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The Franchise Memorandum

The Franchise Memorandum

Posts in Jurisdiction and Procedure.

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

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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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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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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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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 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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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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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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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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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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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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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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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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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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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 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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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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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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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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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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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 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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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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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 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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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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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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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 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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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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