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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 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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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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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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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 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 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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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 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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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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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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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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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 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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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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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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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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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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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 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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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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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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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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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 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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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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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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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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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 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 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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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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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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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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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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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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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 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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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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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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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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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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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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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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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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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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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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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 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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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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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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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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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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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 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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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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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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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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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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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 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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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 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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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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