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Posts in Fraud/Misrepresentation.

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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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 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 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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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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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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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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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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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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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 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 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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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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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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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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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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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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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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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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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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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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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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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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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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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 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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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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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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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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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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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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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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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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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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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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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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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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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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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 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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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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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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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 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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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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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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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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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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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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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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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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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 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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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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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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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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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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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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