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The Franchise Memorandum

The Franchise Memorandum

Posts in Duty of Good Faith and Fair Dealing.

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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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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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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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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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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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 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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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 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 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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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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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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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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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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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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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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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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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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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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