (S.D. Miss. Dec. 15, 2010), the plaintiff was hired and employed by Coastal Restoration and Cleaning Services, Inc. (Coastal), a SERVPRO franchisee. Reese ...

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Posted in State Taxation

On December 30, 2010, the Iowa Supreme Court affirmed the Iowa Department of Revenue’s imposition of income taxes on royalties an out-of-state franchisor, KFC Corporation, received from its Iowa franchisees. KFC Corporation v. Iowa Department of Revenue, No. 09-1032 (Iowa S. Ct. Dec. 30, 2010). As background, in Quill v. North Dakota, 504 U.S. 298 (1992), the U.S. Supreme Court had reaffirmed an interpretation of the Commerce Clause that prevents states from imposing sales or use taxes on any business without a “physical presence” in the state. The U.S. Supreme Court ...

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In Marblelife, Inc. v. Stone Resources, Inc., 2010 U.S. Dist. LEXIS 136041 (E.D. Pa. Dec. 23, 2010), the defendant franchisee chose to let its franchise agreement expire. The franchisee then began operating a competing business in violation of a covenant against competition contained in the franchise agreement, using the franchisor’s confidential business information, trade secrets, trademarks, and exclusive advertising arrangement. The franchisor moved for injunctive relief to prevent trademark infringement and to enforce the two-year post-termination non-compete ...

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Posted in Damages

In Captain D’s, LLC v. Arif Enterprises, Inc., 2010 U.S. Dist. LEXIS 129242 (M.D. Tenn. Dec. 6, 2010), Captain D’s moved for summary judgment on its claim for past due fees and liquidated damages. Arif Enterprises breached its franchise agreements by failing to comply with the franchisor’s quality standards. Captain D’s then terminated those agreements and sought to recover both past due fees and liquidated damages to compensate it for fees that would have been payable for the agreements’ remaining terms. The court granted Captain D’s motion for summary judgment and ...

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Posted in Terminations

In The Country Vintner of North Carolina v. Gallo Winery, Inc., 2010 U.S. Dist. Lexis 110615 (E.D.N.C. Oct. 18, 2010), a wine retailer sued for wrongful termination under the North Carolina Wine Distribution Agreements Act. The plaintiff, Country Vintner, had previously been a wholesaler of the Alamos brand of Argentinean wine for the entire state of North Carolina. In 2009, the manufacturer of Alamos replaced its original U.S. distributor (Billington) with a new distributor, Gallo. Gallo, upon taking over U.S. distribution of Alamos wine, began supplying its own wholesalers ...

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A federal magistrate judge in Oklahoma recently upheld a forum selection clause found in a dealer agreement in Sundowner Trailers, Inc. v. Snyder Serv., Inc., 2010 U.S. Dist. LEXIS 105183 (E.D. Okla. Sept. 30, 2010). The dispute arose when Synder, a horse trailer dealership, ceased operation and requested that Sundowner, the manufacturer, repurchase all of its unsold equipment and parts at 90-100% of net cost. A Tennessee law requires suppliers to repurchase inventory, at the retailer’s option, in certain situations when the retailer’s contract is terminated. Sundowner ...

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In Engines, Inc. v. MAN Engines & Components, Inc., 2010 U.S. Dist. LEXIS 76541 (D.N.J., July 29, 2010), a New Jersey federal court granted a preliminary injunction prohibiting MAN Engines & Components, Inc. from terminating its dealer agreement with Engines, Inc. because the relationship is likely a franchise under the New Jersey Franchise Practices Act (NJFPA). Engines was an authorized provider of repair, conditioning, and replacement services for MAN for many years. During that time, Engines made certain investments in its business in connection with its activities under ...

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Posted in Terminations

In September, an Ohio federal court granted the motion for preliminary injunction brought by a group of alcohol beverage distributors, enjoining their supplier from enforcing the terminations of their distributorships. The case is Tri-County Whole Distrib., Inc. v. The Wine Group, Inc., 2010 U.S. Dist. LEXIS 92598 (D. Ohio Sep. 2, 2010). In granting the motion, the court held that the supplier did not demonstrate that it had “just cause” to terminate the distributorships under the Ohio Alcoholic Beverages Franchise Act because the distributors had not breached their ...

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Posted in Contracts

In Landreth, Inc. v. Mazda Motors of Am., Inc., 2010 U.S. Dist. LEXIS 108080 (S.D. Ind. Oct. 7, 2010), the plaintiff Mazda dealer sued Mazda Motors of America alleging that the manufacturer had broken its promise to award plaintiff an additional dealership. The plaintiff admitted that Mazda had not entered into a written agreement to grant it  an additional dealership, but contended that Mazda’s representatives had told the plaintiff that it would receive a new dealership when the opportunity arose. Mazda moved for summary judgment on that claim, arguing that no contract could ...

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Posted in Terminations

An Illinois federal court recently issued two decisions in a case rejecting a dealer’s claims that it was improperly terminated. In Scholl’s 4 Seasons Sports, Inc. v. Arctic Cat Sales, Inc., 2010 U.S. Dist. LEXIS 110360 (N.D. Ill. Oct. 18, 2010), the court denied the plaintiff’s motion for leave to amend its complaint to allege a violation of the Illinois Equipment Fair Dealership Law (IEFDL). The court found that dealers like the plaintiff who sold only ATVs and snowmobiles were not covered by the law. Although the IEFDL was amended in July 2010 to specifically include ATV ...

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In Utility Trailer Sales of Kansas City, Inc. v. MAC Trailer Mfg., Inc., et al., 2010 LEXIS 83142 (D. Ka. Aug. 16, 2010), a Kansas federal court held that the “wrongful means” element needed to defeat the competitor privilege on a tortious interference claim is a higher standard than “malice.” The case arose out of a 2000 dealer agreement that granted Utility Trailer (UT) a nonexclusive license to sell trailers manufactured by MAC Trailer Manufacturing. Within a specified territory, however, UT was to be the sole authorized dealer. Importantly, the dealer agreement did not ...

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Posted in Antitrust

In one of the first post-Leegin appellate decisions in the vertical pricing context, the Eleventh Circuit this month rejected on the pleadings the antitrust claims brought by consumers against a manufacturer in Jacobs v. Tempur-Pedic North Am., Inc., 2010 U.S. App. LEXIS 24638 (11th Cir. Dec. 2, 2010). The complaint alleged, and was taken as true, that the manufacturer and its distributors agreed as to minimum resale prices for the manufacturer’s mattresses. The appeals court agreed with the trial court that the pleading of “visco-elastic foam mattresses” as a relevant ...

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Posted in Antitrust

In affirming the dismissal of the plaintiff’s second amended complaint, the Fifth Circuit appears to have put an end to the parties’ long-running legal battle in a case that resulted in the United States Supreme Court’s 2007 reversal of the century-old per se ban on minimum resale price agreements. PSKS, Inc. v. Leegin Creative Leather Prod., Inc., No. 09-40506 (5th Cir. Aug. 17, 2010). Plaintiff PSKS had been a retailer of the high-end Brighton® brand of women’s accessories manufactured by Leegin. Leegin had instituted a minimum resale price maintenance policy through ...

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Posted in Internet

In Saccucci Auto Group v. American Honda Motor Co., 617 F.3d 14 (1st Cir. Aug. 4, 2010), the court held that a car manufacturer’s decision to suspend temporarily the sale by its dealers of extended warranty plans over the Internet did not violate the Rhode Island “Dealer Act.” Although Honda had allowed its dealers to sell extended warranties online since 1997, the practice had come under criticism by some dealers, including its Dealer Advisory Board, which complained that the lower prices offered for the plans over the Internet damaged goodwill with customers who were sold ...

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A Minnesota federal court in Coyne’s & Co. v. Enesco, LLC, 2010 U.S. Dist. LEXIS 83630 (D. Minn. Aug, 16, 2010), issued a lengthy opinion addressing cross motions for summary judgment filed by a Minnesota distributor and the assignee of its original supplier, Enesco, LLC. While the court addressed several issues, most notably it held that Enesco could not succeed on its motion for summary judgment on the plaintiff’s claim under the Minnesota Franchise Act (MFA), finding that both sides had put forth viable arguments as to whether their relationship included an indirect franchise ...

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The Wisconsin Court of Appeals has rejected Seventh Circuit jurisprudence concerning the “community of interest” test as applied to the Wisconsin Fair Dealership Law (WFDL). In The Water Quality Store v. Dynasts Spas, Inc., 2010 Wisc. App. Lexis 550 (Wisc. Ct. App. Jul. 15 2010), a Wisconsin retailer had been selling the defendant manufacturer’s line of spa and spa equipment, on a nearly exclusive basis, for approximately seven years. The manufacturer terminated the relationship without good cause and without observing the notice and opportunity to cure requirements of ...

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Posted in Noncompetes

In Sylvan Learning, Inc. v. Gulf Coast Educ., Inc., 2010 U.S. Dist. LEXIS 107160 (M.D. Ala. Oct. 6, 2010), the franchisor of Sylvan Learning Centers brought a preliminary injunction motion against a recently terminated franchisee for continuing to operate a learning center in violation of the license agreement’s noncompete provision. At issue was whether Sylvan had a substantial likelihood of success in enforcing its two-year, 20-mile noncompete provision, and whether the court should apply Alabama or Maryland law. As an initial matter, the Alabama federal court applied ...

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Posted in Insurance

A franchisor is not obligated to contact its franchisee’s insurance company directly in order to invoke the franchisee’s obligation to defend and indemnify the franchisor, the Michigan Court of Appeals ruled late last month. Basset v. Burger King Corp., 2010 Mich. App. LEXIS 2091 (Mich. App. Oct. 28, 2010). This decision arose out of a personal injury case in which only the franchisor was sued originally. It notified the franchisee of the lawsuit and demanded defense and indemnity under the franchise agreement. When the franchisee failed to assume defense of the case, BKC was ...

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Posted in Choice of Law

In 1-800-GOT JUNK? LLC v. Superior Court, 2010 Cal. App. LEXIS 1805 (Cal. App. 2d Dist. Oct. 21, 2010), a California court of appeals decided that a franchisee could enforce a Washington choice of law clause in a California case notwithstanding the anti-waiver provision in the California Franchise Relations Act (CFRA), which voids a contractual stipulation that purports to waive any provision of the CFRA. A California-based franchisee had sued 1-800-Got-Junk, a Delaware company headquartered in Vancouver, Canada, for wrongful termination and argued that the franchise ...

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Posted in Arbitration

In Edible Arrangements Int’l, Inc. v. JHRV Enter., Inc., 2010 U.S. Dist. LEXIS 105614 (D. Conn. Oct. 1, 2010), a Connecticut federal court enforced franchise agreements that provided for arbitration in Connecticut of all disputes arising from the franchise relationship. The franchisee had operated 18 stores in California. The franchisor and franchisee had entered into a settlement agreement to resolve one series of disputes, and the settlement agreement provided that any dispute arising out of that agreement would be resolved in California state court.

Approximately one ...

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Posted in Class Actions

On October 27, the United States District Court for the Southern District of New York  rejected class action certification in the obesity case filed against McDonald’s Corporation in 2002. Pelman v. McDonald’s Corp., 2010 U.S. Dist. LEXIS 114247 (S.D.N.Y. Oct. 27, 2010). This is the case in which the plaintiff claimed that “deceptive marketing schemes” had caused consumer obesity. In a lengthy opinion, the court ruled that “extensive individualized inquiries” in the case preclude class action treatment. Those individual questions include causation and injury. As ...

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Posted in Procedure

In a troubling discovery ruling in ongoing litigation between Burger King Corporation and a franchisee association, a magistrate judge in the Southern District of Florida has found that BKC must produce sensitive information to the plaintiff. National Franchisee Ass’n v. Burger King Corp., 2010 U.S. Dist Lexis 105953 (S.D. Fla. June 20, 2010). First, “Show of Support” documents related to the addition of the double cheeseburger to Burger King’s Value Menu must be turned over. Show of Support documents are voting forms that franchisees submit to indicate whether they ...

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Posted in Contracts

Must a pizza franchisor force its franchisees to stay within their delivery territories? “No”, said the United States District Court for the Eastern District of Michigan last month. Cottage Inn Carryout & Delivery, Inc. v. True Freedom Investments LLC, 2010 U.S. Dist. LEXIS 113170 (E.D. Mich. Oct. 20, 2010). The question was raised by a franchisee who claimed the franchisor was allowing others to infringe on its “protected” trading area. The franchisor argued that the parties’ agreement did not require it to police its franchisees to make sure that they were staying ...

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In an unusual split decision, a federal district court in Georgia ruled last week that a former franchisee was not in contempt of an injunction order against use of the franchisor’s trademarks. AFC Enterprises, Inc. v. The Restaurant Group LLC, 2010 U.S. Dist. LEXIS 117240 (N.D. Ga. Nov. 3, 2010). The franchisee had simply closed the store in face of an order not to “operate” it and not to “use” the POPEYES® marks of the franchisor. The signs apparently stayed up, and the franchisor moved for contempt. The court held, however, that its order not to “use” the marks meant only ...

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Posted in Employment

Earlier this year, The GPMemorandum reported on a ruling that sent shock waves through the franchise community when a Massachusetts federal district court judge compared a franchise to a modified Ponzi scheme and ruled in a putative class action case that Coverall, a janitorial services franchisor, had misclassified its franchisees as independent contractors when they were actually employees. Awuah v. Coverall North America, 2010 U.S. Dist. LEXIS (D. Mass. March 23, 2010). Following its earlier adverse ruling, the Massachusetts court has provided Coverall with some victories ...

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Posted in Contracts

A franchisee since the 1970s who had owned 21 Hardee’s stores lost on its attempt to evade the jury trial waiver in its franchise renewal agreement. Hardee’s Food Sys., Inc. v. Hallbeck, 2010 U.S. Dist. LEXIS 114192 (E.D. Mo. Oct. 27, 2010). Jury trial waivers “are valid under federal law,” the court held. In this recent decision, the court also found significant that the jury waiver appeared twice in the agreement, including once in bold type.  Under these facts, the court found the waiver was made knowingly and voluntarily. The case will go forward sans jury.

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Posted in Antitrust

In September 2009, The GPMemorandum reported that an Ohio federal court had denied the motion of Wendy’s International Inc. to dismiss a claim by several of its franchisees that Wendy’s had violated Section 1 of the Sherman Act by requiring the franchisees to purchase food supplies only from sellers in which Wendy’s had a financial interest. Burda v. Wendy’s Int’l, Inc., 659 F. Supp. 2d 928 (S.D. Ohio 2009). The court held that the franchisee-plaintiffs had sufficiently alleged that Wendy’s had market power in the tying product market under the “lock-in” theory ...

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Posted in Terminations

A California appellate court upheld a trial court’s grant of summary judgment dismissing a former franchisee’s action for wrongful termination against franchisor International House of Pancakes. In doing so, the appellate court found that IHOP was within its rights to terminate the franchisee for failure to pay fees and produce records. The case is Safaei v. IHOP Corp., No. E046996, 2010 Cal. App. Unpub. LEXIS 7700 (Cal. Ct. App. 4th Dist. Sept. 28, 2010).

IHOP terminated the franchise agreement after having sent 10 separate notices to cure for failure to pay fees between 1996 ...

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In Fleetwood, et al. v. Stanley Steemer Int’l, Inc., 2010 U.S. Dist. LEXIS 94402 (Sept. 10, 2010), the United States District Court for the Eastern District of Washington denied the plaintiff franchisees’ motion for reconsideration of the court’s denial of the franchisees’ motion for summary judgment and partial grant of summary judgment in favor of the franchisor, Stanley Steemer. The franchisees claimed that Stanley Steemer breached its duty of good faith and fair dealing by giving them unsound business advice, counseling, and management assistance, and by failing to ...

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In JM Vidal Inc. v. Texdis USA, Inc., 2010 U.S. Dist. LEXIS 93564 (S.D.N.Y. Sept. 3, 2010), a franchisee sued under the Washington Franchise Investment Protection Act (WFIPA) after its “Mango” clothing store franchise did not meet performance expectations. It was undisputed that the franchisee had flown to Barcelona to meet with the franchisor regarding the possibility of purchasing a franchise before the franchisor had become registered in Washington or prepared an offering circular. In addition, the franchisee had prepared financial projections for the store, which it ...

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A federal magistrate judge recently recommended that an injunction be issued in favor of franchisor Smoothie King Franchises, Inc. enforcing a post-termination covenant not to compete against its former franchisee. Smoothie King Franchises, Inc. v. UKE-MEX Enterprises, Inc., et al., 4:10-CV-01285 (S.D. Tex. Sept. 17, 2010). Gray Plant Mooty represents the franchisor in this matter. Smoothie King is the franchisor of a business offering nutritional drinks and products. Defendant UKE-MEX and its predecessor owned and operated one of Smoothie King’s franchises in Texas ...

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A residential home cleaning franchisor brought suit in federal court in Maryland against several South Carolina franchisees as well as one franchisee’s office manager in The Cleaning Authority, Inc. v. Neubert, et al., 2010 U.S. Dist. LEXIS 92526 (D. Md. Sept. 7, 2010). The Cleaning Authority (TCA) alleged several of its franchisees attempted to terminate their franchise agreements in order to continue operating an identical cleaning business with identical customers through an employee or other third parties unknown to TCA. The office manager moved to dismiss on the grounds ...

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Posted in Arbitration

In contrast to the California law ruling referenced above, a recent decision by the federal district court in Minnesota underscores the bulk of the judiciary’s strong preference for enforcing arbitration agreements according to their terms. In Green v. SuperShuttle Int’l, Inc., 2010 U.S. Dist. LEXIS 95235 (D. Minn. Sept. 13, 2010), the court granted a defendant franchisor’s motion to dismiss the plaintiff franchisees’ claims and to compel arbitration based on the plain language of the arbitration agreement in the parties' franchise agreements. The franchise ...

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In Coldwell Banker Real Estate, LLC  v. Brian Moses Realty, Inc., 2010 U.S. Dist. LEXIS 93827 (D.N.H. Sept. 8, 2010), a New Hampshire federal court last month granted franchisor Coldwell Banker’s motion for summary judgment on its noncompete claim against a former franchisee, finding that the franchisee had clearly violated the in-term covenant not to compete in its franchise agreement by engaging in a competing Re/Max Properties real estate business. Although the court also granted Coldwell Banker’s motion for summary judgment on all counterclaims, factual disputes ...

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Posted in Arbitration

In Bridge Fund Capital Corp. v. Big Bad 1, LLC, 2010 U.S. App. LEXIS 19309 (9th Cir. Sept. 16, 2010), the Ninth Circuit rejected a franchisor’s appeal from a district court’s holding that an arbitration clause contained in its franchise agreement was unenforceable under California law. The franchisor had first argued that the question of arbitrability was one to be decided by the arbitrator, not a court. The court disagreed, finding that the franchisee had raised a specific challenge to the arbitration clause itself, separate and apart from its challenge to the franchise ...

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Posted in Class Actions

A California appeals court recently upheld a trial court’s decision to strike all class allegations contained in a complaint brought by members of a walnut producing cooperative marketing association against a walnut processor. The court relied upon a class action waiver contained in the arbitration agreements between the parties, rejecting the argument that the waiver was unconscionable. The case is Walnut Producers of California et al. v. Diamond Foods, Inc., No. C060346, 2010 Ca. App. LEXIS 1419 (Ca. Ct. App. 3d Div. Aug. 16, 2010). This nonfranchise decision is notable for ...

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Posted in Class Actions

In Castaneda v. Burger King Corp., 2010 U.S. Dist. LEXIS 78299 (N.D. Cal. July 12, 2010), a California federal court approved a settlement of a disability class action lawsuit. The plaintiffs had contended that Burger King’s restaurants were not accessible to customers who use wheelchairs and scooters in violation of the Americans with Disabilities Act and California’s Unruh Act. Under the terms of settlement, Burger King agreed, among other things, to an injunction to eliminate accessibility barriers at certain of its restaurants and to pay $5 million in damages (an average ...

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Posted in Noncompetes

In Big O Tires, LLC v. Felix Bros. Inc., 2010 U.S. Dist. LEXIS 81559 (D. Colo. Jul. 12, 2010), a franchisee group owned and operated three Big O Tires franchises in California. The franchisee elected not to renew the franchise agreement for one of the units, and requested early termination of the remaining two units. That request was declined, and the franchisee continued to operate its remaining two franchises. The franchisee also continued to operate its first tire store, changing the name to “Budget Tires and Automotive.” 

The franchisor sought a preliminary injunction to ...

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In Sherman v. PremierGarage Systems, LLC, 2010 U.S. Dist. LEXIS 77392 (D. Ariz. July 30, 2010), a handful of PremierGarage franchisees sued the franchisor for, among other things, intentional and negligent misrepresentation and fraud, breach of contract and of the implied covenant of good faith and fair dealing, and violations of Florida’s Franchise Misrepresentation Act. The franchisees claimed the franchisor, PremierGarage, made affirmative earnings claims before the execution of the franchise agreement and misrepresented the quality of the floor-coating materials ...

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Posted in Terminations

In United Consumers Club, Inc. v. Prime Time Mktg. Mgmt., Inc., 2010 U.S. Dist. LEXIS 87236 (N.D. Ind. Aug. 23, 2010), a federal district court late last month denied a franchisor’s motion to dismiss claims for, among other things, wrongful termination and breach of fiduciary duty. Prime Time, a franchisee of an organization known as DirectBuy, had sued the franchisor after its franchise was terminated. Prime Time sold memberships to its buying club, with DirectBuy receiving royalty fees. In denying the motion to dismiss, the court found that the majority of Prime Time’s claims ...

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In Bye v. Nationwide Mutual Ins., 2010 U.S. Dist. LEXIS 78930 (E.D. Mich., Aug. 5, 2010), a Michigan federal court last month granted Nationwide Mutual Insurance Company’s motion for summary judgment, holding that the Michigan Franchise Investment Law did not apply to the relationship between Nationwide and its insurance agent because the agent did not pay a franchise fee. The plaintiff was a Nationwide insurance agent for many years. The agent eventually opened a competing business, and Nationwide terminated his agency. In response, the plaintiff filed suit alleging, among ...

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In Andre v. Sellstate Realty Sys. Network, Inc., 2010 U.S. Dist. LEXIS 84853 (M.D. Fla. July 30, 2010), the franchisor moved to strike the franchisees’ jury trial demand based upon the following language in two promissory notes: “THE AREA REPRESENTATIVE, BY SIGNING OF THIS NOTE, AND THE FRANCHISOR, BY ACCEPTANCE OF THIS NOTE, MUTUALLY AND WILLINGLY WAIVE THE RIGHT TO A TRIAL BY JURY OF ALL CLAIMS BETWEEN THEM . . . .” The franchisees objected, arguing that the promissory notes were ancillary to their claims that the franchisor had made fraudulent representations and induced them ...

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Posted in Arbitration

An Oregon federal court, in JuiceMe, LLC v. Booster Juice Ltd. P’ship, 2010 U.S. Dist. LEXIS 77375 (D. Ore. July 30, 2010), denied the defendant franchisors’ motions to dismiss and stayed the case pending arbitration. The plaintiffs, who are U.S. and Canadian Booster Juice franchisees, had filed a demand for arbitration with the American Arbitration Association in January 2008 against Booster Juice Limited Partnership, the franchisor of the Booster Juice system in the U.S., and other related parties. The plaintiffs later added AW Holdings Corporation, the franchisor of the ...

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Posted in Trademarks

In Doctor’s Associates, Inc. v. Subway.SY LLC, 2010 U.S. Dist. LEXIS 83223 (D. Minn. Jul. 30, 2010), the plaintiff franchisor, which owns numerous trademarks associated with the SUBWAY sandwich restaurant chain, obtained a permanent injunction against a defendant who operated an infringing Web site in Syria. The defendant formed Subway.SY LLC in 2008 and used images copied directly from plaintiff’s Web site on its own Web site and Facebook page, which advertised the opening of a “Subway” restaurant shop in Syria. Although the defendant claimed that the Web site was not ...

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Posted in Terminations

A recent Missouri federal court decision serves as a warning to franchisors to carefully draft guaranty provisions in franchise agreements to ensure they will be effective. In Medicine Shoppe Int’l, Inc. v. Anick, Inc., 2010 U.S. Dist. LEXIS 78431 (E.D. Mo. Aug. 4, 2010), the court dismissed the franchisor’s breach of guaranty claim against the franchisee’s corporate representative who signed the license agreement. That agreement contained a “note,” immediately below the franchisee’s signature block, stating “IF THE LICENSEE IS A CORPORATION OR PARTNERSHIP ...

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In Maaco Franchising, Inc. v. Augustin, 2010 U.S. Dist. LEXIS 83895 (E.D. Pa. Aug. 16, 2010), a Pennsylvania federal district court declined to impose sanctions on the franchisee defendants despite finding that they destroyed documents in bad faith during litigation with Maaco. This case involves the former franchisees’ operation of a competing business after Maaco terminated their franchise agreements for nonpayment. Maaco served several requests for documents and then sought sanctions against the franchisees for destroying documents during litigation and making false ...

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Posted in Bankruptcy

In Doctor’s Associates, Inc. v. Jesal Desai, 2010 Bankr. LEXIS 86454 (D.N.J. August 23, 2010), the franchisor (“DAI”) sought to remove pending litigation from the bankruptcy court to federal district court. The procedural history of the case includes litigation in arbitration, state court, federal district court, and bankruptcy court. DAI’s motion to withdraw the reference was brought after it was unsuccessful in asking the bankruptcy court to remand the pending litigation back to the district court. A motion to withdraw the reference is very similar to a motion to ...

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Posted in Renewals

A California federal court has granted a franchisor’s motion to dismiss an amended complaint brought by many of its Union 76 brand gas station franchisees in connection with the franchisor’s renewal of their franchise agreements. The case is In re ConocoPhillips Co. Service Station Rent Contract Litig., 2010 U.S. Dist. LEXIS 61300 (N.D. Cal. Jun. 2, 2010). The plaintiff-franchisees sued, claiming that Conoco violated Section 31101 of California’s Franchise Investment Law (CFIL). Section 31101 exempts the offer and sale of a franchise from the registration requirements ...

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Posted in Arbitration

A recent case from a Michigan federal court represents a mixed bag for franchisors seeking to require arbitration of claims brought by franchisees. In Binder v. Medicine Shoppe Int’l, Inc., 2010 U.S. Dist. LEXIS 72614 (E.D. Mich. July 20, 2010), a corporate franchisee signed a franchise agreement containing an arbitration clause. Its principals also signed personal guaranty agreements, under which they agreed to be personally bound by the franchise agreement.

When a dispute arose between the parties, the franchisor commenced arbitration against both the corporate ...

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In Terry Delamater, et. al. v. Anytime Fitness, Inc., 2010 U.S. Dist. LEXIS 64126 (E.D. Cal., June 25, 2010), a California federal court granted the franchisor’s motion to dismiss a franchisee’s complaint for declaratory relief that sought to require the parties to mediate in California. The franchisor and the franchisee were parties to several franchise agreements, under which the parties were to engage in mediation at a site selected by the mediation organization before submitting their claims to arbitration or litigation. A dispute arose between the parties, and the ...

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In a case handled by Gray Plant Mooty and first reported in Issue No. 131 of The GPMemorandum after a prior ruling, the court in Bonus of America, Inc. v. Angel Falls Services, LLC, 2010 U.S. Dist. LEXIS 67079 (D. Minn. July 6, 2010),  has now entered a preliminary injunction against a master franchisor and two affiliated parties through which the master franchisor was conducting business,  enjoining them from violating the in term noncompete provisions of the Master Franchisor Agreement (MFA) and from using the franchisor’s name, trademarks, or proprietary materials. The master ...

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In Aussie Pet Mobile Inc. v. Benton, 2010 U.S. Dist. LEXIS 65126 (C.D. Cal. June 28, 2010), a California federal court denied a franchisee’s motion to dismiss, finding that the franchisee’s attendance at mandatory training in the franchisor’s home state of California was sufficient grounds for the California court to exercise personal jurisdiction over a principal of the franchisee, who was a resident of Ohio. Under federal law, a court can exercise jurisdiction over the resident of another state if (a) the defendant has purposefully directed activities within the forum ...

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In Krispy Kreme Doughnut Corp. v. Satellite Donuts, L.L.C., 2010 U.S. Dist. LEXIS 73913 (S.D.N.Y. Jul. 22, 2010), a franchisor obtained a preliminary injunction against its former franchisee. Krispy Kreme had terminated the franchise agreement after Satellite failed to pay royalties and other amounts, but Satellite continued to operate as a Krispy Kreme store after termination. Krispy Kreme brought suit seeking a temporary restraining order and a preliminary injunction to stop Satellite from using its trademarks and proprietary materials.

In granting the franchisor’s ...

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Posted in Terminations

In Ramada Worldwide, Inc. v. Hotel of Grayling, Inc., 2010 U.S. Dist. LEXIS 65186 (D.N.J. June 30, 2010), Ramada terminated and sued its franchisee for failing to pay over $90,000 in royalties and defaulting on its guarantee. The franchisee counterclaimed, and alleged that because Ramada materially breached the agreement before the fees were due, by failing to provide it with proper signage, conduct training, and provide a working computer system, it was not liable for unpaid fees.

The court rejected that argument and awarded Ramada summary judgment on its claims. The court cited ...

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Posted in Choice of Law

The Ninth Circuit recently confirmed that a state franchise law does not apply to claims involving out-of-state franchisees even if the franchise agreement has a choice of law provision applying that state’s law. The franchisees in Taylor v. 1-800-GOT-JUNK?, LLC, 2010 U.S. App. LEXIS 14433 (9th Cir. July 14, 2010), operated a junk removal franchise in Oregon pursuant to a franchise agreement that contained a Washington choice of law provision. Neither the franchisees nor the franchisor were Washington residents. A previous dispute between the parties, in which the franchisees ...

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Posted in Trademarks

The Ninth Circuit in Toyota Motor Sales, USA, Inc. v. Farzad Tabari, et al., 2010 U.S. App. LEXIS 13903 (9th Cir. July 8, 2010), vacated and remanded an order granting a preliminary injunction in favor of Toyota enjoining the use of one of its trademarks in a domain name. Toyota, the exclusive distributor of Lexus vehicles in the United States, sued the defendant auto brokers based on the use of the term “Lexus” in their business Web site domain names. The district court found that the defendants’ domain names, buy-a-lexus.com and buyorleaselexus.com, infringed the trademark ...

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Posted in Damages

After a franchisee abandoned his franchise and allowed his son to open a competing business in the same location, the franchisor filed suit in Moran Indus., Inc. v. Mr. Transmission of Chattanooga, Inc., 2010 U.S. Dist. LEXIS 71753 (E.D. Tenn. Jul. 15, 2010), claiming lost future royalties. The defendants filed a motion to dismiss, arguing  that the license agreement provided that the royalty payment obligation lasted only five years. The court rejected that argument, noting that an addendum the parties signed  seven years after the license agreement provided for a decreased royalty ...

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Posted in Arbitration

The Third and Eighth Circuits recently affirmed arbitration awards in favor of franchisors, despite similar arguments by franchisees. Most recently, in Paul Green School of Rock Music Franchising, LLC v. Smith, 2010 U.S. App. LEXIS 16082 (3d Cir. August 2, 2010), the Third Circuit sidestepped the question of whether “manifest disregard of the law” remains a ground to vacate an arbitration award after the Supreme Court’s decision in Hall Street Associates, L.L.C. v. Mattel, Inc. Describing a “circuit split” on that question, the Third Circuit simply ruled that the law ...

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Posted in Terminations

A New Jersey federal court issued a lengthy opinion last month addressing cross motions for summary judgment filed by a group of beer distributors and defendants InBev and Anheuser-Busch. The case is Warren Distributing Co., et al. v. InBev, et al., 2010 U.S. Dist. LEXIS 55542 (D.N.J. June 7, 2010). While the court addressed several issues, it held that InBev could not succeed on its motion for summary judgment on the plaintiffs’ breach of contract claim, finding that the plaintiffs had put forth viable evidence that InBev’s reliance on the doctrine of ...

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Posted in Terminations

In a case that has been in litigation for several years, the Eighth Circuit has ruled in favor of a manufacturer of farm equipment in Cole v. Homier Distributing Co., 599 F.3d 856 (8th Cir. 2010). The background of the case, first reported in Issue 102 of The GPMemorandum, was that plaintiff Cole had entered into an oral agreement with manufacturer Homier under which Cole became a distributor and dealer of Homier’s products. As a result of that agreement, Cole established more than 30 dealerships. The parties later memorialized their agreement through a written distributorship ...

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Posted in Terminations

In Minnesota Deli Provisions, Inc. v. Boar’s Head Provisions Co., 2010 U.S. App. LEXIS 10821 (8th Cir. June 11, 2009), the Eighth Circuit affirmed a grant of summary judgment dismissing plaintiff Minnesota Deli’s claims arising out of the termination of its distributorship for Boar’s Head deli products. In doing so, the court rejected Minnesota Deli’s argument that its distributorship was not terminable at will. The court held that statements by Boar’s Head executives allegedly telling Minnesota Deli it would “never be touched” as long as it grew its business ...

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Posted in Antitrust

A New York federal court recently granted Honeywell International, Inc.’s motion to dismiss a former distributor’s antitrust claims, despite the plaintiff’s allegation that it was terminated pursuant to an agreement among Honeywell and its other distributors, who allegedly objected to the plaintiff’s discounting. In Integrated Systems and Power, Inc. v. Honeywell Int’l, Inc., 2010 U.S. Dist. LEXIS 47283 (S.D.N.Y. May 13, 2010), the court found ISPI’s allegations insufficient to state a claim for either per se or Rule of Reason violations of Section 1 of the ...

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Posted in Antitrust

In Shell’s suit against a former franchisee under the Petroleum Marketing Practices Act, the First Circuit held that the franchisee’s price discrimination antitrust counterclaim was properly dismissed on summary judgment because the franchisee failed to show that it was competing with favored retailers of Shell Oil. The Shell Oil Company (Puerto Rico) Ltd. v. Los Frailes Serv. Station, Inc., 605 F.3d 10 (1st Cir. 2010). The franchisee claimed that Shell was violating Section 2(a) of the Clayton Act, as amended by the Robinson-Patman Act, as well as Puerto Rican antitrust law ...

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In Webb Candy, Inc. v. Walmart Stores, 2010 U.S. Dist. LEXIS 55985 (D. Minn. June 7, 2010), the court examined the viability of a forum-selection clause after the expiration of the underlying distribution agreements. In this case, Walmart had one-year vendor contracts with two companies that allowed individual stores to buy merchandise directly from those two companies without contacting Walmart’s corporate office. Both of those contracts had expired, but the vendor identification numbers of the companies were still in effect. Webb Candy, a third-party vendor that did not ...

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In The Dry Dock, LLC v. The Godfrey Conveyor Co., 2010 U.S. Dist. LEXIS 55628 (E.D. Wis. June 7, 2010), the plaintiff, a boat retailer, sued a manufacturer from which it purchased boats, claiming that the boats were defective and needed repairs. The retailer brought claims for breach of contract, breach of warranty, and violation of the Wisconsin Fair Dealership Law (WFDL), seeking consequential damages and reimbursement for the cost of repairs. The retailer claimed that the manufacturer’s failure to honor warranty claims and its removal of the retailer from the “dealer ...

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Posted in Terminations

In Al’s Service Center, et al. v. BP Products North America, Inc., 2010 U.S. App. LEXIS 6270 (7th Cir. Mar. 26, 2010), the Seventh Circuit affirmed a district court’s summary judgment ruling in favor of BP, finding that BP had not violated the Petroleum Marketing Practices Act (PMPA). In this case, a gas station franchisee was notified by the Illinois Department of Transportation of a partial condemnation of its property for a road widening project, which would result in the closing of some of the entrances to its gas station and consequently would negatively impact its business. In ...

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Posted in Antitrust

In an instructive opinion arising from the appeal of two related antitrust suits, the Third Circuit in Howard Hess Dental Laboratories Inc. v. Dentsply International, Inc., 602 F.3d 237 (3d Cir. 2010), affirmed the dismissal of two dental laboratories’ claims for monopolization against a manufacturer of artificial teeth and for conspiracy to monopolize and restrain trade against the manufacturer and its dealers. The laboratories, which purchased artificial teeth to make dentures, alleged that the manufacturer set anticompetitive prices for artificial teeth and ...

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In Native New Yorker Franchising, Inc. v. Shabaz, Inc., 2010 U.S. Dist. LEXIS 50065 (D. Ariz. April 29, 2010), the franchisor of Native New Yorker restaurants filed a preliminary injunction motion against a former franchisee for its continued operation of the restaurant and refusal to transfer the restaurant’s telephone number back to the franchisor. By the time the motion was heard, the former franchisee claimed that the motion was moot because it had ceased operating and was on the brink of bankruptcy. Injunctions, however, are only moot to the extent that it can be shown “that ...

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Posted in International

On June 3, 2010, the Australian federal government released new amendments to the Franchising Code of Conduct. The changes will take effect July 1, 2010. Some significant changes that franchisors need to be aware of include the requirement to:  (1) inform franchisees, at least six months prior to the end of the franchise agreement, of the franchisor's decision regarding the renewal of the franchise agreement; (2) disclose all payments that a franchisee may be required to make to third parties, where the expenditure is within the knowledge or control of, or is reasonably foreseeable ...

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Taking a broad view of the scope of the California Franchise Relations Act (CFRA), the California Court of Appeal in T-Bird Nevada LLC, et. al. v. Outback Steakhouse, Inc., et al., 2010 Cal. App. Unpub. LEXIS 3610 (Cal. Ct. App. May 17, 2010), voided a Florida forum selection clause in a borrower agreement between Outback Steakhouse and a California developer. The parties had entered into an arrangement under which T-Bird signed off on a multi-million dollar loan to fund Outback’s expansion into California. T-Bird’s owner set up separate companies to act as franchisees for each ...

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In Passport Health, Inc. v. Travel Med, Inc., et. al., 2010 U.S. Dist. LEXIS 46210 (E.D. Cal., May 11, 2010), a California federal court granted a franchisor’s motion to dismiss the franchisee’s claims for breach of the franchise agreement, but refused to dismiss its claims for the franchisor’s breach of the covenant of good faith and fair dealing. The franchisee claimed that the franchisor breached the franchise agreement, in part, by failing to provide “training, marketing, management methods, procedures, and materials,” by providing “flawed and defective ...

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Posted in Trademarks

A federal bankruptcy court has held that continued use of a franchisor’s trademark as part of a domain name after termination was trademark infringement. In re Gharbi, 21 Real Estate LLC v. Gharbi, 2010 Bankr. LEXIS 1247 (Bankr. W.D. Tex. April 19, 2010). The defendant, a former franchisee of the Century 21 real estate franchise system, continued to use domain names that included the mark CENTURY 21 on various Web sites after termination and featured the mark itself prominently on the home page of another Web site. The court granted summary judgment to the franchisor on the issue of ...

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A Florida federal court has dismissed the claim of the National Franchisee Association that Burger King Corporation lacks contractual power to set maximum prices for its franchisees, but has allowed the association to pursue its alternative claim that the exercise of that power to put the double cheeseburger on the chain’s dollar menu violates the duty of good faith and fair dealing. National Franchisee Association v. Burger King Corp., 2010 U.S. Dist. LEXIS 50721 (S.D. Fla. May 20, 2010). The NFA had sought a declaratory judgment that the franchisor does not have authority under ...

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Posted in Terminations

In Luxottica Retail North America, Inc. v. Stonybrook Ventures, Inc., 2010 U.S. Dist. LEXIS 46265 (M.D. Fla. May 11, 2010), Luxottica was unsuccessful in seeking summary judgment on a collection action against a terminated franchisee. Luxottica, which previously owned Lens Crafters stores, had acquired the Pearle Vision franchise system shortly after the defendants entered into a franchise agreement to open a Pearle Vision store. In response to Luxottica’s motion for summary judgment on its damages claims under the franchise agreement, the defendants argued that they had ...

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Posted in Terminations

A Georgia federal court issued its opinion last month in Dunkin’ Donuts Restaurants LLC v. Sandip, Inc., 2010 LEXIS 43484 (N.D. Ga. May 3, 2010), granting franchisor Dunkin’ summary judgment. (Gray Plant Mooty represented Dunkin’ in the case.) In the decision, the court held that defendants had breached their two franchise agreements by failing to remodel their shops, participate in mandatory programs, attend required training, and prepare immigration forms for new employees. While the court found that defendants had alleged that they attended all required training ...

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Posted in RICO

An Ohio federal court ruled June 4 that a franchisee’s claims under federal racketeering law must be dismissed for failure to plead the existence of an illegal “enterprise.”  The case is Arnold v. Petland, Inc., 2010 U.S. Dist. LEXIS (S.D. Ohio June 4, 2010). Federal RICO claims, to be viable, must include the presence of an enterprise separate and distinct from the defendant itself. The complaint in this case did not define a separate enterprise, but in opposition to the motion to dismiss, the plaintiff argued that the franchisees in the system may serve as the requisite ...

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In Coriatt-Gaubil et al. v. Roche Bobois Int’l, S.A. et al., 2010 U.S. Dist. LEXIS 48880 (D. Mass. May 18, 2010), a Massachusetts federal court denied a motion of the plaintiff, who was a 50 percent shareholder of several corporate franchisees, for a preliminary injunction to enjoin the franchisor, who was the other shareholder via an affiliate, from terminating the parties’ franchise agreements. The court found that the plaintiff and corporate franchisees had not established a likelihood of success on the merits on their claim for breach of the implied covenant of good faith and ...

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Posted in Bankruptcy

In In re Tornado Pizza, LLC, 2010 Bankr. LEXIS 1108 (Bankr. D. Kan. Apr. 9, 2010), and companion case In re Team KC, Inc., 2010 Bankr. LEXIS 1107 (Bankr. D. Kan., Apr. 9, 2010), a Kansas federal bankruptcy court granted franchisor Domino’s Pizza Franchising, LLC relief from the automatic stay to enforce the post-termination obligations of the former franchisee in bankruptcy. The bankruptcy court ruled that the franchise agreements, which were validly terminated pre-bankruptcy, were not executory contracts that could be assumed and assigned in the bankruptcy case. The ...

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The summary judgment in Awuah v. Coverall North America (summarized in Issue 130 of The GPMemorandum) did not result in a victory at trial for the plaintiffs. That much-discussed March ruling by a Massachusetts federal court judge was that Coverall, a janitorial services franchisor, could not classify its franchisees as independent contractors instead of employees. Less than two months later, however, on the eve of trial, the same judge dismissed the claims of the “franchisee/employees” for lack of evidence of damages suffered as a result of any misclassification. The case ...

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Posted in Noncompetes

A Texas-based franchisor of building cleaning and maintenance services and supplies  won a temporary restraining order to prevent its Minnesota master franchisee—and related persons and entities—from operating a competing business. Bonus of America, Inc. v. Angel Falls Services, L.L.C., et al., No. 0:10-cv-02111-DSD-FLN (D. Minn. May 28, 2010). The defendants had also formed and been conducting business in Minnesota through another entity, which led the franchisor to file suit in federal court in Minnesota. (Gray Plant Mooty represents the franchisor in this action.)

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Posted in Arbitration

In Jewelry Repair Enterprises, Inc. v. Ajani, 2010 LEXIS 61651 (Fla. Ct. App. May 5, 2010), the Florida Court of Appeals upheld a clause in a franchise agreement excepting noncompetition issues from binding arbitration. The case supports the proposition that contracts will be interpreted according to their plain meaning and that exceptions to binding arbitration provisions will be upheld. In this case, the franchisor terminated the franchisees and sued them for breach of contract after learning the franchisees were operating competing businesses. The franchisees moved to ...

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Posted in Identity Theft

As we previously discussed in Issue Nos. 115 and 122 of The GPMemorandum, the new federal “Red Flags Rule” requires certain businesses to establish written programs to detect, identify, and respond to signs of possible identity theft. The rule is aimed at reducing identity theft by making it more difficult for thieves to use stolen identity information to purchase goods or services. Enforcement was originally set to begin in 2008, but has now been delayed until December 31, 2010, although enforcement may begin earlier depending on the effective date of ...

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In LaQuinta Corp. v. Heartland Properties, LLC, 2010 U.S. App. LEXIS 8757 (6th Cir. Apr. 28, 2010), the Sixth Circuit affirmed a grant of summary judgment in favor of the franchisor in connection with the refusal by a franchisee of the Baymont Inns franchise system to implement a new reservation system. (Plaintiff La Quinta is the corporate parent of Baymont). Under the franchise agreement, the defendant franchisee was required to participate in, and bear the costs of, whatever reservation system Baymont established in “its sole discretion.”  Two years before the franchise ...

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In an interesting decision in a case brought against a franchisor and its subfranchisor, the Washington Court of Appeals ruled last week that Washington’s franchise disclosure law does not require a subfranchisor to register its offering documents if the franchisor itself has already registered those same documents. Something Sweet, LLC v. Nick-N-Willy’s Franchise Co., 2010 Wash. App. LEXIS 1135 (Wash App. June 1, 2010). While the Washington Franchise Investment Protection Act does apply to disclosure documents registered by a subfranchisor, the court held that the ...

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Posted in Antitrust

Late last month, the United States Supreme Court issued its decision in American Needle, Inc. v. National Football League, et al., 2010 LEXIS 4166 (U.S. May 24, 2010), which was previewed in Issue 127 of The GPMemorandum. In a unanimous opinion authored by the retiring Justice Stevens, the court rejected the argument of the National Football League and its 32 teams that they are categorically immune from Sherman Act Section 1 liability because they operate as a single economic unit. The Supreme Court held that the teams function separately, with “independent centers of ...

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Posted in Noncompetes

In Doyle v. Nutrilawn U.S., Inc., 2010 U.S. Dist. LEXIS 48613 (W.D. Wash. May 17, 2010), a Washington federal court concluded that language in a noncompete clause making it applicable “following the termination of this Agreement for any reason whatsoever” applied upon the agreement’s expiration. The franchisee argued that the covenant only applied if the agreement was terminated, and that termination and expiration should be treated differently. After reviewing “the franchise agreement as a whole” and “giving its terms their ordinary meaning,” the court ...

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Posted in Arbitration

After juggling three separate federal and state statutes, the Arkansas Supreme Court determined last month that a statutory franchise claim is subject to arbitration.  In Gruma Corp. v. Morrison, 2010 Ark. LEXIS 182 (Ark. April 1, 2010), the parties had entered into a distribution agreement that contained a clause requiring the arbitration of all claims relating to the agreement.  After Gruma terminated the agreement, Morrison sued in Arkansas state court alleging various tort claims and violations of the Arkansas Franchise Practices Act (AFPA). In response, Gruma moved to compel ...

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Posted in Encroachment

In Black Angus Holdings, LLC v. Back Yard Burgers, Inc. (In re Black Angus Holdings, LLC), 2010 Bankr. LEXIS 995 (Bankr. D. Kan. Mar. 24, 2010), a Kansas federal bankruptcy court declined to dismiss a franchisee’s breach of contract claim arising out of the opening of a restaurant in an area that overlapped with the franchisee’s protected area.  The franchise agreement between the parties prevented the franchisor from establishing another restaurant within an “exclusive radius” of two miles from the franchisee’s restaurant. After the franchisor established a new ...

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Posted in Class Actions

In Moua v. Jani-King of Minnesota, Inc, 08-4942 (D. Minn. Mar. 12, 2010), a Minnesota federal court denied a motion for class certification filed by franchisees who alleged that Jani-King falsely promised them a certain amount of monthly business while knowing that the promised amount was unattainable. The franchisees further alleged that the business accounts Jani-King offered to them were unprofitable and that Jani-King took accounts away from them.  The court found that the claims required individualized determinations of Jani-King's conduct vis-a-vis each franchisee.

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In Qdoba Rest. Corp. v. Taylors, LLC, 2010 U.S. Dist. LEXIS 27394 (D. Colo. Mar. 23, 2010), a Colorado federal court granted summary judgment to Qdoba on a multi-unit franchisee’s allegations of fraud in the inducement. The fraud allegations were made in connection with affirmative defenses and counterclaims to Qdoba’s breach of contract suit for the closure of several restaurants. The franchisee alleged that Qdoba committed fraud when: (a) an agent of Qdoba provided the franchisee with a map of projected sales, which showed potential sales ranges based on site ...

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Posted in Arbitration

 In Reid v. SuperShuttle Int’l Inc., 2010 U.S. Dist. LEXIS 26831 (E.D.N.Y.  Mar. 22, 2010), a New York federal court granted a franchisor’s motion to compel arbitration and, in doing so, upheld a waiver in the arbitration clause of the affected plaintiffs’ rights to bring class action claims. A group of SuperShuttle franchisees had brought a class action suit, claiming that they were employees of SuperShuttle rather than franchisees and that they were owed wages and employee benefits under various federal and New York state laws. SuperShuttle filed a motion to compel individual ...

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A Connecticut federal court granted a franchisor’s motion to strike a jury demand in Sherman Street Associates, LLC, et al. v. JTH Tax, Inc., et al.  2010 LEXIS 29402 (D. Conn. Mar. 22, 2010).  Although the franchise agreements contained a jury waiver provision, the franchisee demanded a jury trial on its claims under the Connecticut Franchise Act and for tortious interference. 

The franchisor moved to strike the jury demand, pointing to the jury waiver provisions in the franchise agreements, which the franchisee contended were not enforceable under the CFA. 

The court found that ...

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Posted in Choice of Law

In Red Lion Hotels Franchising, Inc. v. MAK LLC, 2010 U.S. Dist. LEXIS 23633 (E.D. Wash. Mar. 15, 2010), the court held that the Washington Franchise Investment Protection Act (“FIPA”) did not apply to a Washington-based franchisor in its dispute with a California franchisee, even though the franchise agreement contained a Washington choice of law provision. Franchisor Red Lion sued the franchisee for breaching the franchise agreement by failing to comply with a mandatory property improvement plan. The franchisee argued that the termination was improper and ...

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Posted in Trademarks

The United States Court of Appeals for the Eighth Circuit has affirmed the rejection of a franchisee’s claims for breach of contract and violation of the South Dakota Franchise Act in an interesting case involving trademark rights.  Pinnacle Pizza Co., Inc. v. Little Caesar Enterprises, Inc., 2010 U.S. App. Lexis 5801 (8th Cir. Mar. 22, 2010).  A Little Caesar franchisee had brought suit over use of the HOT-N-READY trademark.  The franchisee alleged that it originated the phrase “Hot-N-Ready” in advertising ready-to-pick-up pizzas, and that the later adoption of the phrase by ...

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A Missouri federal court denied a motion to dismiss for improper venue filed by a group of franchisees , finding the franchisor had properly filed in Missouri, where its home offices are based.  The case is Hardee’s Food Systems, Inc. v. Hallbeck, et al., No. 4:09-cv-664 (E.D. Mo. Mar. 22, 2010).  Gray Plant Mooty assisted Hardee’s in opposing the motion. Hardee’s sued for breach of contract and of personal guarantees after the franchisees, all residents of Wisconsin, closed one of their restaurants in Ottawa, Illinois, before the expiration of its term.  The franchisees filed a ...

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In Braucher v. Swagat Group, LLC, 2010 U.S. Dist. LEXIS 26294 (C.D. Ill. Mar. 19, 2010), the court granted summary judgment to Choice Hotels on a claim brought by a guest of one of its franchised hotels.  The plaintiffs had visited a franchised hotel at which they contracted Legionnaires disease from the pool, which proved fatal to one of the named plaintiffs.  The plaintiffs brought suit against both the franchisee and the franchisor, claiming that the franchisor was negligent and was liable under the doctrine of res ipsa loquitur, and that the franchisee acted as the franchisor’s ...

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Posted in Discrimination

In Halloum v. DFO, Inc., 2010 Cal. App. Unpub. Lexis 2558 (Cal. Ct. App. Apr. 8, 2010), a California Court of Appeal considered various claims by a franchise applicant against DFO, Inc., the franchisor for Denny’s restaurants, including claims of unlawful race and national origin discrimination. The plaintiff, a Palestinian Arab, claimed Denny’s was motivated to deny his franchise application by his race and ethnicity following the events of September 11, 2001.  The court first affirmed the trial court’s dismissal of claims for breach of an oral contract, promissory ...

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Posted in Bankruptcy

In In re All American Properties, Inc., 2010 Bankr. LEXIS 687 (Bankr. M.D. Pa. Mar. 10, 2010), a franchisor sought to annul the automatic stay following a former franchisee’s bankruptcy filing. Franchisor Petro Franchise Systems had sued its franchisee for trademark infringement.  Petro obtained an injunction prohibiting the franchisee from using Petro’s trademarks and brands.  The franchisee ignored the injunction order and continued to operate the infringing business. 

After a hearing on an order to show cause for the franchisee’s non-compliance with its orders, the ...

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In a ruling that already has sent shock waves through the franchisor community, a Massachusetts federal judge ruled in March that Coverall, a janitorial services franchisor, could not classify its franchisees as independent contractors.  Awuah v. Coverall North America, 2010 U.S. Dist. LEXIS (D. Mass. Mar. 23, 2010). Instead, in granting the franchisees’ motion for partial summary judgment, the court found Coverall’s franchisees must be classified as employees.  The opinion hinged on a single prong of Massachusetts’s employee classification test—whether or not the ...

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Posted in Arbitration

The United States Supreme Court likely ignited an intense battle in state and federal courts around the country with its decision last week that a class action arbitration may not be imposed on a party who has not agreed to it.  In Stolt-Nielsen S.A. v. AnimalFeeds International Corp. (U.S. April 27, 2010), a 5-3 majority reversed the Second Circuit’s decision that had upheld an arbitration panel decision to allow a price-fixing case to proceed on a class basis in arbitration.  (Justice Sotomayor, a former judge on the Second Circuit, did not participate)  The specific issue addressed ...

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Posted in Arbitration

In Bapu Corp. v. Choice Hotels Int’l, Inc., 2010 U.S. App. LEXIS 5540 (3d Cir. Mar. 16, 2010), Choice Hotels terminated its franchisee after it failed to renovate. Early in arbitration proceedings the franchisee contended that the termination was time-barred under Maryland law and the limitations period in the franchise agreement. The arbitrator addressed this issue preliminarily, ruling that the issue was premature, and allowed the franchisee to renew its defense later. The franchisee stopped participating in the arbitration and, instead, tried to challenge the ...

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The parent companies of a hotel chain prevailed against personal injury claims brought in Reider v. Radisson Hotels Int’l et al., No. 3:08-cv-02328 (S.D. Cal. March 8, 2010). The case arose out of serious injuries suffered by the plaintiffs when they fell through a glass door in a sports bar located within a Radisson hotel in Japan. The hotel was operated under a management agreement between the hotel owner and a subsidiary of the defendants based in Singapore. The plaintiffs failed to name the subsidiary as a defendant, bringing suit instead against the two parent companies in the ...

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A Colorado appellate court recently vacated (with a remand for further proceedings) the trial court’s dismissal of claims against a franchisor and its parent, two officers, and its lawyers, alleging fraudulent nondisclosure of the parent’s material financial losses each year since its inception in 1990. The case is Colorado Coffee Bean, LLC  v. Peaberry Coffee, Inc., 2010 LEXIS 210 (Col. App. Feb. 18, 2010). The appellate court found that the trial court erred in finding the franchisees’ reliance on the nondisclosure of the parent’s losses was unreasonable. The appellate ...

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Posted in Advertising

In Doctor’s Associates, Inc. v. QIP Holder LLC, et al., 2010 U.S. Dist. LEXIS 14687 (D. Conn. Feb. 19, 2010), the franchisor of the Subway system sued Quiznos for deceptive advertising under the Lanham Act and the Connecticut Unfair Trade Practices Act and for commercial disparagement under Connecticut law. At issue were a number of ads that depicted a Quiznos sandwich next to a purportedly comparable Subway sandwich, which ads claimed that the sandwiches were not really comparable because the Quiznos sandwich had twice the amount of meat contained in the Subway sandwich. DAI ...

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Posted in RICO

In Jones v. Petland Inc., 2010 U.S. Dist. LEXIS 12538 (S.D. Ohio Feb. 11, 2010), franchisees sued franchisor Petland, asserting in a class action complaint numerous claims of fraud and misrepresentation as well as a RICO claim. Petland moved to dismiss all claims. The court granted Petland’s motion and dismissed all of the franchisees’ claims with prejudice. The court found that the plaintiffs had failed to plead their fraud and misrepresentation claims with particularity as required under the Federal Rules of Civil Procedure. The court also found the franchisees’ RICO ...

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Posted in Class Actions

A Minnesota federal court has denied a motion to remand a class action lawsuit to state court, holding that the federal court had jurisdiction over the action under the Class Action Fairness Act (CAFA). In Green et al. v. SuperShuttle Int’l, Inc. et al., 2010 U.S. Dist. LEXIS 7456 (D. Minn. Jan. 29, 2010), a putative class of current and former franchisees sued various SuperShuttle entities that provide shared-ride airport shuttle services, claiming the entities had mischaracterized them as franchisees rather than as employees. The plaintiff-franchisees originally sued in ...

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Posted in Arbitration

Despite the heavy presumption in favor of the enforceability of final arbitration awards, a federal court in Michigan recently vacated a final award upon finding that one member of the arbitration panel had displayed evident bias. In The Thomas Kinkade Co. v. Lighthouse Galleries, LLC, 2010 U.S. Dist. LEXIS 6443 (E.D. Mich. Jan. 27, 2010), the issue was whether an arbitrator’s late disclosure of his conflicts of interest and law partners’ association with the defendants prejudiced the parties’ arbitration. At arbitration, one of the arbitrators disclosed that certain of ...

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Posted in Damages

A car dealership that had prevailed against a manufacturer under the New Jersey Franchise Practices Act has been denied summary judgment on damages. In Liberty Lincoln-Mercury, Inc. v. Ford Motor Co., 2010 U.S. Dist. LEXIS (D.N.J. Feb. 22, 2010), the plaintiff had prevailed on its claim that Ford’s warranty service and repair parts surcharges to dealers violated the NJFPA. But that did not mean that the plaintiff could automatically obtain disgorgement of the surcharges. The court held, instead, that “damages sustained” by the franchisee had to be proved under the statute ...

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Posted in Noncompetes

A Montana federal court has granted H&R Block’s motion for a preliminary injunction to enforce a covenant not to compete. The case is H&R Block Tax Services LLC v. Kutzman, 2010 U.S. Dist. LEXIS 12837 (D. Mont. Jan. 26, 2010). At issue was whether the covenant’s geographic 45-mile restriction and one-year prohibition were reasonable under Montana law. The franchisee, who continued to provide tax preparation services after the expiration of the franchise agreement, claimed that the covenant violated a Montana statute. The court disagreed, finding that while noncompete ...

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Posted in Damages

In Century 21 Real Estate LLC v. Perfect Gulf Properties, Inc., 2010 U.S. Dist. LEXIS 13438 (M.D. Fla. Feb. 17, 2010), a Florida federal court recently granted the franchisor’s motion for partial summary judgment on its breach of contract claims against the individual guarantors, and held that the franchisor was entitled to almost $1.4 million in damages. The franchisor sued the terminated franchisees and the individual guarantors to recoup unpaid royalties and advertising fees, as well as the remaining balance due on a promissory note that accelerated upon the termination of ...

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Posted in Terminations

The Ninth Circuit has affirmed a district court’s order for specific performance requiring the franchisor to renew the franchise agreement at the existing royalty rate. Prudence Corp. v. Shred-It America, Inc., 2010 U.S. App. LEXIS 3214 (9th Cir. Feb. 11, 2010). Although the court does not fully explain, it appears to have based its decision on findings that Shred-It breached the franchise agreement by waiting over a year to “timely submit proposed renewal terms” to Prudence. The court also held that specific performance was an appropriate remedy because the franchise ...

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Posted in Class Actions

A federal court in California has dismissed the claims of the remaining franchisee classmembers in Samica Enterprises, LLC, et al. v. Mail Boxes Etc. USA, Inc., et al., 2010 U.S. Dist. LEXIS 21343 (C.D. Cal. Feb. 26, 2010). In granting summary judgment against these more than 200 putative plaintiffs, the court rejected their attempts to circumvent the prior decisions dismissing claims of two representative subclasses. The claims all arose out of the efforts of the defendants to convert Mail Boxes Etc. franchisees to UPS Store franchisees, which the plaintiffs claimed to be a fraud ...

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Posted in Noncompetes

Two judges in the same Michigan federal district court issued different rulings in non-compete cases recently. In the first case, Domino’s Pizza Franchising, LLC v. Yeager, 2:09-cv-14704 (E.D. Mich. Jan. 25, 2010), the court handed Domino’s a victory in its efforts to enforce its post-term rights. Domino’s had sued after the defendants breached their obligations by continuing to operate pizza restaurants using the franchisor’s marks and failing to return proprietary information. The defendants denied liability. After Domino’s provided photographic evidence ...

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Posted in Terminations

The United States Supreme Court has held that claims of “constructive” termination and nonrenewal under the Petroleum Marketing Practices Act will not lie when the franchisee continues to operate under the franchisor’s marks. Mac’s Shell Service, Inc. v. Shell Oil Products Co., No. 08-240, and Shell Oil Products Co. v. Mac’s Shell Service, Inc., 2010 U.S. LEXIS 2203 (March 2, 2010). As reported in Issue 128 of The GPMemorandum, this was the first Supreme Court decision to interpret the PMPA. This decision could also help business format franchisors in similar cases.

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Posted in Contracts

In Mercedes-Benz USA v. Concours Motors, 2010 WL 55473 (E.D. Wis. Jan 4, 2010), a Wisconsin federal court denied Mercedes-Benz’s motion for partial summary judgment on its breach of contract claim against its dealer, Concours. At issue concerned the parties’ oral agreement to allow the dealer to construct a new facility.  Because of low sales at the dealership, MB and Concours agreed to relocate the dealership to another location. When Concours started constructing a few facility but then stopped, MB sued claiming promissory estoppel and breach of contract.  The court refused to ...

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Congress is considering overruling the United States Supreme Court’s decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc., 127 S.Ct. 2705 (2007), in which the court overturned near century-old precedent and held that manufacturers could set minimum price standards for retailers if they encouraged competition.  By eliminating the threat of per se liability, some have believed that Leegin provided suppliers and franchisors with at least limited comfort in setting minimum resale prices for their dealers and franchisees.  But even this may be short-lived.  On January ...

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Posted in RICO

In re U.S. Foodservice Inc. Pricing Litigation, 2009 WL 5064468 (D. Conn. Dec. 15, 2009), the court denied U.S. Foodservice’s (“USF’s”) motion to dismiss a RICO claim filed by plaintiffs Frankie’s Franchise System and others. The plaintiffs alleged that USF had created a number of shell companies to procure products, which were then sold to USF at inflated prices. In turn, USF allegedly would pass the inflated prices to plaintiffs, thus receiving a higher profit margin than it would have otherwise received under the parties’ contracts.

USF contended that ...

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Posted in Contracts

In Luther v. Kia Motors Am., Inc., 2009 WL 4906878 (W.D. Pa. Dec. 18, 2009), the court granted summary judgment to Kia on a rejected applicant’s claim that he had been promised a dealership.  The applicant claimed that a Kia representative told him he had been approved at the regional level, and that in the past, those approved at that level were approved by the ultimate national-level decision makers.  That constituted an oral contract, according to the applicant.  The court disagreed, holding that the conversation did not amount to an oral contract, that the representative did not have ...

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Posted in Terminations

A Kentucky federal court has granted a motion for summary judgment on a dealer’s claims for breach of contract, unjust enrichment, and tortious interference in Western Kentucky Coca-Cola Bottling Co., Inc. v. Red Bull North Am., Inc., 2010 WL 65029 (W.D. Ky., Jan. 5, 2010).  Western alleged wrongful termination of its distributor agreement against Red Bull, contending that it did not receive an opportunity to cure prior to Red Bull terminating the agreement.  It also alleged that Royal Crown Bottling Company had tortiously interfered with its contract with Red Bull when Royal Crown ...

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Posted in Terminations

In Englert, Inc. v. LeafGuard USA, Inc., WL 5031309 (D.S.C. Dec. 14, 2009), a South Carolina federal court held that the parties’ license agreement for the distribution of LeafGuard brand “leaf rejecting” rain gutters did not constitute a franchise agreement.  The dispute arose when Englert, the licensor, terminated its license agreement with LeafGuard USA for nonpayment of royalties.  Englert then sued LeafGuard for the unpaid royalties and, subsequently, for an injunction seeking the return of a gutter-fabricating machine that the license agreement provided would be ...

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New Jersey recently expanded the scope of its Franchise Practices Act to include persons or entities who do not make a majority of their sales directly to consumers and who have “an office or warehouse from which franchisee personnel visit or call upon customers or from which the franchisor’s goods are delivered to customers.”  Before, a franchisee was entitled to the Act’s protections only if it maintained “a fixed geographical location at which the franchisee offers and displays for sale the franchisor’s goods or offers for sale and sells the franchisor’s ...

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Posted in Terminations

In a case that could have broad implications for franchisors, the United States Supreme Court heard oral argument on cross appeals involving two related questions arising under the Petroleum Marketing Practices Act (“PMPA”):  (1) whether a gas station franchisee who continues to operate its franchise using the franchisor’s marks may bring a valid claim for “constructive termination,” and (2) whether executing “under protest” a renewal franchise agreement precludes a claim for “constructive nonrenewal.”  The consolidated petitions, Mac’s Shell ...

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Posted in Antitrust

Feeser’s, Inc. v. Michael Foods, Inc., 2010 U.S. App. LEXIS (3d Cir. Jan 7, 2010) involved alleged price discrimination under the Robinson-Patman Act (the “RPA”).  Ruling against the plaintiff, the Third Circuit construed strictly the RPA’s requirement that, to be actionable, a seller must discriminate in price between “competing purchasers.”  As reported in Issue No. 121 of The GPMemorandum (July 2009), the price discrimination claim arose in the supply of food products to institutional food service providers, such as schools and hospitals.  The defendant, Michael ...

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Last week a federal district court judge in Wisconsin issued a comprehensive opinion that elucidates what a terminated distributor or dealer must show to survive summary judgment under the Wisconsin Fair Dealership Law. The case is Brio Corp. v. Meccano S.N., 2010 U.S. Dist. LEXIS 11711 (E.D. Wis. Feb. 10, 2010). In denying summary judgment to defendant Meccano, which is the maker of the “Erector” brand of toys, the court ultimately and simply determined that fact questions precluded summary judgment. But the length and detail of the court’s opinion could recommend it as a ...

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In Trakloc Midwest LLC v. Trakloc Int’l, LLC, 2009 WL 4878578 (Wis. App. Dec. 17, 2009), the Wisconsin Court of Appeals affirmed the dismissal for improper venue of a case brought by technology distributor, Trakloc Midwest, against manufacturer Pacific Rollforming. Midwest argued its relationship with Pacific was a franchise relationship and the forum-selection clauses in the contracts violated the Wisconsin Franchise Investment Law (WFIL). Alternatively, Midwest argued that using different forum selection clauses (Alaska and California) in two separate agreements ...

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Posted in Terminations

In L & L Wings, Inc. v. Marco-Destin, Inc., 2009 WL 4884165 (S.D.N.Y. Dec. 16, 2009), the court granted summary judgment in favor of plaintiff L & L Wings for breach of contract and trademark infringement.  The parties had entered into an agreement by which, among other things, the defendants obtained a license to use the L & L Wings trademark and trade dress on several retail stores selling beachwear and accessories.  At the closing, one of plaintiff’s owners failed to sign the license agreement, although it was signed by his business partner later that day.  When the license expired in ...

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In Stites v. Hilton Hotels Corp., 2009 WL 4548351 (Cal. App. 2 Dist., Dec. 7, 2009), the California Court of Appeals upheld a lower court’s grant of summary judgment to Hilton Hotels Corporation on a claim by a would-be hotel patron that he was denied a room because he was accompanied by a disabled person with a service dog. The would-be patron filed suit after the desk clerk at a franchised Hampton Inn refused to rent him a room because his brother had a Great Dane with him, and the hotel did not allow non-service dogs on the premises. The customer claimed that the dog was a service dog, even ...

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Posted in Terminations

A California federal court this month granted a franchisor’s motion for summary judgment and upheld the termination of a franchise due to the sale of unapproved products. Baskin-Robbins Franchising LLC v. Mihranian, No. 2:08-cv-07022 (C.D. Cal. Jan. 5, 2010). Gray Plant Mooty represents the franchisor in this case. Baskin-Robbins had terminated the franchisees without opportunity to cure immediately after finding in October 2008 that they were selling frozen yogurt at their store, a product specifically prohibited for sale by the franchisor after April 2008. Despite being ...

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Posted in Class Actions

A California federal court recently denied a motion to dismiss a class action complaint alleging alter ego liability of a franchisor’s parent corporation.  Laguna v. Coverall North America, inc., 2009 WL 5125606 (S.D. Cal., Dec. 18, 2009). In Laguna, the complaint alleged that Coverall improperly sold janitorial franchises knowing that the franchisees lacked sufficient business to satisfy their obligations under the franchise agreements and that it misrepresented the guaranteed amount of monthly income from the franchises. Another key allegation was that the class members ...

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In Brown v. Moe’s Southwest Grill, LLC, 2009 WL 5175280 (N.D. Ga. Dec. 21, 2009), a Georgia federal court declined to dismiss several claims brought by a group of franchisees alleging that franchisor Moe’s Southwest Grill had made misrepresentations when they received copies of the UFOC and entered into their franchise agreements.  In analyzing Moe’s motion to dismiss, the court evaluated the sufficiency of the franchisees’ amended complaint under the “plausibility” standard set forth in the recent Iqbal and Twombly U.S. Supreme Court opinions, which requires the ...

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Posted in Arbitration

In Foot Solutions, Inc. v. Washio, 2009 WL 4261213 (N.D. Ga. Nov. 24, 2009), a Georgia federal court declined to award attorneys’ fees to franchisees who had successfully argued that their claims were subject to arbitration. After the franchisees had initiated arbitration, the franchisor filed suit in federal court, alleging that the franchisees had improperly filed their demand  because they failed to follow the dispute resolution procedures in the franchise agreement. The federal court dismissed the franchisor’s action, holding that the disputed claims were properly in ...

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Posted in Noncompetes

In Rescuecom Corp. v. Mohamed E. Khafaga, 2009 WL 4269441 (Bankr. E.D.N.Y. Nov. 30, 2009), a franchisor brought a bankruptcy nondischargeability lawsuit against its former franchisee for

violation of the noncompete provision in the franchise agreement and diversion of business away from the franchisor.  Khafaga was a franchisee in the Rescuecom system, which provides computer repair services. Khafaga was obligated to report his sales, submit annual financial records, and pay royalties for computer repair services rendered to his customers. Khafaga’s wife secretly opened a ...

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Posted in Arbitration

In O’Neal v. Total Car Franchising Corp., 2009 WL 4827152 (La. App. 2d Cir., Dec. 16, 2009), a Louisiana appellate found for O’Neal on appeal finding that the arbitration clause in his area developer agreement did not apply to the dispute between O’Neal and the franchisor, Total Car Franchising Corporation (“TCF”), which was the franchisor of the Colors on Parade system.

O’Neal and TCF entered into an area developer agreement under which O’Neal agreed to arbitrate all “disagreements within the Colors on Parade community” providing that “[o]ne or each ...

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Posted in Terminations

In 7-Eleven Inc. v. Puerto Rico-7 Inc., 2009 WL 4723199 (N.D. Tex. Dec. 9, 2009), a federal district court in Texas granted summary judgment against a franchisee who continued to operate its convenience stores after being terminated. The court found that the franchisee had breached its franchise agreement by failing to make required payments to the franchisor and failing to comply with its development schedule for additional stores. The court further found that the franchisor had properly terminated the franchise and advised the franchisee that it was no longer entitled to operate ...

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Posted in Terminations

The United States Court of Appeals for the Seventh Circuit has affirmed the dismissal of RICO claims and a variety of other charges brought by a franchisee in Rao v. BP Products North America, Inc., 2009 WL 4640634 (7th Cir. Dec. 9, 2009). The case was filed by a gas station franchisee alleging that the termination of his operating agreements by franchisor BP violated the Petroleum Marketing Practices Act and the Racketeer Influenced and Corrupt Organizations Act, and was a fraud and a breach of contract. The record in the case, however, showed that the franchisee had, over the course of a ...

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Posted in Antitrust

On January 13, 2010, the U.S. Supreme Court heard oral argument in a case testing the antitrust status of the National Football League, the result of which could affect not only sports franchises but franchising in general. The issue before the Court in American Needle v. National Football League (08-661) is whether the NFL and its member teams function as a “single entity” and therefore cannot possibly violate Section 1 of the Sherman Act, which requires proof of collective action involving separate entities. The case involves a challenge by an excluded hat maker to the joint ...

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Posted in International

In November, the Australian government announced its response to a previously published parliamentary report evaluating franchise regulations in Australia. In doing so, the government announced changes that are intended to strengthen the Australia Franchising Code of Conduct (the “Code”) and the unconscionable conduct provisions of the Trade Practices Act (the “Act”). While the government stopped short of adding a general obligation of good faith and fair dealing (despite intense political pressure), the government will enact the following changes in an attempt ...

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Posted in Arbitration

In Roberts v. Synergistic Int’l, 2009 WL 3642776 (E.D. Cal. Oct. 30, 2009), Synergistic (which operates as the franchisor for the Glass Doctor franchise system) moved to compel arbitration after the franchisee sued claiming, among other things, that Synergistic breached the parties’ franchise agreement by failing to provide proper training, adequate support, and an effective advertising campaign. The franchisee argued that the arbitration provision was unenforceable because there was no “meeting of the minds” between the parties. It also argued that the ...

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Posted in Procedure

In a case that demonstrates the difficulties of maintaining confidentiality during litigation, the United States Court of Appeals for the First Circuit dismissed Coverall’s interlocutory appeal from a district court order partially denying its request for a protective order to protect select passages of deposition testimony. Awuah v. Coverall North Am., Inc., 2009 WL 3429574 (1st Cir. Oct. 27, 2009). The appeal arose out of a class action filed by Coverall’s franchisees alleging that Coverall made misrepresentations, failed to keep its contractual promises, and wrongly ...

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An Ohio federal court recently granted a franchisor’s motion to transfer venue to Illinois based on the franchise agreement’s forum selection clause. Egrsco, LLC v. Evans Garment Restoration, LLC, 2009 WL 3259432 (S.D. Ohio, Oct. 8, 2009). After the franchisee-plaintiffs suspended the operation of their franchise and sued the franchisor in Ohio, the franchisor moved to transfer venue under the agreement. The plaintiffs argued that the forum selection clause was invalid because: (1) its language was permissive, not mandatory; (2) the franchise agreement was the product of ...

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Posted in Arbitration

The Ohio Court of Appeals recently ordered an advertising cooperative to arbitrate its claims against a franchisor, while simultaneously permitting the cooperative to litigate its related claims against individual franchisees. In Cleveland-Akron-Canton Advertising Cooperative v. Physician’s Weight Loss Centers of Am., Inc., 2009 WL 3490756 (Ohio Ct. App. Oct. 29, 2009), the cooperative brought suit against the franchisor to recover mandatory advertising contributions owed by franchisees pursuant to an agreement between the franchisees and the cooperative. The ...

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Posted in Terminations

In Cleveland v. AmeriSpec, Inc., Case No. 2007 CA 8747 (Fla. 12th Jud. Dist., Nov. 16, 2009 ), a Florida trial court upheld the immediate termination of a husband and wife franchisee after the husband was arrested for transmitting harmful material to a minor by use of a computer and using a computer for child exploitation. Gray Plant Mooty represented the franchisor in this case. Two years after the husband and wife had purchased an AmeriSpec franchise, the husband was arrested and charged with multiple counts of soliciting a minor over the Internet. According to local news coverage of ...

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In MRW, Inc. v. Big-O Tires, LLC, 2009 WL 3368438 (E.D. Cal. Oct. 16, 2009), a California federal court granted summary judgment in favor of the franchisor and the franchisees’ small business lender, CIT. The plaintiff-franchisees brought suit, claiming that the franchisor, Big-O Tires, violated Section 17200 of California’s Unfair Competition Law, which prohibits “unlawful, unfair, or fraudulent business acts or practices.” The franchisees alleged that Big-O Tires had acted unfairly and provided misleading information in inducing them to enter into the franchise ...

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In Allegra Network LLC v. Reeder, 2009 WL 3734288 (E.D. Va. Nov. 4, 2009), the franchisor won an injunction preventing trademark infringement, but lost its request to enforce a post-termination non-compete agreement. Allegra is a franchisor of several print and imaging brands. When the franchisees moved their store to a location about 1.5 miles from another Allegra location without written consent, Allegra terminated the franchise based on a clause in the agreement that restricted the franchisees’ ability to operate a store within two miles of another Allegra franchise. The ...

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Posted in Internet

A federal district court in California ruled last month on the important issues surrounding the right of a franchisor to sell products via the Internet into a franchisee’s territory. In Stillwell v. RadioShack Corp., 2009 WL 3697995 (S.D. Cal. Nov. 2, 2009), a group of RadioShack franchisees sued RadioShack in connection with its direct internet sales to consumers. The franchise agreements (which had been globally modified by a past class action suit) granted the franchisees an “Area of Primary Responsibility” (AOPR), in which RadioShack would “not open a company store ...

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In Boyle v. Vanguard Car Rental USA, Inc., 2009 WL 3208310 (D.N.J. Sept. 30, 2009), the plaintiff, the owner of a car rental agency, sued Vanguard under the New Jersey Franchise Practices Act (NJFPA) for terminating the parties’ agreement without good cause and without the required 60-days’ notice. Vanguard moved to dismiss, contending that the NJFPA did not apply because the parties were not in a franchise relationship, there was no “community of interest” between the parties, and the plaintiff did not have $35,000 in gross sales with Vanguard to impute the NJFPA. The court ...

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The United States Court of Appeals for the Second Circuit late last month issued its decision on the appeal of a case brought by a franchisee who claimed to have been harmed by Hilton Hotels Corporation’s sale of its Red Lion brand. Century Pacific, Inc. v. Hilton Hotels Corp., et al., No 09-0545-cv (2d Cir. Nov. 25, 2009). As reported in Issue 100 of The GPMemorandum, a New York federal district court in 2007 had granted summary judgment to the franchisor on the grounds that the franchisee-plaintiff could not show fraudulent intent or reliance. The Second Circuit has now affirmed in a ...

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A trial court preliminarily enjoined termination of a distributor based on the Connecticut Unfair Trade Practices Act in Walker Indus. Prods. v. Intelligent Motion Sys., Inc., 2009 WL 3417438 (Conn. Super. Ct. Oct. 1, 2009). The distributor-plaintiff brought wrongful termination claims under both the Connecticut Franchise Act and CUTPA. The court held that the plaintiff failed to show a likelihood of success on the merits of its claim under the Connecticut Franchise Act because its business was not “substantially associated” with the manufacturer’s trademarks, as ...

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Posted in Antitrust

A Maine federal court recently denied Amazon’s motion to dismiss an antitrust tying claim brought by a putative class of print on demand (“POD”) publishers.  Booklocker.com, Inc. v. Amazon.com, Inc., 2009 WL 2709396 (D. Me. Aug. 26, 2009). The court held that Booklocker.com sufficiently pled that Amazon’s policy of refusing to allow POD books to be sold through its Direct Amazon Sales Channel unless those books were printed by a wholly owned subsidiary of Amazon constituted a per se tying violation under Section 1 of the Sherman Act.   

After Amazon acquired BookSurge, a company ...

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Posted in Terminations

In Tolle Furn. Group, LLC v. La-Z-Boy Inc., 2009 WL 2160981 (W.D. Wash. July 17, 2009), a Washington federal court denied a motion for a temporary restraining order and refused to stop the termination of a furniture retailer who alleged that La-Z-Boy had violated the Washington Franchise Investment Protection Act (“FIPA”). The court rejected the plaintiff’s contention that La-Z-Boy did not have good cause to terminate the retailer agreement under the FIPA. The court noted that even if it were to consider La-Z-Boy a franchisor under the FIPA, the plaintiff did not dispute that ...

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Posted in Antitrust

A Pennsylvania federal court certified a class—and five subclasses—in an antitrust lawsuit against Babies “R” Us (“BRU”) in McDonough v. Toys “R” Us, et al., 2009 U.S. Dist. LEXIS 60684 (E.D. Penn. July 15, 2009). The case was decided on the heels of the Supreme Court’s antitrust decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc., as well as the Third Circuit’s ruling in In re Hydrogen Peroxide Antitrust Litigation that district courts must engage in a rigorous analysis under Federal Rule of Civil Procedure 23 before certifying any class action.

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In Saccucci Auto Group, Inc. v. Am. Honda Motor Co., Inc., 2009 WL 2175762 (D.R.I. July 21, 2009), the court granted Honda’s motion for summary judgment, finding that Honda did not violate a Rhode Island dealer law by banning internet sales of Honda vehicle service contracts (“VSCs”). After dealers and customers complained about price differences between VSCs sold online and at dealerships, Honda enacted a policy temporarily banning dealers from selling VSCs over the internet. 

The plaintiff, a Honda dealer who had set up a web site of its own to sell VSCs, alleged that the policy ...

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Posted in Trademarks

After an oil change shop’s contract to purchase Valvoline products ended, the shop no longer can display the brand’s signs and other trademarked items, the United States District Court for the Eastern District of Michigan ruled last week. Valvoline Co. v. Magic Quick Lube, 2009 WL 3497805 (E.D. Mich. Oct. 29, 2009). The ruling was based on federal trademark law, which prohibits the use of trademarks without permission in such circumstances.

In enjoining the former dealer, the court found that the trademark use became “unauthorized” when the shop’s contract to buy the ...

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A New Jersey appeals court has held that the constructive termination of a dealer agreement violates the New Jersey Franchise Practices Act.  Maintainco, Inc. v. Mitsubishi Caterpillar Forklift Am., Inc., 2009 WL 2365960 (N.J. Super. A.D., July 30, 2009). Plaintiff Maintainco signed an agreement that, it believed, made it the exclusive Mitsubishi dealer in a designated territory in New Jersey. Mitsubishi subsequently appointed Mid-Atlantic as a dealer in the plaintiff’s territory, under terms that gave Mid-Atlantic a competitive advantage over the plaintiff.

The New Jersey ...

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In Gabana Gulf Dist., Ltd. v. Gap Int’l Sales, Inc., 2009 WL 2585678 (9th Cir. Aug. 24, 2009), Gap prevailed over Gabana, a United Kingdom distributor. Gap had terminated Gabana’s distribution agreement for the Middle East.  Gabana sued, claiming that its arrangement with Gap constituted a franchise under the California Franchise Relations Act and, therefore, that Gap needed good cause to terminate the distribution agreement. The Ninth Circuit disagreed, finding that the trademark element of a franchise under California law was not present. While Gabana was a distributor or ...

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Posted in Terminations

An Illinois federal court denied a motion to dismiss a tortious interference claim, finding that the facts as alleged could sustain such a claim. In Echo, Inc v. Timberland Machines and Irrigation, Inc., 2009 WL 2746725 (N.D. Ill. Aug. 26, 2009), a Timberland dealership agreement was terminated by an outdoor power equipment manufacturer, Echo. In addition to claims against Echo for wrongful termination, Timberland asserted a claim of tortious interference with contract against a neighboring dealer (LEPCO) that took over Timberland’s former sales territory on the effective ...

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Posted in Identity Theft

As discussed in Issue No. 115 of The GPMemorandum (Jan. 21, 2009), the new federal “Red Flags Rule” requires certain businesses to establish written programs to detect, identify, and respond to signs of possible identity theft. The rule is aimed at reducing identity theft by making it more difficult for thieves to use stolen identity information to purchase goods or services. Enforcement by the Federal Trade Commission was set to begin November 1, 2009, but has now been delayed (again) until June 1, 2010. http://www.ftc.gov/opa/2009/10/redflags.shtm

Application of the Red ...

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Posted in Transfers

In Pasqualetti v. Kia Motors Am., 2009 WL 3245439 (N.D. Ohio Sept. 30, 2009), the court rejected Pasqualetti’s claim that Kia Motors’ refusal to approve the transfer of a dealership to him constituted tortious interference. The court stated that a tortious interference claim will not lie “where the defendant was the source of the business opportunity allegedly interfered with” and that “[a]s a matter of public policy . . . franchisors should not fear potential tort liability for simply deciding not to contract with a prospective franchisee.” Citing decisions from ...

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On October 1, 2009, amendments to Illinois’ Franchise Disclosure Act, signed by Governor Quinn in late August, went into effect. These amendments change several provisions of Illinois franchise law, and bring the Disclosure Act in greater harmony with the amended FTC Franchise Rule. The most notable changes are as follows: 

  • Franchise registrations in Illinois will now automatically expire 120 days after the franchisor’s fiscal year end. This new expiration date will supersede dates previously given to franchisors. As a result, if a franchisor’s current expiration date ...
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Posted in Class Actions

In De Giovanni v. Jani-King Int’l., Inc., 2009 WL 2993798 (D. Mass. Sept. 21, 2009), the court considered plaintiffs’ motion to certify a class composed of Jani-King franchisees operating in Massachusetts. Plaintiffs brought two claims against Jani-King.  First, the plaintiffs claimed that Jani-King had engaged in various unfair business practices, including breach of contract, misrepresentation, unjust enrichment, and violation of Massachusetts’ unfair and deceptive trade practices law. Second, the plaintiffs claimed that Jani-King had violated ...

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Posted in Renewals

In Casual Dining Dev., Inc v. QFA Royalties, LLC, 2009 WL 2869335 (D. Colo. Sept. 3, 2009), an aggrieved Quizno’s development agent brought suit against QFA Royalties (the successor in interest to the Quizno’s corporation) for failure to renew its area director marketing agreement in alleged violation of the Wisconsin Fair Dealership Law (“WFDL”).  The development agent alleged that QFA sent a notice of nonrenewal without good cause, as required by the WFDL. The development agent also alleged that it had “performed all conditions precedent to renewal that had not been ...

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Posted in Contracts

A Florida federal court recently enjoined franchisor Panda Express from opening a restaurant adjoining a Chick-Fil-A restaurant location in Mount Dora, Florida. Chick-Fil-A, Inc. v. CFT Development, LLC, 2009 WL 2870617 (M.D. Fla. Sept. 3, 2009). When Panda Express acquired its property in 2007, it was aware that Chick-Fil-A enjoyed the benefit of a restrictive covenant prohibiting the property from being used as the site of “a quick service restaurant deriving twenty-five percent (25%) or more of its gross sales from the sale of chicken.” Panda Express resisted the ...

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Posted in Renewals

In Domino’s Pizza, LLC v. Robert J. Deak, 2009 WL 2867744 (W.D. Pa. Sept. 4, 2009), a Pennsylvania federal court granted Domino’s motion for judgment on the pleadings. Domino’s filed a declaratory action asking that the court declare as expired an area development agreement entered into with franchisee, Deak. 

Domino’s and Deak were parties to a development agreement that was set to expire on July 31, 2005. In early 2005, Domino’s advised Deak that the development agreement would not be renewed under the same terms. In response, Deak claimed that Domino’s had made ...

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Posted in Antitrust

An Ohio federal court recently denied Wendy’s International Inc.’s motion to dismiss a franchisee’s claim that Wendy’s violated Sherman Act § 1 by requiring it to purchase food supplies from approved sellers in which Wendy’s had a financial interest. Burda v. Wendy’s Int’l, Inc., 2009 U.S. Dist. LEXIS 86044 (E.D. Ohio Sept. 21, 2009). The court held that the franchisee sufficiently pled a tying claim under a “Kodak lock-in” theory.   

When Plaintiff Robert Burda acquired a Wendy’s franchise in 1996, there were multiple Wendy’s-approved food suppliers. In ...

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Posted in Terminations

In Valpak Direct Marketing System, Inc. v. Maschino, 2009 WL 2942716 (11th Cir. Sep. 15, 2009), the Eleventh Circuit affirmed a trial court’s decision granting summary judgment to franchisor Valpak Direct Marketing Systems, finding that its former franchisees had failed to pay fees and were properly terminated. The franchisees, Mr. and Mrs. Maschino, had been issued a notice of default for nonpayment and were subsequently terminated when they failed to pay within the cure period set forth in the notice – even though they had made the payment prior to the date Valpak issued the ...

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Posted in Damages

In Super 8 Motels, Inc. v. Rahmatullah, 2007 WL 2905463 (S.D. Ind. Sept. 9, 2009), an Indiana federal court granted the franchisor’s motion for summary judgment on the issue of liquidated damages against a former franchise owner of a Super 8 guest lodging facility. The franchisor sued the terminated franchisee to recoup its damages, including liquidated damages and interest in the amount of $407,811.20. The court enforced the liquidated damages provision contained in the Franchise Agreement, which went into effect if the Agreement was terminated for cause more that than two ...

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A Vermont federal court recently granted, in part, a Ben & Jerry’s motion to dismiss the plaintiffs’ complaint regarding allegations of fraudulent inducement, fraudulent nondisclosure, fraud, estoppel, and negligent misrepresentation pertaining to the information set forth in Item 19 of the Ben & Jerry’s Uniform Franchise Offering Circular.  Sherman v. Ben & Jerry’s Franchising, Inc., 2009 WL 2462539 (D. Vt. Aug. 10, 2009). The plaintiffs are former Ben & Jerry’s franchisees who owned and operated a shop in Blacksburg, Virginia. The plaintiffs brought suit ...

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Posted in Discrimination

The United States District Court for the Southern District of New York issued an opinion late last month in DiPilato v. 7-Eleven, Inc., 2009 WL 2633130 (S.D.N.Y. Aug. 25, 2009), that serves as an important reminder that franchisors should maintain independent contractor relationships with franchisees. The plaintiff was a 43-year-old unmarried female applicant who was denied a 7-Eleven franchise after allegedly being told by a franchise sales employee that a single female over the age of 40 would not be a suitable franchisee. DiPilato sued 7-Eleven and several of its employees for ...

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Posted in Damages

The opinion recently handed down in Meineke Car Care Centers, Inc. v. RLB Holdings, LLC, 2009 WL 2461953 (W.D.N.C. Aug. 10, 2009), limited a franchisor’s rights to seek future royalties and lost profits where a franchise agreement does not specifically provide for such damages. Meineke was seeking to recover past-due royalty and advertising fees, along with lost prospective fees and future profits, from franchisees who operated four locations that closed before the expiration of the franchise agreements. The parties filed cross motions for summary judgment on Meineke’s ...

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In Victory Lane Quick Change, Inc. v. Hoss, WL 2461260 (E.D. Mich. Aug. 10, 2009), a court denied a franchisor’s attempt to enforce the covenant against competition contained in the franchise agreement. The court denied the franchisor’s motion for a preliminary injunction because the franchisor had granted another franchise within three miles of the franchisee’s business and because of the nonproprietary nature of the business. 

The franchise agreement in this case granted the franchisee a license to operate a Victory Lane Quick Oil Change Center in Howell, Michigan. The ...

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In Dunkin’ Donuts Franchised Restaurants, LLC, et al. v. Fatima & Ali, Inc., et al., Case No. 09-60793-WPD (S.D. Fla. Aug. 14, 2009), a Florida federal court last month entered a preliminary injunction prohibiting the franchisees from infringing on Dunkin’ Donuts’ trademarks after termination for failure to pay franchise and advertising fees.

The court found that Dunkin’ Donuts demonstrated a likelihood of success on the merits of its claims. The franchisees had argued that because Dunkin’ Donuts sought a preliminary injunction to cease use of its trademarks, the ...

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Posted in Contracts

In Cottman Transmission Systems, LLC v. FVLR Enterprises, LLC, 2009 WL 2488505 (Tex. Ct. App. Aug. 17, 2009), a Texas appellate court affirmed a jury’s finding that Cottman was liable for the lease obligations of its terminated franchisee even though Cottman was not a signatory to the lease. The franchisee and landlord had entered into a 10-year lease that included a lease rider giving Cottman the option to assume the lease upon its termination or expiration. Cottman did not sign either the lease or the rider.  

After Cottman terminated the franchisee for abandonment, the landlord ...

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A Texas federal court recently issued a preliminary injunction preventing the defendants/franchisees from continuing to use plaintiff TGI Friday’s Inc.’s trademarks following the termination of the parties’ franchise agreements. TGI Friday’s Inc. v. Great Northwest Restaurants, Inc. et al., 2009 WL 2568269 (N.D. Tex. Aug. 20, 2009). 

The court held that TGI Friday’s had demonstrated a substantial likelihood that it would prevail on the merits of its termination case because there was no dispute that the franchisees had ceased paying franchise fees and continued to ...

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Posted in Trademarks

In Doctor’s Associates Inc. v. Agnello, 2009 WL 2526171 (S.D.N.Y. July 28, 2009), a federal magistrate judge considered a request by a franchisor for damages against a former franchisee who had used the franchisor’s trademarks in connection with the operation of a strip club. The franchisee had formerly operated a Subway restaurant. After the franchisor terminated his franchise agreement, the franchisee continued to use the Subway trademarks to operate a deli at a different location during the day, and also began operating a strip club at that deli at night, advertised as ...

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A Virginia federal court late last month granted an injunction to franchisor Little Caesar against both its former franchisee and a nonsignatory to the franchise agreement, including requiring the third party to stop operating a competing business at the location of the former franchise. The case is Little Caesar Enter., Inc. v. Little Caesar’s, Va., Inc., No. 2:09-cv-00112-JBF-JEB (E.D. Va. Aug. 28, 2009). The defendant was granted a franchise and told, before opening the restaurant, that Little Caesar would not entertain any changes in ownership of the franchise until six ...

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In Sound Security, Inc. v. Sonitrol Corp., 2009 WL 1835653 (W.D. Wash. June 26, 2009), franchisor Sonitrol served nonparty discovery requests on the Sonitrol National Dealers Association (“SNDA”), an association of Sonitrol franchisees. SNDA moved the court for an order shifting the costs of complying with those discovery requests to Sonitrol, arguing that as a nonparty to the litigation, it should not be required to bear the cost of responding. The court denied that motion and ordered SNDA to bear its own costs and attorneys’ fees.

The court found that Sonitrol’s ...

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In Cold Stone Creamery, Inc. v. Lenora Foods I, LLC, 2009 WL 1532736 (11th Cir. June 3, 2009), the Eleventh Circuit Court of Appeals affirmed a decision dismissing franchisee Lenora’s counterclaims against Cold Stone Creamery, Inc. under the Florida Franchise Act and the Florida Deceptive and Unfair Trade Practices Act. The court dismissed these claims due, in part, to specific statements in Cold Stone’s franchise documents encouraging franchisees to conduct independent investigations before purchasing a franchise and notifying franchisees of the risks in purchasing a ...

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The United States Court of Appeals for the Eleventh Circuit recently affirmed summary judgment in favor of Burger King Corporation in a case arising out of its termination of multiple franchise agreements based on a franchisee’s refusal to implement the Burger King “Value Menu.” In Burger King Corporation v. E-Z Eating, 41 Corporation, 2009 WL 1856744 (11th Cir. June 30, 2009), a franchisee with four financially distressed Burger King locations in New York City refused to implement Burger King’s required menu or to submit a written application to be excused from the ...

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Posted in Terminations

A Florida federal court recently granted an injunction to franchisor Dunkin’ Donuts for the franchisee’s failure to pay franchise and advertising fees and to comply with the post-termination provisions of the franchise agreements.  The case is Dunkin’ Donuts Franchised Rest. LLC v. KEV Enter., Inc., 2009 WL 1587983 (M.D. Fla. June 5, 2009). At issue was whether the franchisor had waived the right to terminate based on nonpayment. The franchisee contended that Dunkin’ Donuts tolerated late payment and therefore waived the right to terminate it on those grounds. The court ...

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Posted in Noncompetes

In Atlanta Bread Company Int’l, Inc. v. Lupton-Smith, 2009 WL1834215 (Ga. June 29, 2009), the Georgia Supreme Court held that in-term and post-term covenants against competition in franchise agreements are subject to a strict scrutiny standard of review, rendering them more difficult to enforce in Georgia. In this case, the franchise agreements between Atlanta Bread Company International, Inc. (“ABCI”) and the franchisee prohibited the franchisee from owning or engaging in any “bakery/deli business whose method of operation is similar to that employed by store units ...

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Posted in Terminations

In Ramada Worldwide, Inc. v. RIP Management Group Corp., 2009 WL 1810733 (D.N.J. June 25, 2009), Ramada terminated the franchise agreement after the franchisees failed to cure certain quality assurance defaults. The franchisees argued that the termination was wrongful and that Ramada “unfairly and inconsistently” conducted the quality assurance inspections with the intention of defaulting them in breach of the covenant of good faith and fair dealing under New Jersey law.

On Ramada’s motion for summary judgment, the court held that the express terms of the franchise ...

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As reported in our last issue of The GPMemorandum, New York recently enacted a new tax law that imposes unprecedented new reporting requirements on franchisors that have at least one franchisee in New York that is required to collect sales tax. To provide further detail as to these reporting requirements, on July 7, 2009, the New York Department of Taxation and Finance issued an informational statement titled “New Requirement for the Filing of Information Returns for Franchisors”. This document is available at www.nystax.gov. In reaction to the new law, on July 20, 2009, IFA ...

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After three years of difficult litigation across the country, a United States Magistrate Judge in Pennsylvania once again has dissected Quiznos’ ongoing franchise battle in Martrano v. Quiznos Franchise Co., 2009 WL 1704469 (W.D. Pa. June 15, 2009). In analyzing Quiznos’ motion to dismiss, the Pennsylvania court issued a decision with heavy citation to a Wisconsin court’s treatment of a similar Quiznos motion to dismiss in Westerfield v. Quizno’s Franchise Co., LLC (see Issue 101 of The GPMemorandum). The Pennsylvania court then dismissed only the franchisees’ ...

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Posted in Terminations

The Sixth Circuit recently affirmed a summary judgment ruling by an Ohio federal district court in favor of plaintiff Wendy’s International, Inc. on all claims brought against it by a franchisee. Wendy’s International, Inc. v. Saverin, 2009 WL 2018163 (6th Cir. July 9, 2009). The franchisee operated 42 stores in Missouri and Illinois. In 2006, the franchisee began defaulting on its financial obligations, leading Wendy’s to terminate three of its franchise agreements. The parties subsequently reinstated the franchises through a reinstatement agreement that required the ...

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Posted in Arbitration

The Eighth Circuit last month held that a supplier could not compel arbitration of a dealer’s cross-claim against it under the arbitration clause of the dealer agreement because the supplier was not a party to that agreement. In so ruling, the Eighth Circuit reversed the district court, which had found that arbitration could be compelled. The appellate decision is Donaldson Co., Inc. v. Burroughs Diesel, Inc., No. 08-2705 (8th Cir. July 20, 2009).

The supplier argued that although it was not a party to the dealer agreement, arbitration was required because the dealer’s claim was ...

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As we previously discussed in Issue No. 115 of The GPMemorandum (January 21, 2009), the new federal “Red Flags Rule” requires certain businesses to establish written programs to detect, identify, and respond to signs of possible identity theft.  The rule is aimed at reducing identity theft by making it more difficult for identity thieves to use stolen identity information to purchase goods or services.  Enforcement by the Federal Trade Commission was set to begin August 1, 2009, but has now been delayed (again) until November 1, 2009 ...

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A New Jersey federal court recently granted judgment on the pleadings for defendants Getty Petroleum Marketing, Inc. and Lukoil Americas Corp. (Getty) with respect to a claim that they had breached the implied covenant of good faith and fair dealing in setting the price for gasoline under an open pricing term. Akshayraj, Inc. v. Getty Petroleum Mktg., Inc., 2009 WL 961442 (D.N.J. April 8, 2009). The case began with the plaintiffs’ request for a preliminary injunction to prevent the rebranding of their Mobil gasoline stations to Lukoil. The court denied the request for a preliminary ...

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Posted in Terminations

In Haynes Trane Service Agency, Inc. v. American Standard, Inc. (10th Cir., reissued as amended July 6, 2009), the manufacturer (Trane) entered into an “at-will” distributorship agreement with the distributor (Haynes) pursuant to which Haynes purchased heating and air conditioning products from Trane for resale to the public. Eventually, Trane terminated the agreement after Haynes cheated Trane by submitting false invoices under Trane’s rebate program. Haynes filed suit against Trane claiming, among other things, that: (1) Trane had improperly terminated the “at ...

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Posted in Antitrust

A Pennsylvania federal court recently ordered summary dismissal of a discounting garbage truck distributor’s antitrust claims against Mack Trucks, Inc. for violation of Section 1 of the Sherman Act. The court, however, did allow some of the claims of both parties to proceed. RDK Truck Sales and Service, Inc. v. Mack Trucks, Inc., 2009 WL 1441578 (E.D. Pa. May 19, 2009).

Plaintiff RDK is an independent distributor of garbage trucks, including Mack trucks. It markets itself by “aggressively advertising low prices nationwide,” though its only service facility is in Tampa. Mack ...

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Posted in Terminations

Outside the auto industry, a New Jersey federal court recently issued a temporary retraining order prohibiting the termination of a Master Distributor Agreement, finding that the manufacturer likely violated the New Jersey Franchise Practices Act. Emergency Accessories & Installation, Inc. v. Whelen Engineering Co., Inc., 2009 WL 1587888 (D.N.J. June 3, 2009). 

Emergency Accessories & Installation (EAI) sells and installs emergency response vehicle equipment. Over 95 percent of its inventory comes from Whelen Engineering, Inc., a manufacturer of emergency lighting, and ...

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Posted in Terminations

Even before its recent bankruptcy filing and widespread dealer reduction announcements, GM was involved in significant litigation with its dealers concerning distribution issues. Five recent cases, briefly discussed below, are representative.

In Courtesy Oldsmobile, Inc. v. General Motors Corp., 2009 WL 1353762 (9th Cir. May 15, 2009), and C&O Motors, Inc. v. General Motors Corp., 2009 WL 891033 (4th Cir. Apr. 1, 2009), the courts concluded that GM did not violate dealer agreements or state motor vehicle franchise laws when it discontinued its Oldsmobile line. In the Courtesy ...

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Posted in Terminations

The recent bankruptcy filings by General Motors and Chrysler have left the auto industry under siege and led to hundreds of dealership terminations across the country. In June, both the U.S. Senate Commerce Committee and the U.S. House Committee on Energy and Commerce held hearings on the status of dealership closures across the country. James Press, President and CEO of Chrysler, testified that Chrysler would be closing 789 dealerships—representing about 25% of dealerships—as a result of the Chapter 11 bankruptcy filing. General Motors’ CEO, Frederick Henderson ...

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Posted in Gift Cards

On May 22, 2009, President Obama signed into law the Credit Card Accountability Responsibility and Disclosure Act (Credit CARD Act of 2009), Public Law 111-24. Although the bulk of the new law impacts credit card notices, fees, and collections, Title IV of the Act, entitled Gift Cards, creates federal law prohibiting expiration dates of under five years and certain inactivity fees for electronic gift cards and prepaid stored value cards.

The Act amends the Electronic Funds Transfer Act (codified at 12 U.S.C. § 1693 et seq.) to impose new restrictions on dormancy fees, inactivity ...

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Posted in State Taxation

The recently enacted 2009-2010 New York State Education, Labor and Family Assistance Budget Bill (Budget Bill) amends the New York Tax Law to impose unprecedented new reporting requirements on franchisors. The relevant text can be found at http://assembly.state.ny.us/leg/?bn=A00157&sh=t in Subpart G, which starts on page 163. These requirements apply to any franchisor with at least one franchisee engaged in taxable sales in New York, although it is not clear how master franchise and area representative relationships will be treated. Under these requirements, a franchisor ...

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In Kenaya Wireless, Inc. v. SSMJ, LLC d/b/a All Star Wireless USA, 2009 WL 763496 (Mich. Ct. App. March 24, 2009), the Michigan Court of Appeals found that non-mandatory service fees do not amount to “franchise fees” under the Michigan Franchise Investment Law (MFIL). The lawsuit was brought by a wireless phone distributor, Kenaya Wireless, against its communication services provider, All Star. Kenaya claimed it should be considered All Star’s franchisee under the MFIL because All Star allegedly charged an indirect franchise fee by selling Kenaya phones in excess of the ...

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Posted in Antitrust

In Feeser’s, Inc. v. Michael Foods, Inc., No. 1:CV-04-0576 (M.D. Pa. April 27, 2009), the United States District Court for the Middle District of Pennsylvania ruled that a food manufacturer’s pricing structure violated the Robinson-Patman Act’s prohibition on price discrimination. The price discrimination claim arose in the arena of the supply of food products to institutional food service providers, such as schools and hospitals. Institutional food service providers generally obtain food products in one of two ways. An institution is either a “self-operator” ...

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Posted in Encroachment

The United States Court of Appeals for the Sixth Circuit has affirmed a Michigan federal court’s grant of summary judgment to defendant ExxonMobil Oil Company, turning aside the appellant-dealer’s encroachment claims because the parol evidence rule barred oral evidence regarding Exxon’s alleged promise to provide the dealer with an exclusive territory. Partner & Partner, Inc. v. ExxonMobil Oil Corp., 2009 WL 1184796 (6th Cir. May 4, 2009). 

In upholding the district court’s decision, the Sixth Circuit noted that neither the original sales agreement between Exxon and ...

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Posted in Bankruptcy

A bankruptcy court in North Carolina has refused to apply the automatic stay in bankruptcy to agreements that were never formally transferred to the would-be franchisee corporation. In re KVS Foodsystems, LLC, 2009 WL 1241272 (Bankr. E.D.N.C. April 29, 2009). Subway’s parent company, Doctor’s Associates, had entered into a franchise relationship and sublease agreement for two Subway stores with an individual named Vitus Bradshaw. Bradshaw then formed KVS Foodsystems, LLC (KVS), to operate his two stores, but he never transferred the rights or obligations of the franchise ...

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Posted in Damages

In Medicine Shoppe International, Inc. v. Turner Investments, Inc., 2009 WL 1295978 (E.D. Mo. May 7,  2009), the district court confirmed a $475,000 arbitration award in favor of the franchisor, Medicine Shoppe International (MSI). The American Arbitration Association had ruled that MSI was entitled to its past-due license fees, attorneys’ fees and costs, and future licensing fees due to the franchisee’s decision to close the franchise 13 years into the 20-year franchise term. 

Turner Investments moved to vacate the award, arguing that the arbitrator disregarded the law by ...

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Posted in Damages

The Sixth Circuit in Krowtoh II LLC v. Excelsius Int’l Ltd., No. 08-5492 (6th Cir. May 19, 2009), overturned a district court’s opinion that had defaulted franchisees for their failure to find counsel, timely appear at a court hearing, and comply with discovery. The district court had awarded the franchisor damages in the amount of $781,226.00, but that judgment to the franchisor failed to withstand appeal. 

This case began when the franchisees terminated the relationship after two years of operation. The franchisor sued for breach of contract, misappropriation of trade ...

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On May 18, 2009, the FTC posted five new Frequently Asked Questions on its website (FAQs 29-33). All 33 FAQs and the FTC staff’s respective responses can be found at http://www.ftc.gov/bcp/franchise/amended-rule-faqs.shtml. The release of the new FAQs occurred on the same day that Craig Tregillus, FTC Franchise Rule Coordinator, participated in an “Ask the Regulators” session at the International Franchise Association’s 42nd Annual Legal Symposium. Consequently, Mr. Tregillus was able to give those in attendance a first-hand introduction to these important new ...

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An Illinois federal district court recently dismissed a motion for class certification arising out of the plaintiffs’ claim that they were deceived about the ingredients in McDonald’s french fries and hash browns. In re McDonald’s French Fries Litig., 2009 WL 1286024 (N.D. Ill. May 6, 2009). The plaintiffs had claimed that McDonald’s falsely stated that its potato products were gluten, wheat, and dairy-free (i.e., “allergen free”) through its Web site and literature available at McDonald’s restaurants. The plaintiffs further alleged that they purchased these ...

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Following its adoption of the 2008 Franchise Registration and Disclosure Guidelines in June 2008, the North American Securities Administrators Association, Inc. (NASAA) released a proposed Commentary to those guidelines and accepted comments to the same until October 23, 2008. After reviewing and analyzing the comments it received, NASAA on April 27, 2009, adopted a final version of the Commentary, a copy of which can be obtained at www.nasaa.org/Industry___Regulatory_Resources/Franchise/. While NASAA made some minor revisions and clarifications to the proposed ...

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Posted in Damages

In a case litigated by Gray Plant Mooty, the Eleventh Circuit Court of Appeals last month affirmed the grant of summary judgment to a franchisor seeking recovery of liquidated damages owed under a hotel franchise agreement. In Country Inns & Suites by Carlson, Inc. v. Interstate Properties, LLC, 2009 WL 1298401 (11th Cir. May 12, 2009), the court of appeals considered the franchisee’s arguments that the liquidated damages clause at issue could not be enforced because it did not take into account the amount of time remaining on the franchise agreement in calculating liquidated ...

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Posted in Arbitration

In U-Save Auto Rental of America, Inc. v. Furlo, 2009 WL 901922 (S.D. Miss. Mar. 31, 2009), a Mississippi federal district court denied a franchisee’s motion to set aside the judgment and dismiss franchisor U-Save’s suit to confirm the arbitration award based upon lack of subject matter jurisdiction. In reaching its decision, and finding that it had jurisdiction over U-Save’s suit to confirm the award, the court held that the amount in controversy in U-Save’s suit should be determined based on the amount the franchisee demanded in the underlying complaint rather than the ...

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In a blow to plaintiffs seeking to sue U.S. franchisors in a domestic forum for injuries allegedly incurred at franchised locations outside of the U.S., an Illinois federal court dismissed a lawsuit arising out of the death of an Illinois resident at a franchised hotel in Mexico. In Wozniak v. Wyndham Hotels and Resorts, LLC, 2009 WL 901134 (N.D. Ill. Mar. 31, 2009), an Illinois federal court granted the defendant franchisor’s motion to dismiss under the doctrine of forum non conveniens. The case arose when plaintiff and her husband, who were from Illinois, stayed at a Wyndham hotel ...

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In I’mnaedaft, LTD v. The Intelligent Office System, LLC, 2009 WL 1011200 (D. Colo. Apr. 15, 2009), the plaintiff, a former franchisee of Intelligent Office Systems (“IOS”), requested a court order preventing IOS from interfering with subpoenas that the plaintiff had issued to several of IOS’ franchisees. As part of the request, the plaintiff also sought a “no contact” order preventing IOS from having any further contact with non-party franchisees.

The court denied the plaintiff’s request and determined that IOS did not interfere with the subpoenas or tamper with ...

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Posted in Terminations

In a case that further buttresses the termination rights of franchisors, both a bankruptcy and federal district court upheld such rights despite the fact that more than seven months passed between the date the franchisees had received their notices of termination and the date the franchisor announced that it would seek to enforce them. The franchisee at issue in In re Making the Dough, Inc., 2009 WL 975170 (Bkrtcy. M.D. Pa. Mar. 27, 2009), and Domino’s Pizza Franchising LLC v. Making the Dough, Inc., 2009 WL 1011584 (M.D. Pa. Apr. 15, 2009), owned two pizza franchisees near ...

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Posted in Antitrust

An Ohio federal court recently dismissed a franchisee’s claim against its franchisor for illegal tying in violation of Section 1 of the Sherman Act. Arnold v. Petland, Inc., No. 2:07-cv-01307 (S.D. Ohio Mar. 26, 2009). The Arnolds, owners of a failed Petland franchise, claimed, after being supplied with sick puppies and stale pet food, that Petland illegally tied the purchase of puppies and pet food from Petland’s preferred supplier to the ownership of the Petland franchise. Noting that dismissal of a tying claim is appropriate where a plaintiff has improperly limited its ...

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Posted in Antitrust

In an opinion issued four days after the Petland decision, an Illinois federal court denied Harley Davidson, Inc.’s motion to dismiss the tying claim of an independent manufacturer of plastic merchandise bags. Packaging Supplies, Inc. v. Harley-Davidson, Inc., No. 08-cv-400 (N.D. Ill. Mar. 30, 2009). Whereas the court in Petland focused upon the existence of market power in the market for the tying product, the Packaging Supplies court evaluated whether the plaintiff had properly alleged that the defendant possessed market power in the market for the tied product.

Packaging ...

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In Allan Rand and Iron Horse Venture Group, Inc. v. CM Franchise Sys., Inc., 2009 WL 667227 (Wash. Ct. App. Mar. 16, 2009), a Washington appellate court affirmed a decision that Rand’s fraud claims were barred by the statute of limitations. In June 2003, Rand and CM Franchise Systems, Inc. entered into a subfranchise agreement for certain territories in Washington and Oregon. CM was not registered in Washington when the agreement was executed. Rand’s business subsequently failed and, in March 2007, he sued CM seeking rescission of the agreement and damages. In particular, Rand ...

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Posted in Contracts

In Honey Dew Assoc. v. Creighton Muscato Enter., Inc., 73 Mass. App. Ct. 846 (Mass. App. Ct. Mar. 23, 2009), the Massachusetts Court of Appeals vacated a judgment against a franchisee for failing to pay advertising fees. The Court found that by signing a newer franchise agreement with an ad fee clause in it, the corporate franchisee had not agreed to pay ad fees for all of its owner’s earlier established locations in the name of other commonly-owned entities.

Specifically, franchisor Honey Dew added a provision in its franchise agreement that the franchisee agreed to contribute to an ...

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Posted in Class Actions

In an important decision upholding a contractual prohibition of collective actions, a Colorado federal court last month refused to certify a class of franchisees in Bonanno v. Quiznos Franchise Co., 2009 WL 1068744 (D. Colo. Apr. 20, 2009). This ruling was based on language in the franchise agreement that a franchisee’s claim “may not be consolidated with another proceeding between Franchisor and any other entity or person.” The court found this clause an effective bar to the proposed class action fraud challenge to the franchisor’s practices for selling Quiznos ...

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Posted in Terminations

In Guesthouse Int’l Franchise Sys., Inc. v. British Am. Properties, 2009 WL 792570 (M.D. Tenn. Mar. 23, 2009), a Tennessee federal court awarded franchisor Sumner Ventures, Inc. (formerly Guesthouse International) $82,651.95 in attorneys’ fees and costs as well as damages in the amount of $358,708.28 on its claims that the franchisee had breached the parties’ hotel franchise. As reported in Issue No. 116 of The GPMemorandum, the court granted in part the franchisor’s motion for summary judgment on its claims that the franchisee had breached the agreement in failing to ...

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Posted in Contracts

Real estate franchisor Cendant Corporation has prevailed against a variety of claims arising out of a prospective subfranchise arrangement in Greece.  Katsiavrias v. Cendant Corp., 2009 WL 872172 (D.N.J. Mar. 30, 2009). A prospective franchisee sued Cendant after not receiving exclusive subfranchise rights to Greece. Earlier, after sending a letter of intent to the potential subfranchisee, Cendant had heard nothing. It then went so far as to inform the party of a competing offer for the subfranchising rights before signing with another company. In evaluating Cendant’s ...

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Posted in Contracts

A recent decision illustrates the importance of carefully describing the bounds of a protected territory in a franchise agreement. In Ingraham v. Planet Beach Franchising Corp., 2009 WL 909567 (E.D. La. Apr. 1, 2009), the franchisee opened a Planet Beach tanning salon in a suburb of Philadelphia. The franchise agreement prohibited Planet Beach from establishing another franchise within the protected territory, defined as “Philadelphia, PA 30,000 in Population.”  When Planet Beach established another franchise within five miles of the plaintiffs’ location, the ...

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“Social media” refers to online tools or Web sites that allow interaction between the Web site operator and Web site users, or among users, and usually permit user-generated content to be posted. Examples of social media include Facebook, Twitter, YouTube, LinkedIn, blogs and other interactive Web sites. Social media can be a valuable tool for marketing purposes but can also create serious headaches for franchisors when it comes to maintaining brand integrity. Recent examples have shown that the damage to a brand from an employee with poor judgment and a video camera can ...

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The Alabama Motor Vehicle Franchise Act provides that “notwithstanding the terms, provisions, or conditions of any dealer agreement or franchise or the terms or any provisions of any waiver . . . any person who is injured . . . by a violation of this chapter . . . may bring a civil action . . . “ (emphasis added). In response to a certified question, the Alabama Supreme Court has determined that the Act’s language did not render unenforceable the settlement and release of existing claims. With that direction, the Court in Edwards v. Kia Motors America, Inc., 2009 WL 24198 (11th Cir. Jan ...

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In Raines Imports, Inc. v. American Honda Motor Co., Inc., 2009 WL 230644 (W. Va. Jan. 30, 2009), Raines Imports sought relief pursuant to a state statute requiring manufacturers and distributors to give written notice to motor vehicle dealers located within 15 miles of a location at which the manufacturer or distributor intends to establish or relocate a new dealer. Upon receipt of  the notice, the affected dealer may bring a declaratory judgment action to determine whether good cause exists for establishing or relocating the proposed new motor vehicle dealer. 

The West ...

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Posted in Terminations

Last month the Seventh Circuit reversed a $2.1 million jury verdict and held that the defendant’s action amounted to discontinuation of a product brand, which is good cause for termination under the Maine Franchise Act. FMS, Inc. v. Volvo Const. Equip. N. Am., Inc., 557 F.3d 758 (7th Cir. Mar. 4, 2009). This was the second trip by this case to the court of appeals.

The plaintiff had been a Samsung construction equipment distributor. One year into the relationship, Samsung had sold its construction equipment division to Volvo and given Volvo three years to phase out the use of the Samsung ...

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In Kay Beer Distributing, Inc. v. Energy Brands, Inc., 2009 WL 425821 (E.D. Wis. Feb. 20, 2009), a beverage distributor sued Energy Brands, Inc., alleging violation of the Wisconsin Fair Dealership Law (“WFDL”) and breach of contract. The plaintiff distributor, Kay Beer Distributing, Inc., had been a distributor of Energy Brands’ “Glacéau” line of products, which includes Vitaminwater drinks, but these products  were a very small part of Kay’s business. Kay signed a termination and release agreement ostensibly terminating the distributorship and clearing the way ...

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Posted in Antitrust

The Supreme Court’s landmark 2007 antitrust decision applying rule of reason analysis to resale price maintenance claims brought under federal law was most recently addressed by the Fourth Circuit Court of Appeals in Valuepest v. Bayer, 2009 WL 756901 (4th Cir. March 24, 2009). The defendant suppliers in this case sold through what they called “agency” relationships, as distributors merely facilitated sales to the ultimate purchasers. The resale price maintenance claim arose out of the contractual rights of the manufacturer defendants to set the price at which the product ...

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In Girls Scouts Manitou Council, Inc. v. Girls Scouts Of The United States Of America, Inc., Bus. Franchise Guide (CCH) ¶ 14,037 (7th Cir. Dec. 15, 2008), the Seventh Circuit held that a local Girl Scout council was entitled to the protections of the Wisconsin Fair Dealership Law as a “dealer” and issued an injunction preventing the Girls Scouts of the United States of America, Inc. from reducing the size of the council’s territory. This case arose out of the GSUSA’s attempt to consolidate its national network of local councils into fewer, larger organizations. Girls Scouts ...

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A federal court in Texas has granted summary judgment in favor of Budget Rent-A-Car Corp., finding that Budget did not breach its license agreements with the plaintiff franchisees when Budget’s sister company, Avis Rent A Car Systems, LLC, began operating Avis rental car locations in the franchisees’ exclusive territory. Sirrah Co., Inc. v. Budget Rent-A-Car Corp., 2009 WL 563654 (W.D. Tex. March 4, 2009). Budget became a subsidiary of Avis Budget Car Rental, LLC in an acquisition by Avis. That company is also the parent company of Avis. 

The franchisees in this case executed two ...

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Posted in Terminations

Conversely, in Larry Hobbs Farm Equip., Inc. v. CNH America, LLC, 2009 WL 153357 (Ark. Jan. 22, 2009), the Supreme Court of Arkansas answered much differently questions from a federal court regarding the interpretation of provisions in the Arkansas Franchise Practices Act (“AFPA”) and the Arkansas Farm Equipment Retailer Franchise Protection Act (“AFERFPA”). This case arose after CNH America informed Hobbs it would no longer be supplying “DMI” brand equipment to Hobbs because CNH was withdrawing that product from the market. CNH had been selling identical tillage ...

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The federal Eighth Circuit Court of Appeals has affirmed the denial of an injunction sought by a distributor under the Minnesota Franchise Act. Coyne’s & Co., Inc. v. Enesco, LLC, 553 F.3d 1128 (8th Cir. Jan. 23, 2009). The distributor had sought to prevent the termination of its distributorship agreement. Coyne’s & Co. had entered into an exclusive North American Distributorship Agreement with Country Artist, Ltd. (“CA”) for a product line manufactured in England. Several years later, CA was placed into receivership and its assets were sold to Enesco, LLC. Soon ...

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Posted in Class Actions

In Ganezer, et al. v. DirectBuy, Inc, et al., 2009 WL 363908 (C.D. Cal. Feb. 11, 2009), a California federal court granted the plaintiffs’ motion to remand the case back to state court. The plaintiffs had filed a class action suit in California state court against DirectBuy, a franchisor of outlets marketing a direct-buying service to the public through club membership programs. DirectBuy removed the action to federal court under the provisions of the Class Action Fairness Act (CAFA). The plaintiffs moved to remand to state court claiming that the CAFA amount in controversy and ...

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Posted in Terminations

In Sherman Street Associates, LLC v. JTH Tax, Inc., 2009 WL 426469 (D. Conn. Feb. 20, 2009), a Connecticut federal court considered dueling summary judgment motions from the terminated former franchisee-plaintiff and franchisor-defendant, JTH Tax, Inc. (doing business as Liberty Tax Service). The case came about after the franchisor terminated the franchise agreement for underpayment of fees and failure to pay on a promissory note, among other alleged violations. The franchisee’s lawsuit claimed wrongful termination in violation of the Connecticut Franchise Act (CFA) and ...

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Posted in Trademarks

In Homes & Land Affiliates, LLC v. Homes & Loans Magazine, LLC, 2009 WL 260992 (M.D. Fla. Feb. 4, 2009), the court granted a franchisor partial summary judgment against one of its competitors on claims of trademark infringement. In this case, the franchisor published Homes & Land, a free magazine containing real estate advertisements found in display racks, which the franchisor licensed to franchisees in several markets across the country. The franchisor owned a federal registration of its mark HOMES & LAND®, which it first used in commerce in 1973, and also owned a domain name ...

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Posted in Discrimination

In Elbanna v. Captain D’s, LLC, 2009 WL 435051 (M.D. Fla. Feb. 17, 2009), a prospective franchisee brought suit against a franchisor, alleging he was rejected from the system because he was Arab, and also claiming Captain D’s defamed him throughout the application process. Elbanna had been operating several Shoney’s franchises when he approached Captain D’s about opening one of its restaurants. Although his application was initially approved, the parties were unable to agree on a location. Two years later, Elbanna again approached Captain D’s about buying several ...

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Despite the present uncertainty over the EFCA’s ultimate form, union-free employers should consider actions that can be taken now to keep their operations union free. Following are just two examples of many such possible action steps.

Adopt an Internal Position Statement on Unions and Labor Relations. To help focus your business on the issue of unions and guide development of its labor relations strategy, it may be useful to develop an internal position statement on these matters. This statement could subsequently be modified as needed for communications with management and ...

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The union-backed and much-talked-about Employee Free Choice Act (EFCA) was introduced in Congress on March 10, 2009. The legislative fight over the EFCA will begin soon. In the meantime, franchisors and other employers should ensure that they are familiar with the requirements and ramifications of the new law, that they contact their representatives in Congress to express their views, and that they begin taking lawful steps to prevent unionization, which will help whether or not the EFCA becomes law.

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Posted in Terminations

In Rocky Mountain Chocolate Factory, Inc. v. SDMS, Inc., 2009 WL 579516 (D. Col. Mar. 4, 2009), a Colorado federal court this month denied a franchisor’s claim for future royalties after termination of the franchise. This case shows that, although future royalties may be claimed under certain states’ laws, a franchisor must still prove that they are certain. The parties in this case entered into a franchise agreement for a franchise in San Diego. From the beginning, the franchisees operated at a loss. They were defaulted several times for failure to comply with the franchisor’s ...

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Posted in Arbitration

A Pennsylvania federal court has confirmed an arbitrator’s dismissal of a counterclaim brought by a California franchisee under the California Franchise Investment Law (CFIL) and enforced a covenant not to compete despite the fact that California law disfavors such provisions. Paul Green School of Rock Music Franchising, LLC v. Smith, 2009 WL 426175 (E.D. Pa. Feb. 17, 2009). The franchisee in this case had operated a music lesson franchise in California under an agreement that contained Pennsylvania choice of law and venue provisions. The franchisor began the case by filing an ...

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Posted in Arbitration

In Vaden v. Discover Bank, et al., No. 07-773 (U.S. Sup. Ct. March 9, 2009), the United States Supreme Court held last week that under the Federal Arbitration Act (FAA), the district court is to “look through” a petition to compel arbitration to determine whether the underlying claim states a federal question that would allow for removal of the case from state court to federal court. As part of its holding, the Court noted that the FAA does not itself confer subject matter jurisdiction and such jurisdiction does not arise because of the content of a counterclaim, much like the ...

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Card Check Recognition Without Secret Balloting. The EFCA would amend the National Labor Relations Act in numerous significant respects. The most troublesome provision for employers and the one receiving a lot of media attention is the abolishment of the right to a “secret ballot” election process by which employees decide if they will be represented by a union. The EFCA seeks to change existing procedure by eliminating an employer’s right to a secret ballot election before requiring the employer to accept unionization of its workforce. The law would require employers to ...

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Posted in Arbitration

In Doctor’s Associates, Inc. v. Nat, 2009 WL 162680 (Cal. App. 2 Dist. Jan. 26, 2009), the California Court of Appeals upheld a lower court ruling affirming an arbitrator’s decision that a franchisor breached its obligations to assist a Subway franchisee in the sale of his franchises. Franchisor Doctor’s Associates, Inc. (“DAI”) had originally filed an arbitration seeking to terminate the franchisee’s two locations in Southern California for underreporting of sales and other breaches of the franchise agreements. During the course of this initial arbitration, the ...

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Posted in Arbitration

In IJL Dominicana S.A. v. It’s Just Lunch Int’l, LLC, 2009 WL 305187 (C.D. Cal. Feb. 6, 2009), the United States District Court for the Central District of California this month enforced an arbitration clause in a franchise agreement and granted in part a franchisor’s motion to compel arbitration, but severed a significant portion of the clause on unconscionability grounds in accordance with the Ninth Circuit Nagrampa decision, which continues to have broad implications for franchisors.  

In the new case, the plaintiff franchisees filed suit against the ...

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Posted in Terminations

In Baskin-Robbins Franchising LLC v. Mihranian, No. 2:08-cv-07022 (C.D. Cal. Jan. 23, 2009), a California federal district court last month denied a motion by franchisees to dismiss their franchisor’s complaint and held that Baskin-Robbins’ immediate termination of the franchise did not violate the California Franchise Relations Act (“CFRA”). Gray Plant Mooty represented the franchisor in this case. Baskin-Robbins had immediately terminated after finding the franchisees were using and selling non-fat frozen yogurt at their ice cream shop, a product specifically ...

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Posted in Class Actions

A plaintiff alleging access violations at approximately 90 Burger King restaurants in California will be allowed to proceed with the case under a decision issued last week.  Castaneda v. Burger King Corp., 2009 WL 398489 (N.D. Cal. Feb. 18, 2009). The plaintiff’s legal standing and specificity of allegations survived the defendant’s motion to dismiss on the pleadings, according to the decision of the United States District Court for the Northern District of California. This is the first reported major case against a franchisor under the Americans with Disabilities Act ...

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The United States District Court District for the District of Utah has granted a franchisor’s preliminary injunction motion to enjoin a derogatory website, even though the actual website operator had not signed the franchise agreement enforced by the court.  Homeworx Franchising, LLC v. Meadows, 2009 WL 211918 (D. Utah Jan. 26, 2009). The franchise agreement involved in this case precluded any unauthorized use of the franchisor’s trademarks and any business or marketing practice injurious to the franchisor’s business and goodwill associated with franchisor’s marks.

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Posted in Terminations

In what will likely become one of the most quoted franchise opinions of the year, a Colorado federal district judge has ruled against Quizno’s in a case the franchisor brought against a terminated former franchisee for injunctive relief and breach of contract. Quizno’s Franchising II LLC v. Zig Zag Rest. Group, LLC, Case No. 06CV10765, Bus. Franchise Guide (CCH) ¶14,046 (D. Colo. Dec. 31, 2008).  The court found Quiznos’ “whole charade of ‘terminating’ and ‘defaulting’ franchisees who failed [a] field test was just that—a charade—driven not by Quiznos’ ...

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Posted in Class Actions

In Moua et al. v. Jani-King of Minnesota, Inc., 2009 WL 212425 (D. Minn. Jan. 27, 2009), the United States District Court for the District of Minnesota denied a group of class action plaintiffs’ motion to remand the case to state court, finding that federal jurisdiction was proper under the Class Action Fairness Act (CAFA). The plaintiffs, a group of franchisees of the Jani-King cleaning and janitorial system, initially brought suit in Minnesota state court against their franchisor, claiming Jani-King did not have enough cleaning and janitorial accounts to provide the minimum ...

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Posted in Arbitration

In Ahluwalia v. QFA Royalties, LLC, 2009 WL 262466 (Colo. App. Feb. 5, 2009), a franchisee appealed a district court decision affirming an arbitration award of over $600,000 against him in a dispute with Quizno’s. The franchisee claimed, first, that the arbitration award was invalid because two of the three franchise agreements in dispute did not contain arbitration provisions and, second, that the district court erred in applying the “manifest disregard” standard to the arbitrator’s decision. The franchisee lost on both counts.

The court found persuasive authority to ...

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In State of Nebraska v. Orr, 2009 WL 212966 (Neb. Jan. 30, 2009), the Nebraska Supreme Court affirmed a disciplinary finding that an attorney violated his oath of office because he failed to provide competent representation to a franchisor.

Orr was engaged to represent a Nebraska start-up franchisor. The lawyer drafted a franchise agreement and disclosure statement, but failed to draft a complete Uniform Franchise Offering Circular. After the franchisor already had sold 21 franchises, it received a request for a UFOC from a prospective franchisee. The attorney then told the ...

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Posted in Arbitration

In Awuah v. Coverall North Am., Inc., 2009 WL 159423 (1st Cir. Jan. 23, 2009), several franchisees filed a class action against the franchisor in Massachusetts federal district court alleging fraud, breach of contract, and violations of various minimum wage, overtime, and consumer protection laws. In response to the lawsuit, the franchisor moved to compel arbitration and stay the pending litigation, based upon arbitration provisions contained in three of the applicable franchise agreements. The franchisees responded that the arbitration clauses were unconscionable and that ...

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The United States District Court for the Eastern District of Louisiana recently issued an opinion in Matthews v. International House of Pancakes, Inc., 2009 WL 211788 (E.D. La. Jan. 23, 2009), that serves as a reminder that franchisors should take care not to establish or control their franchisees’ day-to-day employment policies, practices, or decisions. Two plaintiffs sued various International House of Pancakes franchisor entities, claiming racial discrimination, gender discrimination, and/or sexual harassment by a manager of a restaurant owned by an IHOP franchisee ...

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Posted in Procedure

In a putative class action suit, Bonanno v. Quizno’s Franchise Co., LLC, 2009 WL 137211 (D. Colo. Jan. 20, 2009), the plaintiffs recently brought a motion to compel the franchisor’s chairman and ex-CEO to answer deposition questions concerning his personal financial gain from a 2006 transaction in which an affiliate of JP Morgan acquired 49% of Quizno’s stock. The plaintiffs argued that the testimony would show the motive behind and the fruits of “Quizno’s fraudulent scheme to turn its owners . . . into billionaires by selling the company after inflating its value by ...

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Posted in Noncompetes

One year after issuing its original opinion, the Ninth Circuit has reaffirmed its order vacating that portion of an arbitrator’s award that enforced a broad covenant against competition in the franchise context. In Comedy Club, Inc. v. Improv West Associates, 553 F.3d 1277 (9th Cir. Jan. 29, 2009), the Ninth Circuit considered again its previous decision in light of an order from the United States Supreme Court vacating its prior opinion.

As previously reported in Issue 100 of The GPMemorandum, the arbitrator in this dispute enforced a broad in-term covenant against competition ...

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Posted in Terminations

In a case of first impression under Pennsylvania law, that state’s highest court has held that there are some situations in which a franchisor can terminate its franchisee without any right to cure even if a franchise agreement provides otherwise. LJL Transportation, Inc. v. Pilot Air Freight Corp., 2009 WL 144561 (Pa. Jan. 22, 2009). The egregious circumstances in this case were that the franchisee in bad faith was diverting business to a competitor of the franchisor. In that situation, the Pennsylvania court held, immediate termination was warranted because the breach “was ...

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In Guesthouse International Franchise Systems, Inc. v. British American Properties MacArthur Inn, LLC, 2009 WL 278214 (M.D. Tenn. Feb. 5, 2009), a hotel franchisor terminated its defaulting franchisee and then sued to collect past due royalties, reservation fees, and liquidated damages due as a result of the early termination. In response, the franchisee asserted affirmative defenses (doubling as counterclaims) that Guesthouse violated the Tennessee Consumer Protection Act (TCPA) and fraudulently induced the franchisee to sign franchise agreement. The franchisee ...

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Posted in Arbitration

In Bencharsky v. Cottman Transmission Systems, LLC, 2008 WL 5411500 (N.D. Cal. Dec. 29, 2008), the United States District Court for the Northern District of California enforced an arbitration clause in a franchise agreement, but with some significant limitations. The franchisee had filed the lawsuit alleging breach of contract, fraud, negligent misrepresentation, interference with contract, and violation of the California Franchise Investment Law (CFIL). The factual basis for the action was that, among other things, the franchisor had refused to renew the franchise ...

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Posted in RICO

In HT of Highlands Ranch, Inc. v. Hollywood Tanning Systems, Inc., 2008 WL 5109745 (D. N.J. Dec. 1, 2008), four unrelated franchisees joined together to sue their system’s franchisor and its related entities, setting forth several causes of action, including a claim under the Racketeer Influenced and Corrupt Organizations Act (RICO). The plaintiffs’ RICO claim was based on their allegation that the franchisor fraudulently created vague equipment leases, which it then used as a basis to invoice the plaintiffs for equipment that did not exist or for used equipment that was ...

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Posted in Damages

In Howard Johnson Int’l., Inc. v. Inn Development, Inc., 2008 WL 5378247 (D.S.D. Dec. 22, 2008), the court granted summary judgment to a plaintiff franchisor on its claim brought under a personal guaranty signed by the corporate franchisee’s principals. Howard Johnson had terminated the franchisee’s license agreement for failure to comply with quality standards. The franchisee’s principals had signed a personal guaranty by which they promised to pay all amounts owed under the license agreement. The parties also executed an addendum that replaced a liquidated damages ...

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What started as a routine post-termination injunction case brought by a franchisor turned into a more fundamental dispute when a franchisor terminated the franchise agreements of two of its franchisees for non-payment of royalties and other fees in Dunkin’ Donuts Franchised Restaurants LLC v. Shrijee Investment, Inc., 2008 WL 5384077 (E.D. Mich. Dec. 23, 2008). Dunkin’ Donuts, represented by Gray Plant Mooty, began the case by suing the franchisees for their continued use of Dunkin’ trademarks after termination. The franchisees, in turn, sued Dunkin’ for allegedly ...

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Posted in Arbitration

A Pennsylvania federal court has confirmed an arbitrator’s award for the franchisor despite one of the co-franchisees’ claims that he did not receive notice of the arbitration. In AAMCO Transmissions, Inc. v. Sally, 2008 WL 5272449 (E.D. Pa. Dec. 17, 2008), two individuals signed the franchise agreement together, but one franchisee left the day-to-day business operations entirely to his co-franchisee son-in-law. Soon thereafter, AAMCO discovered that the franchisees collectively had underreported sales and committed other breaches of the franchise agreement ...

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Posted in Procedure

In AAMCO Transmissions, Inc. v. Baker, 2008 WL 5245768 (E.D. Pa. Dec. 16, 2008), 2008 WL 5272781 (E.D. Pa. Dec. 18, 2008), and 2008 WL 5412026 (E.D. Pa. Dec. 24, 2008), a federal district court in Pennsylvania handed down three decisions concerning pretrial motions filed by the parties. The case arose following the termination of Baker’s franchise in Tallahassee, Florida, after an investigation by AAMCO showed that Baker was not dealing with the public fairly and honestly. Baker filed counterclaims against AAMCO for, among other things, breach of contract and intentional ...

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Posted in Procedure

In Brunet v. Quizno’s Franchise Company LLC, 2008 WL 5378140 (D. Colo. Dec. 23, 2008), a United States Magistrate Judge for the District of Colorado issued a discovery ruling notable for its requirement that the plaintiff-franchisees create a detailed list of particular statements they claim were made by the defendant-franchisor before the franchisor would be required to produce a corporate representative to testify regarding the statements. The franchisees had demanded that the franchisor produce the corporate representative(s) most knowledgeable regarding “all ...

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Posted in Arbitration

In Coffee Beanery, Ltd. v. WW, L.L.C., 2008 WL 4899478 (6th Cir. Nov. 14, 2008), the United States Court of Appeals for the Sixth Circuit vacated an arbitration award that had been entered in favor of franchisor Coffee Beanery, Ltd., as the appeals court held that the arbitrator manifestly disregarded the law. The court concluded that the United States Supreme Court’s recent decision in Hall Street Assocs., L.L.C. v. Mattel, Inc., 128 S. Ct. 1396 (2008), did not limit the review of arbitration awards under the well-established “manifest disregard” standard. That standard ...

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In SDMS, Inc. v. Rocky Mountain Chocolate Factory Inc., 2008 WL 4838557 (S.D. Cal. Nov. 6, 2008), the United States District Court for the Southern District of California considered claims brought by terminated franchisees under the California Unfair Business Practices and Unfair Competition Acts. The franchisees alleged that the sale of products by Rocky Mountain to discount retail outlets such as Costco.com, without disclosure to the franchisees prior to execution of the franchise agreement, violated their rights under the California statutes. At the outset the court ...

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In It’s Just Lunch International LLC. v. Island Park Enterprise Group, Inc., 2008 WL 4683637 (C.D. Cal. Oct. 21, 2008), a federal district court in California decided not to enforce a Nevada choice of law provision set forth in the franchise agreement in the face of a franchisee’s counterclaims under the California Franchise Investment Law (CFIL) and the New York Franchise Sales Act (NYFSA). This case shows the difficultly franchisors have in enforcing choice of law provisions as to claims brought by franchisees under the CFIL and NYFSA – especially where the franchisors ...

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In Sunshine Restaurant Partners, L.P. v. Shivshakti One, Inc., 2008 WL 2809096 (S.D. Fla. Nov. 5, 2008), the United States District Court for the Southern District of Florida granted an International House of Pancakes subfranchisor’s motion to dismiss a franchisee’s claim for breach of the covenant of good faith and fair dealing regarding the construction of a new location in a site the franchisee wanted, finding the construction fell in line with the contract between the parties. However, the court denied the subfranchisor’s motion to dismiss the contract claim, finding ...

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A recent decision by the United States District Court for the Southern District of Indiana addressed a novel argument by a terminated franchisee to justify its continued use of its franchisor’s trademark. In Country Inns & Suites by Carlson, Inc. v. Nayan, LLC, 2008 WL 4735267 (S.D. Ind. Oct. 28, 2008), CIS had terminated the franchisee for failure to pay amounts owed under its license agreement. When the franchisee continued to operate using CIS trademarks, CIS brought suit. Gray Plant Mooty represented the franchisor.

The franchisee conceded that CIS was likely to succeed on the ...

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Posted in Antitrust

The United States District Court for the District of Connecticut recently dismissed the third amended complaint of a convenience store franchisee who challenged the franchise system’s primary merchandise vendor for alleged violations of federal and state antitrust laws and the Connecticut Unfair Trade Practices Act. Bansavich v. McLane Co., Inc., No. 3:07cv702 (D. Conn. Oct. 31, 2008). Plaintiff Bansavich, a Mobil on the Run franchisee, challenged the requirement that franchisees participating in the system’s “Exclusive Product Program” purchase certain ...

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On October 27, 2008, the United States District Court for the Northern District of Georgia decided a trilogy of virtually identical cases, Moe Dreams, LLC, et al. v. Sprock, et al., 2008 WL 4787493 (N.D. Ga. 2008), Peterson, et al. v. Sprock, et al., 2008 WL 4787351 (N.D. Ga. 2008), and Massey, Inc., et al. v. Moe’s Southwest Grill, LLC, et al., 2008 WL 4767788 (N.D. Ga. 2008), in which it addressed civil RICO claims, fraud claims and claims under the Robinson-Patman Act. In all three cases, the plaintiffs—comprised primarily of investors and franchisees—initiated an action for ...

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Posted in Damages

In the latest rejection of the doctrine first announced by the California Court of Appeals in PIP v. Sealy, the Texas Court of Appeals has awarded a franchisor its lost future profits suffered as a result of a franchisee’s breach of contract. In Progressive Child Care Systems, Inc. v. Kids ‘R’ Kids International, Inc., 2008 WL 4831339 (Tex. Ct. App. Nov. 6, 2008), a franchisee breached its franchise agreements, leading the franchisor to terminate them. The franchisor then brought suit to recover past due fees as well as fees owed for the remainder of the agreements’ terms.

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Posted in Terminations

By a 4-3 decision with a vigorous dissent, the Court of Appeals of Maryland ruled in John Deere Construction & Forestry Co. v. Reliable Tractor, Inc., 2008 WL 4191153 (Md. Ct. App. Sept. 15, 2008), that the “good cause for termination” provision of the Maryland Equipment Dealers Act applied to open-ended contracts originally executed before that provision of the statute was enacted. The two dealer agreements at issue contained a clause providing that they could be terminated by either party with 120 days’ notice. By continuing to perform their obligations under the contracts ...

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Posted in Terminations

Boar’s Head Provisions, a producer of meats and cheeses, terminated its Minnesota distributor, Minnesota Deli Provisions, after a six-year relationship. The parties did not commit their agreement to writing. Minnesota Deli responded to the termination by filing suit, claiming that the parties agreed that Minnesota Deli would only be terminated if it failed to perform adequately. In Minnesota Deli Provisions, Inc. v. Boar’s Head Provisions Co., Inc., 2008 WL 4527770 (D. Minn. Sept. 30, 2008), the court granted summary judgment for Boar’s Head on all of Minnesota Deli’s ...

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Posted in Antitrust

The United States District Court for the Eastern District of Tennessee has determined that a class of purchasers of retail products manufactured and distributed by Leegin Creative Leather Products, Inc. failed to state claims against Leegin for violations of Sherman Act § 1 and the Tennessee Trade Practices Act, or for common law unjust enrichment.  Spahr v. Leegin Creative Leather Products, Inc., No. 2:07-cv-00187 (E.D. Tenn. August 20, 2008). As  was the subject of a June 2007 decision of the United States Supreme Court, Leegin, the manufacturer of Brighton® women’s ...

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Posted in Encroachment

In Transport Truck & Trailer, Inc. v. Freightliner LLC, 2008 WL 4239002 (D. Idaho, Sept. 20, 2008), the court granted Freightliner, LLC’s motion for summary judgment dismissing all claims, including a claim for breach of the implied covenant of good faith and fair dealing based on Freightliner’s grant of a competing dealership in the territory of Transport Truck & Trailer, Inc. (“TTT”). 

Although it had a non-exclusive territory, TTT claimed that by granting another dealership in its territory, Freightliner violated its implied covenant of good faith and fair dealing ...

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Posted in Arbitration

In Perry v. Ice House America, LLC, 2008 WL 4216550 (E.D. Ark. Sept. 12, 2008), the United States District Court for the Eastern District of Arkansas broadly construed an arbitration clause in a distributorship agreement in granting the defendant’s motion to stay the litigation pending a the outcome of arbitration. The plaintiffs had filed suit claiming that Ice House America, a manufacturer of ice production and delivery products, had, among other things, breached the distributorship agreement and the duty of good faith and fair dealing. Ice House America filed a petition to ...

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Posted in Terminations

In Santiago-Sepulveda v. Esso Standard Oil Co. (Puerto Rico), Inc., 2008 WL 4684150 (D.P.R. Oct. 18, 2008), a United States District Court considered Esso’s proposed withdrawal from selling gasoline through service stations in Puerto Rico. Esso had announced to its franchisees that it planned to sell its assets, including its franchise agreements, to Total Petroleum. Total then offered franchise agreements to most, but not all, of Esso’s franchisees. Esso’s franchisees brought suit, arguing that Esso’s proposed withdrawal from the market violated the Petroleum ...

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Posted in Procedure

In Citgo Petroleum Corporation v. Ranger Enterprises, Inc., 2008 WL 3927470 (W.D. Wis. Aug. 27, 2008), the operator of 39 Citgo gas stations alleged that its franchisor failed to live up to its obligations by providing less fuel to the franchisee’s locations than was contractually required and because demand for Citgo branded fuel allegedly dropped when Venezuelan President Hugo Chavez began making hostile statements in the press about the United States. (Citgo is owned by the Venezuelan government).  When Citgo ultimately announced that it would not renew the franchise ...

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Posted in Terminations

In Hubbard Auto Center, Inc. v. General Motors Corporation, 2008 WL 3874642 (N.D. Ind. Aug. 14, 2008), a former Oldsmobile distributor sued GM under the Indiana Deceptive Franchise Practices Act for unlawful termination and unlawful failure to renew a distributorship agreement without good cause. In late 2000, GM announced to its dealers by letter that it would phase out and ultimately discontinue its Oldsmobile line of vehicles. In its letter, GM also stated, however, that the announcement was not a termination of the dealership and that GM would continue to fulfill its ...

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Posted in Antitrust

The United States District Court in Minnesota late last month dismissed state statutory and federal antitrust claims brought by a Kia automobile dealership against manufacturer Kia Motors. Barnett Chrysler Plymouth Co. v. Kia Motors America, Inc., 2008 U.S. Dist. LEXIS 87216 (D. Minn. Oct. 27, 2008).

Barnett Kia has sold vehicles made by Kia since 1998. In 2006, Barnett discovered that the manufacturer offered discretionary advertising allowances to other Minnesota Kia dealers through the Regional Marketing Fund (“RMF”) program, through which Kia subsidizes fifty ...

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Posted in Terminations

In 1-800-Radiator of Wisconsin, LLC v. 1-800-Radiator Franchise, Inc., 2008 WL 4500682 (E.D. Wis. Oct. 1, 2008), the court considered a motion for a temporary restraining order to prevent the termination of its rights. The plaintiff was a distributor that was considered to be a “franchisee” under the 1-800-Radiator system, which took orders for the purchase of radiators made through the franchisor’s proprietary network. The franchisor advised the plaintiff that it planned to acquire one of the franchisor’s competitors, which would result in a large increase in business ...

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Posted in Terminations

The United States Court of Appeals for the First Circuit held this month that neither federal law nor Massachusetts state law precluded termination of a Land Rover/Jaguar dealer in Wagner & Wagner Auto Sales, Inc. v. Land Rover North America, Inc., 2008 WL 4823138 (1st Cir. Nov. 7, 2008). In upholding the district court’s finding of “good cause” to terminate, the appeals court focused on the dealer’s failure to meet contractual deadlines for getting approval of plans for a new dealership location. In turn, the First Circuit found no evidence of “bad faith” on the part of the ...

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Posted in Terminations

In New England Surfaces v. E.I. DuPont de Nemours and Co., 2008 WL 4307112 (1st Cir. Sept. 23, 2008), DuPont terminated a dealer of its Corian line of products for failure to meet sales goals. In a decision largely devoted to an analysis (or rejection) of the dealer’s lost profits damages claim, the United States Court of Appeals for the First Circuit vacated a district court’s grant of DuPont’s summary judgment motion on the dealer’s claim for wrongful termination under the Connecticut Franchise Act.

DuPont argued (and the district court below had found) that the Connecticut ...

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Posted in Encroachment

In General Motors Corp. v. Tennessee Motor Vehicle Commission, 2007 WL 4756809 (Tenn. Ct. App. Oct. 30, 2008), the Tennessee Court of Appeals late last month upheld the Tennessee Motor Vehicle Commission’s administrative decision prohibiting GM from allowing a current franchisee to relocate its dealership into another franchisee’s market area. GM claimed that a Tennessee dealership statute—which allows the Commission to deny the proposed granting of an “additional franchise” in a dealer’s market area—applies only where new franchises are granted and not ...

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Posted in Class Actions

The United States Court of Appeals for the Third Circuit has reversed a New Jersey district court’s certification of a class of approximately 4,000 dealers in an action against Ford Motor Company alleging violations of the Robinson-Patman Act, the federal Automobile Dealer’s Day in Court Act, and numerous state franchise laws, as well as breach of contract and the covenant of good faith and fair dealing. Danvers Motor Co., Inc. v. Ford Motor Company, No. 07-2287, WL 418728 (3rd Cir. Sept. 12, 2008).

Ford had instituted a voluntary dealer certification program called The Blue Oval ...

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Posted in Antitrust

Franchisor American Dairy Queen Corporation and its corporate parent, International Dairy Queen, Inc., prevailed this month against the most recent challenges by a franchisee association and cooperative that represents some of its franchisees. An arbitration panel held that the franchisor and its parent’s supply entity have not violated antitrust law or a prior settlement agreement with respect to the approval and distribution of products for use in franchisees’ locations. Dairy Queen Operators Association and Dairy Queen Operators Cooperative v. International Dairy ...

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Posted in Contracts

This month the United States District Court for the Western District of Michigan refused to grant a hotel franchisee’s request for a preliminary injunction ordering its franchisor to take reservations for hotel stays occurring after June 30, 2009, the date that the parties agreed the franchise agreement between them would expire. Lake Country Corp. v. Sheraton LLC, 2008 WL 4534419 (W.D. Mich. Oct. 6, 2008).

Relations between the franchisee and Sheraton had begun to deteriorate after the franchisee refused to make required improvements to the hotel property. The franchisee ...

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In Luv2bfit, Inc. v. Curves International, Inc., 2008 WL 4443961 (S.D.N.Y. Sept. 29, 2008), a federal court in New York enforced the Texas choice of venue clause in the franchise contracts of a Texas-based franchisor. Several New York franchisees alleged claims related to the purchase of their franchises and the franchisor’s compliance with its franchise agreements. They filed the case in New York, despite a Texas venue provision. The franchisor moved to dismiss for lack of venue or to transfer to Texas.

In granting the franchisor’s motion to transfer, the court first addressed ...

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In Fazoli’s Franchising Systems, LLC v. JBB Investments, LLC, 2008 WL 4525433 (E.D.Ky. Sept. 30, 2008), the United States District Court for the Eastern District of Kentucky addressed issues arising from the choice of law and venue provisions contained in the terms of several Fazoli’s franchise agreements. Fazoli’s claimed that the defendants, who were guarantors of the franchise agreements, were subject to personal jurisdiction in Kentucky by virtue of having signed their personal guaranty agreements in Kentucky.

In finding that no personal jurisdiction over the ...

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Posted in Contracts

The United States Court of Appeals for the Fifth Circuit recently concluded that a prospective purchaser of a vehicle dealership is not a third-party beneficiary of the seller’s dealership agreement. In K.P.’s Auto Sales, Inc. v. General Motors Corp., 2008 WL 4580087 (5th Cir. Oct. 15, 2008), K.P. offered to buy an existing Cadillac dealership, which submitted the proposed sale to GM for approval.  K.P.’s lawsuit alleged that GM then improperly shared confidential information about K.P. and its principal with another dealer, who used that information to outbid K.P. In its ...

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Posted in Trademarks

In Dudley v. HealthSource Chiropractic, Inc., 2008 WL 4507714 (W.D.N.Y. Sept. 30, 2008), the owner of a chiropractic practice brought claims against a franchisor and local franchisee alleging trademark infringement and cybersquatting. The plaintiff had used the trademark HEALTHSOURCE in connection with a chiropractic practice in the Rochester, New York area prior to the defendant franchisor’s adoption of the same mark. The franchisor’s system expanded to over 170 franchisees, including one in the Rochester area. The plaintiff brought suit alleging that links to that ...

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Posted in Arbitration

In Ron Winter, et al. v. Window Fashions Professionals, Inc., 2008 WL 3845229 (Cal. App. 5 Dist., August 19, 2008), the California Court of Appeals affirmed the trial court’s decision that there was no meeting of the minds on an arbitration clause in a franchise agreement due to a state addendum to the franchisor’s Uniform Franchise Offering Circular (“UFOC”).

Ron Winter and Window Fashions Professionals, Inc. (“WFP”) entered into a franchise agreement that required the parties to submit claims to binding arbitration in Dallas County, Texas and provided that the ...

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Posted in Arbitration

In Bridge Fund Capital Corporation v. Fastbucks Franchise Corporation, 2008 WL 3876341 (E.D. Cal. Aug. 20, 2008), the court dismissed a franchisor’s motion to dismiss or stay the action pending the outcome of arbitration because it declined to enforce the choice of law, choice of forum, and arbitration clauses in the franchise agreements at issue. This case demonstrates how careful franchisors must be, especially in cases where courts would apply California law, with respect to contractual provisions in franchise agreements that create one-sided legal rights in their favor.

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Posted in Arbitration

The federal district court in New Jersey has changed its mind and has now confirmed an arbitration award won by a franchisor. Bapu Corp. v. Choice Hotels International, Inc., 2008 WL 4192056 (D.N.J. Sept. 8, 2008). The court’s earlier decision, as reported in Issue 109 of The GPMemorandum, had vacated the award based on the court’s belief that the applicable statute of limitations had expired before the franchisor commenced the arbitration. In reconsidering that decision, the court realized that the statute of limitations evaluation was for the arbitrator, not the court, to ...

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Posted in Procedure

In Casual Dining Development, Inc. v. QFA Royalties, LLC, 2008 WL 4186692 (E.D. Wis. Sept. 5, 2008), the plaintiffs, Quiznos franchisees, filed a complaint for declaratory relief related to the Area Director Marketing Agreement between the parties. The plaintiffs sought a declaratory judgment excusing them from their development quota obligations under the development agreement. The plaintiffs argued that their failure to develop additional franchises was the result of unfavorable press and negative customer attitudes toward the franchisor. However, as the Court noted ...

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Posted in Trademarks

In Jay Bharat Developers, Inc. v. Minidis, 2008 WL 4173626 (Cal. App. 2 Dist. Sept. 11, 2008), the California Court of Appeals this month upheld the trial court’s entry of a preliminary injunction prohibiting a former master franchisee of the Red Brick Pizza franchise system from continuing to display the franchisor’s trademarks after the termination of its franchise rights. The master franchisee sued Red Brick Pizza’s co-founders, alleging that those individuals had fraudulently induced the franchisee to enter its franchise agreement. While that action was pending, Red ...

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In Klosek v. American Express Co., 2008 WL 4057534 (D. Minn. Aug. 26, 2008), the United States District Court for the District of Minnesota addressed issues arising from the American Express Company’s decision to spin off its subsidiary, American Express Financial Advisors, and the spin-off‘s subsequent adoption of a new brand name—“Ameriprise”. The plaintiffs, former American Express Financial Advisors (now Ameriprise) franchisees, brought a putative class action asserting claims for breach of contract, breach of the implied covenant of good faith and fair ...

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Posted in Procedure

A franchisor’s lawsuit against the operators of two franchises in California was transferred this month to that state despite contractual forum selection clauses that had specified venue in the franchisor’s home state of New Jersey. Elite Sports Enterprises, Inc. v. Lococo, 2008 WL 4192045 (D.N.J. Sept. 5, 2008). Noting that the forum selection clauses “may be considered” in the court’s analysis of a transfer motion, the parties’ choice of venue is “not dispositive,” the New Jersey court held. In this case, the court found more significant that the “operative ...

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Posted in Procedure

In Blockbuster, Inc. v. C-Span Entertainment, Inc., 2008 WL 3318882 (Tex. App. Aug. 12, 2008), a Texas Court of Appeals overturned a huge judgment that had been won by a franchisee on breach of warranty, conversion, and fraudulent inducement claims. The provision at issue was a broad release in a transfer agreement, through which agreement the franchisor had been released from all claims by the franchisee.

Sunil Dharod purchased a number of Blockbuster® shops in Tyler, Texas. At closing, Dharod signed the franchise agreement for the shops in his individual capacity. Blockbuster ...

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Posted in Trademarks

In Pearle Vision, Inc. v. Romm, 2008 WL 4059793 (7th Cir. Sept. 3, 2008), the United States Court of Appeals for the Seventh Circuit reviewed the lower court’s decision holding a former multi-unit franchisee in contempt for failing to comply with a preliminary injunction, and awarding a judgment on the contempt in favor of the plaintiff franchisor in the amount of $321,000. 

The defendant is an optometrist and former franchisee who had operated (by himself and through his companies) four Pearle Vision stores, pursuant to separate franchise agreements. After the plaintiff had ...

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Posted in Arbitration

The Sixth Circuit Court of Appeals has taken the relatively rare step of vacating an arbitration award on the grounds of “manifest disregard for the law.” In Coffee Beanery, LTD. v. WW, L.L.C., 2008 WL 3838010 (6th Cir. Aug. 8, 2008), an unsuccessful franchisee sued its franchisor alleging, among other claims, fraud, negligent misrepresentation, breach of contract, and violation of several franchise disclosure laws. The franchisor successfully moved to dismiss the court action and compel arbitration, based on the franchise agreement’s arbitration clause. At ...

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Posted in Procedure

In Hopkins v. GNC Franchising, Inc., 2008 WL 3845375 (3d Cir. Aug. 19, 2008), the Third Circuit Court of Appeals overturned a Pennsylvania federal court’s decision dismissing a terminated franchisee’s second lawsuit against franchisor GNC for breach of contract and tortious interference with contract. The Third Circuit allowed both claims to proceed against the franchisor.

The district court had found that the terminated franchisee’s claims were barred by the doctrine of issue preclusion, which bars a subsequent action from being decided when there previously has been a ...

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Posted in Procedure

A panel of the California Court of Appeals has reversed a summary judgment and award of $270,000 in attorney’s fees that had been won by a franchisor in Gogri v. Jack In The Box, Inc., 166 Cal. App. 4th 255 (Cal. App. 4 Dist. August 25, 2008). The basis of the reversal was that the plaintiff-franchisee had voluntarily withdrawn his claims prior to the summary judgment ruling. The appellate court found that the voluntary dismissal was timely under California state procedures even though the summary judgment motion had been pending at the time of the franchisee’s withdrawal of claims ...

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Posted in Terminations

In Western Kentucky Coca-Cola Bottling Co. v. Red Bull North America, Inc., 2008 WL 2548095 (W.D. Ky. June 20, 2008), a terminated beverage distributor sued for breach of contract and unjust enrichment, alleging wrongful termination of its distribution agreement. The distributor alleged that the agreement, which had no set term, was to “never be terminated without prior written communication [by the manufacturer] of the grounds [for termination]…and the opportunity to cure those grounds.” Although Kentucky law holds that agreements with no definite term may be ...

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Person Ford v. Ford Motor Company, 2008 WL 2486824 (Cal. Ct. App. June 23, 2008), concerned a dispute that initially arose in 1988 when Ford decided to relocate a California dealership to a site 2.9 miles from Person Ford, an existing dealer. The parties resolved their disagreement through a 1999 settlement agreement that gave Person five years to move to a site in Rancho Cucamonga near a new freeway that was to be completed. The agreement provided that “if an extension [of the relocation agreement] should be needed due to circumstances beyond the control of Person Ford (e.g.

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The United States District Court for the District of Minnesota recently granted summary judgment to a beverage manufacturer, as the court concluded that the manufacturer had not violated the Minnesota Franchise Act by terminating the plaintiffs’ distributorship agreements. In Day Distributing Co. v. Nantucket Allserve, Inc., 2008 WL 2945442 (D. Minn. July 25, 2008), the court granted summary judgment in favor of Cadbury, the manufacturer, on all claims presented by the plaintiffs. The court first determined that the plaintiffs were not franchisees under the “business ...

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Posted in Antitrust

The United States District Court for the Northern District of Ohio has dismissed federal antitrust counterclaims brought by an HVAC systems franchisee against its franchisor. Trane U.S. Inc. v. Meehan, 2008 WL 2219781 (N.D. Ohio May 29, 2008). The events giving rise to the suit began when Trane audited its franchisee, Toledo Trane, and discovered significant noncompliance with the Manual of Policies and Procedures (“MOPP”) Trane issued to its franchisees. The MOPP largely affected “bundled sales,” which are sales of products that combine Trane and non-Trane ...

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Posted in Antitrust

In Toledo Mack Sales & Service, Inc. v. Mack Trucks, Inc., 2008 WL 2420729 (3rd Cir. June 17, 2008), the United States Court of Appeals for the Third Circuit affirmed a district court’s grant of summary judgment in favor of a truck manufacturer on a dealer’s Robinson-Patman claim but reversed an award in favor of the manufacturer on the dealer’s Sherman Act claim. Mack manufactures a variety of heavy-duty trucks that it distributes and services primarily through a nationwide network of authorized dealers. Until its termination, Toledo was an authorized Mack dealer in the ...

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In Luther v. Kia Motors America, Inc., 2008 WL 2397331 (W.D. Pa. June 12, 2008), the court denied Kia’s motion to dismiss a prospective franchisee’s claims of breach of contract and negligent misrepresentation resulting from failed negotiations between the parties for the plaintiff to be awarded a Kia Motor dealership. Kia had argued that a written agreement between the parties precluded Luther from establishing the elements of either a breach of contract claim or a claim for negligent misrepresentation. The plaintiff’s contract claim was based on an alleged oral contract ...

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In July, the United States District Court for the Western District of Kentucky denied a defendant-distributor's motion for a change of venue on a claim brought by a crushing and screening equipment manufacturer that had initiated suit for failure to pay invoices. Powerscreen USA, LLC v. D & L Equipment, Inc., 2008 WL 2944994 (W.D. Ky. July 28, 2008). The court held that where the factors favoring venue in one state or another are basically equal and the forum-selection clauses in the parties' form contracts are conflicting, the plaintiffs' choice of forum was appropriate.

The ...

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Posted in Indemnification

The Minnesota Court of Appeals held last week that a truck trailer manufacturer was not obligated to reimburse its distributor for legal costs incurred in defending warranty claims brought unsuccessfully by a customer. College City Leasing, LLC v. River Valley Truck Centers, Inc., 2008 WL 3290759 (Minn. App. August 12, 2008). The court’s decision was based on its interpretation of Minn. Stat. § 80E.05, which requires a new motor vehicle manufacturer to indemnify its dealers against any “judgment for damages” (plus legal costs) relating to “alleged defective or negligent ...

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Posted in Terminations

The United States District Court for the District of Oregon recently issued two important decisions interpreting Oregon’s Motor Vehicle Dealerships Act—both involving the termination of the same motorcycle dealership, Everything Cycles, Inc. (“ECI”). The ECI terminations arose out of the felony conviction of ECI’s sole owner for purchasing a stolen motorcycle on the internet. The conviction caused ECI to lose its business license in the municipality in which it operated, forcing it to relocate to a different city.

As reported in Issue 102 of The GPMemorandum, Yamaha ...

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Posted in Terminations

The United States District Court for the District of Rhode Island has addressed retroactive application of the Rhode Island Fair Dealership Act, which was passed into law in 2007. In Pascale Service Corp. v. International Truck & Engine Corp., 2008 WL 2340399 (D.R.I. June 9, 2008), the court was presented with a unique set of facts. Under the terms of a 35-year-old distribution agreement, either party was permitted to terminate the parties’ agreement “at any time without cause by giving written notice to the other party, specifying the effective date of termination.” The ...

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In Kehm Oil Company v. Texaco, Inc., 2008 WL 2924954 (3d Cir. July 31, 2008), the Third Circuit held that Texaco, Inc. did not violate the Petroleum Marketing Practices Act because it no longer was in a franchise relationship with the dealers who operated Texaco branded gas stations. This decision is significant because it upholds the notion that a dealer cannot claim a “franchise relationship” exists when no contractual relationship with the franchisor has existed for many years.

In this case, the dealerships, owned by the same individual, entered into numerous franchise ...

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Posted in Arbitration

Choice Hotels International, Inc.'s arbitration award against a franchisee was recently vacated by the United States District Court for the District of New Jersey. In Bapu Corp. v. Choice Hotels Int'l, Inc., 2008 WL 2559306 (D.N.J. June 24, 2008), a hotel franchisee filed suit against Choice Hotels requesting relief from an arbitration award and relief under the franchise agreement.

Choice Hotels in 2006 had won an arbitration award of $142,560 in liquidated damages against the franchisee after the franchisee had been terminated for failing to make renovations to its hotel by a ...

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Posted in Arbitration

Franchisee Celine Gueyffier’s attempted opening of an Ann Summers store in Los Angeles was a failure, leading each party to file an arbitration claim asserting that the other had breached the parties’ franchise agreement. The arbitrator found for Gueyffier, concluding that Ann Summers did not provide promised training, guidance, and assistance. In his written award, the arbitrator held that Gueyffier’s failure to give Ann Summers notice of the breach and an opportunity to cure was immaterial because the breaches were incurable.

In Gueyffier v. Ann Summers, Ltd., 2008 WL ...

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Posted in Arbitration

In a non-franchise case, the court in Liebrand v. Brinker Rest. Corp., 2008 WL 2445544 (Cal. App. 4 Dist. June 18, 2008), upheld the trial court’s denial of Brinker’s motion to compel arbitration, concluding it had failed to meet its burden of proving Liebrand agreed to arbitrate an employment dispute. The trial court determined that the arbitration agreement was void because it was both procedurally and substantively unconscionable, specifically because it was an adhesion contract that mandated arbitration take place in Texas and required that Liebrand share the costs. On ...

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Posted in Trademarks

In Molly Maid v. Carlson, 2008 WL 2620109 (E.D. Mich. July 1, 2008), the United States District Court for the Eastern District of Michigan recently granted Molly Maid’s motion for preliminary injunction to restrain its former franchisee from infringing on Molly Maid’s trademarks. This decision provides good support to franchisors who wish to avoid customer confusion when a former franchisee, in operating a competing business, continues to use a telephone number that had been associated with the terminated franchise.

In granting the franchisor’s motion, the court first ...

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Posted in Antitrust

The United States District Court for the District of New Jersey recently dismissed federal antitrust claims brought by a pizza franchisee and its individual owners against its franchisor and the franchisor’s managing member. Beuff Enterprises Florida, Inc. v. Villa Pizza, LLC, 2008 WL 2565008 (D.N.J. June 25, 2008).

The plaintiffs alleged that: (1) the defendants violated Sherman Act § 2 by maintaining a monopoly in a “conglomeration of unique products, trade dress, services, methods, ingredients, recipes, menus and packaging, quality and quantity control strategies ...

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Posted in Contracts

A three-judge panel of the Eighth Circuit Court of Appeals has ruled that Domino’s Pizza may specify a particular new computer system developed by Domino’s for system-wide use under the terms of its franchise agreement. Bores, et al. v. Domino’s Pizza, LLC, 2008 WL 2467983 (8th Cir. June 20, 2008). By reversing and instructing the district court to enter judgment in favor of Domino’s, the appellate court decided the last remaining claim in the case. A Domino’s motion for summary judgment dismissing all of the franchisees’ other claims had been granted in May of 2007.

The ...

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Posted in Settlement

In Bath Junkie Branson, L.L.C. v. Bath Junkie, Inc., 2008 WL 2330749 (8th Cir. June 9, 2008), the Eighth Circuit Court of Appeals affirmed a federal court’s enforcement of the parties’ settlement agreement. Franchisor Bath Junkie, Inc. had appealed the district court’s decision to enforce a settlement agreement on the grounds that the court had erred in refusing to hold an evidentiary hearing as to whether there was a “meeting of the minds” on that settlement. Applicable case law provides for an evidentiary hearing when there is a dispute as to settlement. The Eighth ...

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Posted in Contracts

In De Walsche v. Togo’s Franchised Eateries LLC, No. CV-07-2901 (C.D. Cal. July 21, 2008), a federal court in California granted a defense motion for summary judgment on the franchisee’s claims that Togo’s had breached the franchise agreement and the implied covenant of good faith and fair dealing in requiring an English Language Proficiency Assessment (“ELPA”) as a condition for the transfer of his shop to two buyers. The franchisee also claimed that Togo’s ELPA discriminated against the buyers in violation of California’s Civil Rights Act. (Gray Plant Mooty ...

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Posted in Trademarks

 In Pinnacle Pizza Co., Inc. v. Little Caesar Enterprises. Inc., 2008 WL 2381678 (D.S.D. June 5, 2008), a Little Caesar’s® pizza franchisee sued the franchisor for claims related to the franchise system’s use and federal registration of the trademark HOT N’ READY. The franchisee began using the mark HOT N’ READY in 1997 to advertise promotional offers for ready-to-takeaway pizza. Based on the success of the promotion, the franchisee shared the promotional concept with other franchisees. In 2000, the franchisor began distributing an implementation guide for the ...

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Posted in Antitrust

In Sheridan v. Marathon Petroleum Co., LLC, 2008 WL 2486581 (7th Cir. June 23, 2008), a Marathon gasoline dealer filed suit against Marathon to challenge a provision of the dealer’s franchise agreement. The franchise agreement required the dealer to process credit card purchases made on credit cards issued by Marathon through specified credit card processing equipment. The franchisee remained free to process payments made by other credit cards through a different processing system if he so chose. The franchisee claimed that Marathon had effectively tied the processing of all ...

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Posted in Noncompetes

In Atlanta Bread Company International, Inc. vs. Lupton-Smith et al., 2008 WL 2264863 (Ga. Ct. App. June 4, 2008), the Georgia Court of Appeals affirmed the trial court’s grant of summary judgment holding that the in-term and post-term non-compete covenants in the franchise agreements between Atlanta Bread Company International, Inc. (“ABCI”) and various companies owned by Sean Upton-Smith were unenforceable. The in-term non-compete covenant prohibited Upton-Smith from owning or engaging in any “bakery/deli business whose method operation is similar to that ...

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Posted in Arbitration

In June the United States District Court for the Eastern District of Louisiana held that a franchisee who had initiated an arbitration and later withdrew the proceeding had not waived his right to compel another arbitration after the franchisor filed an action against him in federal district court. The case is Planet Beach Franchising Corp. v. Richey, 2008 WL 2598907 (E.D. La. June 25, 2008).

The franchisee in this action initiated the arbitration proceedings pursuant to the arbitration clause in the franchise agreement three years into the relationship with Planet Beach ...

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It has now been well over a year since the Federal Trade Commission released its amended FTC Franchise Rule (“Amended Rule”) in January 2007. At this point, it is fair to assume that most franchisors have already converted their UFOCs to the new Franchise Disclosure Document format under the Amended Rule and have addressed, or are in the process of addressing, comments received from state franchise examiners. No doubt, however, there are other franchisors who are racing to meet the fast-approaching July 1 conversion deadline. After this deadline, franchisors may only use FDDs to ...

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A California appellate court ruled late last month that United Parcel Service (“UPS) and Mail Boxes Etc., Inc. (“MBE”) should not have prevailed on summary judgment on some of the franchisee claims brought against them after UPS acquired MBE. G.I. McDougal, Inc., et. al. v. Mail Boxes Etc., Inc. et al., 2008 WL 2152911 (Cal. App. 2 Dist. May 23, 2008). The essence of the plaintiffs’ 33-count complaint is that MBE franchisees were harmed by the 2001 acquisition and the alleged subsequent emphasis on “The UPS Store” units. The trial court granted the defendants’ summary ...

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In PuroSystems, Inc. v. John Fralc (In re Fralc), 2008 WL 1932311 (Bankr. D. Ariz. April 28, 2008), PuroSystems made a motion to the bankruptcy court seeking relief from the automatic stay in order to enforce injunctive relief, granted through arbitration, against its former franchisee. The bankruptcy court granted PuroSystems’ motion for relief from the automatic stay so that it could seek confirmation of its arbitration award in federal district court.

In 2006, PuroSystems terminated John Fralc after he failed to pay royalties due under the franchise agreement. Following ...

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Posted in Damages

In Meineke Car Care Centers, Inc. v. L.A.C. 1603 LLC, et al., 2008 WL 1840779 (W.D.N.C. April 23, 2008), the federal court in the Western District of North Carolina declined to grant franchisor Meineke lost prospective fees due to the early termination of the franchise. Meineke originally terminated the franchise for failure to pay fees, then sued the former franchisee to recover unpaid fees and lost prospective fees for three years. Meineke was awarded over $100,000 for past-dues fees, but did not fare as well on the claim for prospective fees.

The court held that Meineke’s claim ...

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In Allen v. Choice Hotels Intern., Inc., 2008 WL 1925110 (4th Cir. May 1, 2008), the United States District Court for the District of South Carolina had granted summary judgment in favor of defendant franchisor on a negligence claim asserting both direct and vicarious liability in a case involving a deadly fire at a Comfort Inn and Suites facility. The fire killed six hotel guests and injured twelve others. The plaintiffs filed suit against franchisor, alleging that Choice failed to exercise due care by not requiring the franchisee to retrofit the hotel with sprinklers. The district ...

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Posted in Arbitration

In Jimmy John’s Franchise, LLC v. Kelsey, 2008 WL 1722188 (C.D. Ill. Apr. 10, 2008), Jimmy John’s sought to vacate an arbitration award on the ground that the arbitrator had exceeded his authority under the Federal Arbitration Act and had disregarded the law in awarding damages to the franchisee’s guarantor. More specifically, Jimmy John’s argued that the arbitrator either did not read the agreement in dispute between the parties or disregarded the agreement entirely and implemented his notion of what was fair and reasonable.

In denying Jimmy John’s motion, an Illinois ...

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In Emfore Corp. v. Blimpie Associates, Ltd., 2008 WL 1946657 (N.Y.A.D. 1 Dep. May. 6, 2008), the court recalled and vacated its December 20, 2007, order in which it had held that disclaimers in questionnaires do not bar franchisee claims for fraud under the New York Franchise Act. The court, however, did not change the holding of its original order. Under New York’s Franchise Act, it is unlawful for a franchisor to require a franchisee to waive any duty or liability imposed on the franchisor by the Act. The questionnaire at issue asked the franchisee, among other things, to affirm that ...

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Posted in Arbitration

Two more courts have weighed in on the unconscionability of arbitration clauses. In Sammy Enterprises v. O.P.E.N. America, Inc., 2008 WL 2010357 (Wash. App. Div. 1 May 12, 2008), the Washington Court of Appeals upheld enforcement of an arbitration provision despite the franchisee’s challenge. And in Smith v. Paul Green School of Rock Music Franchising, LLC., 2008 WL 2037721 (C.D. Cal. May 5, 2008), a federal district court in California refused a California franchisee’s request to stop an arbitration from being conducted in Pennsylvania, the home state of the franchisor.

In ...

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Posted in Food Safety

A produce supplier breached its contractual obligation to name Wendy’s International, Inc. as an insured party, according to a Utah federal court in Cohron v. Wendy’s International, Inc., 2008 WL 2149386 (D. Utah. May 20, 2008). The case arose out of a personal-injury claim alleged to stem from contaminated lettuce provided by the supplier. Wendy’s filed a third-party claim and sought summary judgment against the produce supplier.

One issue raised by the supplier was whether Wendy’s waived the right to be named as an additional insured. The supplier’s theory was that ...

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Posted in Damages

In Novus Franchising, Inc. v. Oksendahl, 2008 WL 835681 (D. Minn. March 27, 2008), the court awarded attorneys’ fees to a franchisor that prevailed on a motion for preliminary injunction against a former franchisee. Gray Plant Mooty represented the franchisor. The parties’ franchise agreement provided that the “prevailing party” on a motion for injunctive relief would be awarded its attorneys’ fees. Relying on that language, the franchisor sought an award of fees from the court. The franchisee claimed, however, that it actually was the prevailing party, as the court ...

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Posted in Damages

In Bennigan’s Franchising Company v. Swigonski, 2008 WL 648936 (N.D. Tex. Feb. 26, 2008), the U.S. District Court for the Northern District of Texas awarded a franchisor, Bennigan’s Franchising Company, over $1.2 million in lost future profits and attorneys’ fees following a bench trial regarding a contractual dispute between the parties. In doing so, the court held that Bennigan’s proved by a preponderance of the evidence that the franchisees had materially breached a development agreement between the parties. It should be noted that the defendants were not ...

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In Cottman Transmission Systems, LLC v. Kershner, 2008 WL 583894 (E.D. Pa. March 3, 2008), several former franchisees sued their franchisor alleging that it failed to make a good faith effort to establish a chain of successful franchise stores and, instead, engaged in a nefarious scheme to “churn” franchises and profit at the franchisees’ expense. Based upon the franchisor’s alleged conduct, the franchisees filed a lawsuit claiming, among things, that the franchisor violated the covenant of good faith and fair dealing.

In response to the lawsuit, the franchisor moved to ...

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Posted in RICO

A recent decision by the United States District Court for the Northern District of Illinois in Wooley v. Jackson Hewitt, Inc., 2008 WL 836010 (N.D. Ill. March 25, 2008), granted in part a franchisor’s motion to dismiss a class action suit brought against a tax service franchisor under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961, et seq.

The plaintiff engaged a franchisee of Jackson Hewitt, Inc. to prepare his taxes for 2003. The taxpayer paid an extra fee for Jackson Hewitt’s “Gold Guarantee,” which was supposed to provide the ...

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Posted in Noncompetes

In late March, the United States District Court for the District of New Jersey denied a defendant-franchisee’s motion for reconsideration of a grant of summary judgment, finding the court’s previous decision that the franchisee had violated its post-termination covenant not to compete was correct as a matter of law. Jackson Hewitt Inc. v. Childress, 2008 WL 834386 (D.N.J. March 27, 2008). The court’s initial ruling granting plaintiff-franchisor Jackson Hewitt Inc.’s (“JHI”) motion for summary judgment and enjoining the franchisee from further competition for a ...

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The United States District Court for the District of Colorado recently denied The Quizno’s Franchise Company LLC’s motion to dismiss claims brought by a class of Quizno’s franchisees under Colorado statutory and common law. Bonanno v. The Quizno’s Franchise Co. LLC, 2008 WL 638367 (D. Colo. March 5, 2008). Plaintiffs allege that Quizno’s, its affiliated entities, and individuals who control and operate the Quizno’s franchise system fraudulently induced plaintiffs to “purchase franchises for between $20,000 - $25,000 per franchise when they knew that the ...

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Posted in Antitrust

The United States District Court for the Northern District of Illinois recently dismissed federal and state antitrust claims brought by a class of Quizno’s franchisees against Quizno’s Franchise Company and related entities. Siemer v. Quizno’s Co. LLC, 2008 WL 904874 (N.D. Ill. March 31, 2008). The plaintiffs alleged that the defendants violated federal and Illinois antitrust laws by exercising substantial economic power within the “Quick Service Toasted Sandwich Restaurant Franchises market” to coerce franchisees to purchase essential goods from Quizno’s ...

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Posted in Antitrust

In Partner & Partner, Inc. v. ExxonMobil Oil Corp, 2008 WL 896052 (E.D. Mich. March 31, 2008), the court dismissed the plaintiff’s breach of contract and antitrust claims. The plaintiff was a direct ExxonMobil gasoline dealer until the defendant decided to stop selling gasoline directly to dealers and opted to work with distributors who would purchase gasoline from ExxonMobil and then sell it to individual dealers. ExxonMobil then allowed plaintiff and other dealers to purchase the stations they were leasing previously. The plaintiff purchased its station and entered into a ...

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Posted in Damages

In Days Inn Worldwide, Inc. v. BFC Management, Inc., 2008 WL 619210 (D.N.J. March 4, 2008), the court awarded the hospitality franchisor treble damages for trademark infringement claims and also awarded full liquidated damages in accordance with the franchise agreement. Even after it was terminated, the franchisee continued to use the franchisor’s trademarks on its exterior signage as well as on the cups, toiletries, and other items in the facility for almost three months. The court held that the franchisee’s unauthorized use of the marks created a likelihood of confusion and ...

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Posted in Procedure

In a separate order in R&K Lombard Pharmacy Corp. v. Medicine Shoppe International, 2008 WL 648506 (E.D. Mo. March. 5, 2008), the court sided with defendant Medicine Shoppe International, the franchisor of the “Medicine Shoppe” system, and granted its motion for a more definitive statement regarding the allegations contained in the complaint filed against it by 25 franchisees. The plaintiffs’ complaint contained roughly 20 pages of general allegations, which were then incorporated by reference into each of the 19 counts asserted against the defendant. The franchisor ...

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Posted in Procedure

A trio of recent decisions addresses issues of personal jurisdiction in the franchise context. In Noble Roman’s, Inc. v. French Baguette, LLC, 2008 WL 975078 (S.D. Ind. April 8, 2008), Noble Roman’s brought suit against terminated franchisees in Indiana, which was franchisor Noble Roman’s home state. The franchisees sought to dismiss that action, arguing that they were Florida residents with no contacts with the state of Indiana. The court disagreed and found that Noble Roman’s had demonstrated that defendants had sufficient contacts with Indiana to justify the ...

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In Gabana Gulf Distrib. v. Gap Int’l Sales Inc., 2007 WL 4145105 (N.D. Cal. Jan. 9, 2008), a federal district court in California confronted the issue of what constitutes a franchise, finding that an International Sales Program Distributor License Agreement (“ISP Agreement”) between distributors and defendants Gap International Sales, The Gap, Banana Republic, and Old Navy (collectively “GAP”) was not subject to the California Franchise Relations Act because the distributors’ operation was not substantially associated with GAP’s trademarks or other ...

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Posted in Procedure

Manufacturers and franchisors who settle cases with their dealers and franchisees often do so in part to stop harm to the supplier’s reputation in the marketplace. In those circumstances, the settlement agreement often includes a non-disparagement clause. The Supreme Court of Connecticut strongly upheld such a clause on March 25 in TES Franchising, LLC v. Feldman, 2008 WL 726293 (Conn. March 25, 2008). The court enjoined Feldman from any further violation of the settlement agreement and remanded to the trial court to determine how much he would have to pay for his past violations ...

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On March 18, 2008, the Federal Trade Commission announced the publication in the Federal Register of a revised notice of public rulemaking (RNPR), seeking comments on a modified version of the Commission’s proposed Business Opportunity Rule.

The NPR is a follow-up to the business opportunity rule portion of the FTC’s April 2006 notice of public rulemaking (NPR). The April 2006 NPR addressed long-awaited revisions to the 1978 Franchise Rule and also proposed adoption of a new and separate rule relating specifically to business opportunities. The definition of the term ...

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Posted in Arbitration

In Volvo Trucks North America, Inc. v. Crescent Ford Truck Sales, Inc., 2008 WL 506099 (E.D. La. Feb. 21, 2008), the court considered questions regarding the arbitrability of a suit between an automobile manufacturer and one of its dealers. After Volvo issued Crescent Ford a notice of non-renewal of the parties’ dealer agreement, Crescent filed a petition with the Louisiana Motor Vehicle Commission (“LMVC”) to preclude the termination, arguing that Volvo failed to properly allege just cause for the termination as required under Louisiana law. As part of the proceedings ...

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Posted in Terminations

Holding last month that the Maine Franchise Act does not create a “new set of standards” for temporary restraining order and injunction requests, the United States District Court for the District of Maine refused to stop the termination of a heavy equipment dealership in Frank Martin Sons, Inc. v. John Deere Construction & Forestry Co., 2008 WL 787680 (D. Me. March 21, 2008). The court instead applied a standard test weighing factors such as the plaintiff’s likelihood of success on the merits and alleged irreparable harm.

The plaintiff’s main argument was one made often – ...

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Posted in Arbitration

The United States District Court for the Eastern District of Michigan recently granted in part McBride Research Laboratories, Inc.’s motion for summary judgment, finding that the parties’ broad contractual agreement to arbitrate in Georgia any disputes arising out of or relating to the distributor agreement required dismissal of the plaintiff’s claim. Prude v. McBride Research Laboratories, Inc. (E.D. Mich. Feb. 8, 2008).

The plaintiff argued that he was not bound by the agreement to arbitrate because the agreement was unenforceable under section 27(f) of Michigan’s ...

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Posted in Arbitration

In C.V. Sullivan Co., Inc. v. Graham Web International, Inc., 2008 WL 249060 (D.N.H. Jan. 28, 2008), a federal court in New Hampshire granted a manufacturer’s motion to dismiss state-law claims that the court found to be subject to arbitration. Sullivan was terminated as a distributor of beauty supply products manufactured by GWI pursuant to a “Sullivan Distribution Agreement.” Sullivan filed suit, alleging that GWI breached its implied contractual obligation to act fairly and in good faith, engaged in unfair and deceptive trade practices, and tortiously interfered with ...

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Posted in Procedure

In Ridge Chrysler Jeep, LLC v. DaimlerChrysler Financial Services Americas LLC, 2008 WL 441758 (7th Cir. Feb. 20, 2008), the United States Court of Appeals for the Seventh Circuit affirmed a district court’s dismissal of two car dealerships’ lawsuit based on the dealerships’ deceit. The lawsuit had been based on the manufacturer’s exercise of its right to require dealerships to pay up front for inventory. After Chrysler exercised its right to the up-front payment, two dealerships responded with a lawsuit under the Automobile Dealers’ Day in Court Act, accusing Chrysler ...

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Posted in Terminations

The United States District Court for the Eastern District of Missouri recently granted a manufacturer’s motion to dismiss several counts of a complaint relating to the termination of a John Deere dealership. In Heisel v. John Deere Const. & Forestry Co., 2008 WL 53232 (E.D. Mo. Jan. 2, 2008), the court found that John Deere’s termination of a long-standing dealership following the death of its principal did not, as a matter of law, violate the Missouri Farm Equipment Act or the Missouri Construction Equipment Act. Both of these statutes prohibit dealership terminations unless ...

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Posted in Terminations

The United States Court of Appeals for the Third Circuit in Maple Shade Motor Corp. v. Kia Motors Am., Inc., 2008 WL 111041 (3d Cir. Jan. 11, 2008), affirmed summary judgment in favor of an automaker on its dealer’s unlawful termination claim. The court found that the dealer’s failure to build a showroom was a material term of the dealership agreement that had been breached. The Third Circuit relied on prior case law – under the New Jersey Franchise Protection Act – that holds that a franchisor has good cause to terminate when a franchisee breaches a material term of a franchise ...

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Posted in Terminations

In Frank Brunckhorst Co., L.L.C. v. Coastal Atlantic, Inc., 2008 WL 276409 (E.D. Va. Jan. 29, 2008), the court granted a national distributor’s motion to dismiss a counterclaim brought by one of its regional distributors who had been terminated. The plaintiff, a national distributor of Boar’s Head deli products, sued the regional distributor for trademark infringement and nonpayment. The defendant regional distributor countersued on numerous grounds, including breach of contract, tortious interference, and fraud.

In dismissing the counterclaims, the Virginia federal ...

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Posted in Terminations

In Dunkin’ Donuts Franchised Restaurants v. Agawam Donuts, Inc., 2008 WL 619399 (D. Mass. March 5, 2008), a case being handled by Gray Plant Mooty, Dunkin’ Donuts seeks to enforce its termination of 52 franchise agreements entered into with the defendants. As Dunkin’ Donuts stated in its notices of termination and complaint, the terminations were based on the defendants’ failure to comply with specific provisions of the franchise agreements, including those prohibiting them from: (1) violating federal labor, tax, and immigration laws, (2) engaging in activities ...

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In Youngblood v. Higbee, 2007 WL 427765 (Idaho Feb. 19, 2008), the trial court had granted summary judgment in favor of the defendant franchisor on a negligence claim based on a franchised repair shop’s alleged service of the plaintiff’s vehicle brake system prior to an automobile accident. The plaintiff claimed that the franchisor failed to exercise due care when repairing the brake system, which caused the plaintiff’s injury. On appeal, the Idaho Supreme Court affirmed the summary judgment to the franchisor.

The high court noted that it could not sustain the plaintiff’s ...

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In Hyatt Corp. v. Epoch-Florida Capital Hotel Partners, Ltd., 2008 WL 490121 (M.D. Fla. Feb. 20, 2008), the United States District Court for the Middle District of Florida refused to dismiss a franchisee’s breach of contract claims against the franchisor’s parent corporation, finding that the parent was a “stranger” to the contract at the time it purchased the subsidiary franchisor such that breach of contract and tortious interference with business relationship actions could proceed against the company.

Hyatt Corporation purchased the AmeriSuites hotel chain and ...

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Posted in Contracts

In AAA Abachman Enterprises, Inc. v. Stanley Steemer Intern., Inc., 2008 WL 624040 (11th Cir. March 10, 2008), the plaintiff’s franchise agreement granted exclusive rights to use the Stanley Steemer trademarks in the carpet and upholstery cleaning business, within a specified territory. The franchisor later granted exclusive rights in the same territory to other companies to operate a “Stanley Steemer Duct Cleaning Business.” The plaintiff alleged that this grant of rights in connection with duct cleaning violated the exclusivity provision of plaintiff’s franchise ...

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Posted in Procedure

In a franchise termination case, the United States District Court for the Eastern District of Pennsylvania recently denied AAMCO’s motion for a protective order to stop the deposition of its in-house counsel who signed the termination letter, but granted the franchisor’s motion to strike the franchisee’s jury demand. AAMCO Transmissions, Inc. v. Baker, 2008 WL 509220 (E.D. Pa. Feb. 25, 2008).

AAMCO sought the admission of its vice president and general counsel, James Goniea, to practice before the court for the purpose of the case. The franchisee opposed the admission of Mr ...

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Posted in Antitrust

The United States Court of Appeals for the Fifth Circuit recently affirmed the dismissal of a distributor’s antitrust counterclaim against a franchisor in a lawsuit brought by the franchisor against the distributor. Schlotzsky’s, Ltd. v. Sterling Purchasing & National Distrib. Co., 2008 WL 588640 (5th Cir. March 5, 2008). The most important aspect of the case for franchisors is the analysis of relevant market issues in the franchise context.

Plaintiff Schlotzky’s is the franchisor for a quick-serve restaurant system and owner of the related trademarks and associated ...

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Posted in Arbitration

In Choice Hotels Int’l, Inc. v. SM Property Management, LLC, 2008 WL 518807 (4th Cir. Feb. 28, 2008), the franchisor had sought in federal court to confirm an arbitration award that it obtained by default against one of its franchisees. In response, the franchisee moved to vacate the arbitration award on the ground that it did not receive proper notice of the arbitration proceeding because no notice was ever sent to the franchisee’s designated representative, as required by the franchise agreement. The federal district court vacated the arbitration award upon determining that ...

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Posted in Contracts

A Pennsylvania federal court in Khan v. GNC Franchising LLC, 2008 WL 612749 (W.D. Pa. March 3, 2008), granted a partial victory to franchisor GNC Franchising seeking to terminate franchisees based on non-payment. The court, however, denied the franchisor’s summary judgment motion requesting breach of contract damages because they were not proved with certainty. The franchisees presented evidence showing that they paid some of the outstanding amount owed, although it was not clear how much they had paid. The decision is a reminder that damages even in non-payment cases must be ...

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Posted in Class Actions

In Issue 103 of The GPMemorandum, we reported that a federal court had granted a motion for class certification in Quadrel v. GNC Franchising, L.L.C., 2007 WL 4241839 (W.D. Pa. Nov. 29, 2007). On February 20, 2008, however, that court granted the defendant’s motion for reconsideration and dismissed the purported class action. Quadrel v. GNC Franchising, L.L.C., 2008 WL 474260 (W.D. Pa. Feb. 20, 2008). GNC’s motion for reconsideration of the class certification order argued that, after the court had certified the class, the single named class representative had settled his ...

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Posted in Contracts

In R & F, LLC v. Brooke Corporation, 2008 WL 294517 (D. Kan. Jan. 31, 2008), the federal district court in Kansas granted a franchisor defendant’s motion in part and issued a stay to provide an opportunity for the parties to mediate the dispute, as required by their franchise agreement. Plaintiff R & F, LLC brought suit alleging that franchisor Brooke Corporation breached the franchise agreement by failing to provide contacts with insurance companies in the markets where R & F conducts its business, in order for R & F to offer insurance products to its customers and potential customers ...

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A recent federal court decision illustrates the judiciary’s occasional reluctance to take judicial notice of the nature of the franchise relationship.  In Patterson v. Denny’s Corp., 2008 WL 250552 (W.D. Pa. Jan. 30, 2008), the plaintiff filed a complaint against Denny’s and its franchisee alleging a violation of the Fair and Accurate Credit Transactions Act (“FACTA”). Specifically, the plaintiff alleged that a franchised Denny’s location provided him with a credit card receipt that showed the last four digits and the expiration date of his Visa card, an alleged ...

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Posted in Noncompetes

Last month the United States District Court for the District of New Jersey granted franchisor Jackson Hewitt Inc.’s (“JHI”) motion for summary judgment against a former franchisee, finding that the franchisee had clearly violated the post-termination covenant not to compete in his franchise agreement and enjoining him from further competition for a period of 24 months. Jackson Hewitt Inc. v. Childress, 2008 WL 199539 (D.N.J. Jan. 22, 2008).

The franchisee had operated two JHI franchises in Alabama for four years before notifying the company of his intention to cease ...

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Posted in Contracts

The United States District Court for the District of Arizona recently denied a post-trial motion filed by Best Western International Inc. for a new trial and for judgment as a matter of law following a set of unfavorable jury verdicts in Best Western International, Inc. v. Patel, et al., 2008 WL 205286 (D. Ariz. Jan. 23, 2008). The hotel at issue had been operated for over 30 years under the Best Western trademarks but was terminated approximately a year after the current franchisees had purchased it. Best Western thereafter brought suit against the franchisees for failing to pay for ...

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In KC Leisure, Inc. v. Lawrence Haber, 2008 WL 195107 (Fla. App. 5 Dist. Jan. 25, 2008), a Florida appellate court reversed a trial court’s dismissal of a franchisee’s claims against a franchisor’s officers for violation of the Florida Deceptive and Unfair Trade Practices Act (“FDUTPA”) and for fraudulent inducement under the Florida Franchise Act. This case is significant because it holds that a franchisor’s employees can be found personally liable for their role in the franchisor failing to comply with disclosure laws.

In its complaint, the franchisee sought ...

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In a case of first impression in Kentucky, the state’s Supreme Court turned away from using a mixed bag of respondeat superior and ostensible agency principles and, taking a more precise approach given the ubiquity of the franchise method of doing business, adopted the emerging majority rule on the issue of franchisor vicarious liability. In Papa John’s Int’l, Inc. v. McCoy, 2008 WL 199716 (Ken. Jan. 24, 2008), the state supreme court reversed an earlier court of appeals decision and adopted what it considered the “emerging judicial consensus” by applying a franchisor ...

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Posted in Class Actions

In Good, et al. v. Ameriprise Financial, Inc., 2008 WL 185714 (D. Minn. Jan. 18, 2008), the United States District Court for the District of Minnesota denied class certification to the plaintiffs, two Ameriprise financial advisors who brought an action on behalf of a putative class of over 10,000 advisors – a class that would include franchisees. The plaintiffs alleged that Ameriprise failed to pay its financial advisors the full amount of the commissions to which they were entitled under their contracts.  

Ameriprise argued that the case did not present a question of law or fact ...

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Posted in Antitrust

Distinguishing the situation in Queen City Pizza as a “contractually-created market power” (which cannot lead to antitrust liability), the United States Court of Appeals for the Ninth Circuit restored claims under the Sherman Antitrust Act in Newcal Industries, Inc. v. Ikon Office Solution, 2008 WL 185520 (9th Cir. Jan. 23, 2008). While this case is not brought against a franchisor, the court’s renewed affinity for the Kodak-based theory of a single-brand market could be cited against franchisors in some scenarios. Ikon, the defendant in this case, saw its district court ...

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Posted in Arbitration

In In re Bath Junkie Franchise, Inc., 2008 WL 324760 (Tex. Ct. App. Feb. 7, 2008), a Texas Court of Appeals held that a dispute arising from a franchisor and franchisee’s mutual termination agreement was subject to the arbitration provision contained within the parties’ franchise agreement. The franchisee filed the lawsuit seeking damages after the franchisor failed to make the required “buy out” payment pursuant to the mutual termination agreement executed by the parties. Approximately 14 months after the franchisee commenced its lawsuit, the franchisor moved to ...

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Posted in Arbitration

In Kayne v. Thomas Kinkade Company, 2007 WL 4287364 (N.D. Cal. Dec. 5, 2007), the court issued another ruling in the long-standing battle between former dealer David Kayne against the Thomas Kinkade Company (“Thomas Kinkade”). Prior to the present action, Thomas Kinkade obtained an arbitration award against Kayne’s Georgia corporation in excess of $631,000. Thomas Kinkade initiated a new action to collect the outstanding balance against Kayne individually under the terms of an Application for Credit and Personal Guaranty he signed. In response, Kayne filed a lawsuit in ...

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Posted in Class Actions

In Quadrel v. GNC Franchising, LLC., 2007 WL 4241839 (W.D. Pa. Nov. 29, 2007), the court considered a motion by current and former GNC franchisees to certify a class action against their franchisor. The plaintiffs alleged that GNC had violated the provisions of a settlement agreement to resolve a previous class action brought in 2001. Under the prior settlement, the franchisor had agreed to take reasonable measures to avoid setting the ultimate discounted retail price on certain sale items below the franchisees’ then-current wholesale price, to not accept royalty on such items ...

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Posted in Procedure

In Super 8 Motels, Inc. v. Deer Lodge Super 8, Inc., 2007 WL 4246454 (D.S.D. Nov. 29, 2007), the franchisor’s default judgment against its franchisee was set aside conditioned upon the franchisee paying the franchisor $15,000 in return for the right to participate in a hearing on whether damages should be awarded to the franchisor. The court also left in place the injunctive portion of the default judgment, ruling that the franchisee can no longer use the franchisor’s trademarks.

Based on the totality of the circumstances and in balancing the policies of prompt and efficient ...

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Posted in Procedure

A federal district court in Louisiana overturned a default judgment in a case that serves as a warning to franchisors who are named in lawsuits that should have been brought (if at all) only against a franchisee. Matthews v. International House of Pancakes, Inc., 2007 WL 4591232 (E.D. La. Dec. 28, 2007), was an employment-law action in which both the franchisee and franchisor were named as defendants. The franchisor failed to file an answer or other response, and the court entered a default judgment against it.

In moving to set aside the judgment, the franchisor argued that it did not ...

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In Schreyer v. Bandag, Inc., No. 05-CV-1235 (D. Minn. Dec. 5, 2007), the employee, Schreyer, was injured while working for the franchisee, Tire Associates, when a tire being retreaded on a piece of equipment exploded because the equipment was not functioning properly. Schreyer, prevented by Minnesota worker’s compensation law from suing the franchisee-employer, brought a claim of negligence against Bandag, the franchisor. Bandag, in turn, brought a third-party complaint for contribution or indemnity against franchisee Tire Associates, the employer. The federal district ...

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Posted in Arbitration

In the Spinks v. Krystal Co., 2007 WL 4568992 (D.S.C. Dec. 20, 2007), a federal court in South Carolina granted franchisor Krystal Company’s motion to compel arbitration. The case highlights the importance of carefully crafting guaranty agreements.

In the spring of 2004, Spinks Investment, Inc. and franchisor Krystal Company entered into franchise agreements for two shops located in South Carolina. Two years later, Spinks Investment closed and abandoned both franchises. Krystal notified Spinks Investment that it had terminated the franchises and that it would submit the ...

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In Loyle v. Hertz Corp., 2007 WL 4555201 (Pa. Super. Ct. Dec. 28, 2007), the plaintiffs rented a vehicle from a Hertz facility located at the international airport in Toronto, Canada after making the reservation by telephone in the United States. Shortly after the plaintiffs returned the vehicle to the Toronto airport, they were detained by police officers for four hours and subjected to a strip and cavity search after Hertz personnel found a loaded handgun in the vehicle. Plaintiffs asserted that the gun did not belong to them and contended that it most likely had been left in the rental ...

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In December 2007, the Sixth Circuit Court of Appeals held that a Michigan district court had improperly denied a franchisor’s request for a preliminary injunction prohibiting its franchisees from competing against the franchisor’s business for a period of two years based upon the franchise agreement’s non-compete clause. Certified Restoration Dry Cleaning Network, L.L.C. v. Tenke Corp., 2007 WL 4372888 (6th Cir. Dec. 17, 2007). The franchisees, citizens of Ohio, had been terminated for failure to pay fees. The franchise agreement contained a post-termination ...

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The United States Bankruptcy Court for the Southern District of Texas recently found the franchisor of Diedrich coffeehouses in breach of the implied covenant of good faith and fair dealing for failing to exercise an option in its master lease that would have allowed plaintiff Magna Cum Latte, a Diedrich franchisee, to continue to sublease from Diedrich the premises of one of Magna’s franchised coffeehouses. Magna Cum Latte, Inc. v. Diedrich Coffee, Inc., et al., 2007 WL 4412143 (Bankr. S.D. Tex Dec. 13, 2007).

Diedrich sold three existing coffeehouses in Houston, Texas to Magna ...

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Posted in Procedure

The United States District Court for the Eastern District of Virginia this month upheld franchise agreement provisions waiving the franchisee’s right to a jury trial and punitive damages claims. Dunkin’ Franchised Restaurants, Inc., et al. v. Manassas Donut, Inc., et al., 2008 WL 110474 (E.D. Va. Jan. 8, 2008). (This was a case handled for the franchisor by Gray Plant Mooty.)

In considering the validity of a jury waiver, the court considered: (1) the parties’ negotiations concerning the waiver provisions; (2) the conspicuousness of the provision in the contract; (3) the ...

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In B & E Juices, Inc. v. Energy Brands, Inc., Bus. Fran. Guide ¶13,748 (D. Conn. Oct. 26, 2007), a federal district court in Connecticut found that a beverage distributor was not a “franchisee” for purposes of the Connecticut Franchise Act. The plaintiff beverage distributor sought a preliminary injunction restraining the defendant manufacturer from terminating a distribution agreement between the parties. B & E asserted that it had a franchise relationship with Energy Brands and that under the Connecticut Franchise Act, a franchisor may only terminate a franchise for good ...

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A federal court in Minnesota has refused to stop the non-renewal of a distributor of coin-operated tire-inflator machines and automobile vacuums in William McCabe v. AIR-Serv Group, LLC, 2007 WL 4591932 (D. Minn. Dec. 28, 2007). The change was part of the manufacturer’s business model shift that had resulted in reducing distributor ranks from 130 down to four. Most of the reduction occurred through non-renewal of distribution agreements at the end of their terms. This distributor’s lawsuit claimed protection under the Minnesota Franchise Act and on other grounds.

In denying ...

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The United States District Court for the Northern District of California recently denied a gas station franchisee’s motion for preliminary injunction against a franchisor in a dispute under the Petroleum Marketing Practices Act. Houtan Petroleum, Inc. v. ConocoPhillips Company, U.S. Dist. LEXIS 86869 (N.D. Cal. Nov. 16, 2007).

Houtan had operated a Union 76 gas station as a Conoco franchisee at the same location for 10 years. While Conoco owned the structures, equipment and improvements at the station, it did not own the station property but instead leased it from a third-party ...

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A dealer named Tri-State Hardware filed a three-count petition in federal court in Missouri alleging that John Deere wrongfully terminated Tri-State’s right to sell the manufacturer’s line of products and services. Tri State Hardware, Inc.  v. John Deere Co., 2007 WL 4287867 (W.D. Mo. Dec. 6, 2007). In support of its claims, Tri-State  submitted a certified public accountant’s opinion on future profits allegedly lost because of the termination. The court generally allowed the affidavit, as there were reasonable disputes between the parties over both assumed facts and ...

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The United States District Court for the District of Oregon recently upheld a temporary restraining order that it had issued at the request of a motorcycle dealership, finding that Oregon’s Motor Vehicle Dealerships Act requires courts to maintain the status quo between a dealership and manufacturer while the court determines whether good cause for termination exists.  Everything Cycles, Inc. v. Yamaha Motor Corp. U.S.A, 2007 U.S. Dist. LEXIS 79396 (D. Or. Oct. 25, 2007). Yamaha’s attempted termination of the dealership arose out of the felony conviction of the ...

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Cole’s Tractor & Equipment, Inc. was both a dealer and distributor for Homier Distributing Company, Inc., which sells and distributes Farm Pro tractors, implements, tools, small engines, and related products. Homier sent a notice of termination to Cole due to Cole’s alleged failure to actively develop its territory and its severely declining sales performance.The notice specified that Cole had not, however, lost its “status as a dealer of Homier Farm Pro product lines.” Cole sued Homier in federal court, alleging that Homier had impermissibly contacted the dealerships ...

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The United States District Court for the District of Minnesota recently denied a distributor’s motion for a preliminary injunction, relying on two conclusions of law favorable to the manufacturer defendant.  In Coyne’s & Company v. Enesco, 2007 U.S. Dist LEXIS 79003 (D. Minn. Oct. 12, 2007), the plaintiff had been granted the exclusive rights to distribute the defendant’s product line in the United States and Mexico, in exchange for a 50 percent markup on the products. Plaintiff sued for a preliminary injunction when it appeared the defendant would begin distributing its ...

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Posted in Antitrust

For as long as anyone alive today can remember, federal antitrust law has prohibited suppliers from setting minimum resale prices based on a century-old precedent. Last summer, the United States Supreme Court, in Leegin v. Creative Leather Products, Inc., 2007 WL 1835892 (U.S. June 28, 2007), reversed that long-standing precedent, ruling that all such agreements are now subject to the “rule of reason,” a method of analysis under which the claimant must make the difficult showing that the arrangement harms competition substantially in the market as a whole. This decision is ...

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Posted in Antitrust

For the first time in over a decade, the Supreme Court in early 2006 addressed Robinson-Patman Act standards for price discrimination in Volvo Trucks North America, Inc. v. Reeder-Simco GMC, Inc., 2006 WL 43971 (U.S. Jan. 10, 2006). The decision came in the context of a dealership dispute. A key fact in this case was that Volvo Trucks North America, the defendant at trial, had, like many companies, decided to reduce its dealership ranks so that each dealer would serve a larger market. With that common backdrop, the plaintiff convinced a jury that Volvo Trucks had discriminated against ...

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About this Publication

The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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