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The Franchise Memorandum

Posts in Procedure.
Posted in Procedure

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

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Posted in Procedure

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

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

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

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

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

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Once again, a jury trial waiver has been upheld by a federal court, this time in Michigan. In ERA Franchise Systems LLC v. Bowers Realty and Associates, Inc., 2011 U.S. Dist. LEXIS 14474 (E.D. Mich. Feb. 14, 2011), the court enforced the language of the parties’ franchise agreement. The franchisor had sued the franchisee for breach of the agreement, and Bowers’ answer included a demand for a jury. ERA moved to strike the demand, arguing that the franchise agreement’s express waiver provision controlled.  

To strike a jury waiver provision in the Sixth Circuit, the contesting party ...

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In a troubling discovery ruling in ongoing litigation between Burger King Corporation and a franchisee association, a magistrate judge in the Southern District of Florida has found that BKC must produce sensitive information to the plaintiff. National Franchisee Ass’n v. Burger King Corp., 2010 U.S. Dist Lexis 105953 (S.D. Fla. June 20, 2010). First, “Show of Support” documents related to the addition of the double cheeseburger to Burger King’s Value Menu must be turned over. Show of Support documents are voting forms that franchisees submit to indicate whether they ...

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In a case that demonstrates the difficulties of maintaining confidentiality during litigation, the United States Court of Appeals for the First Circuit dismissed Coverall’s interlocutory appeal from a district court order partially denying its request for a protective order to protect select passages of deposition testimony. Awuah v. Coverall North Am., Inc., 2009 WL 3429574 (1st Cir. Oct. 27, 2009). The appeal arose out of a class action filed by Coverall’s franchisees alleging that Coverall made misrepresentations, failed to keep its contractual promises, and wrongly ...

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Posted in Procedure

In a putative class action suit, Bonanno v. Quizno’s Franchise Co., LLC, 2009 WL 137211 (D. Colo. Jan. 20, 2009), the plaintiffs recently brought a motion to compel the franchisor’s chairman and ex-CEO to answer deposition questions concerning his personal financial gain from a 2006 transaction in which an affiliate of JP Morgan acquired 49% of Quizno’s stock. The plaintiffs argued that the testimony would show the motive behind and the fruits of “Quizno’s fraudulent scheme to turn its owners . . . into billionaires by selling the company after inflating its value by ...

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Posted in Procedure

In AAMCO Transmissions, Inc. v. Baker, 2008 WL 5245768 (E.D. Pa. Dec. 16, 2008), 2008 WL 5272781 (E.D. Pa. Dec. 18, 2008), and 2008 WL 5412026 (E.D. Pa. Dec. 24, 2008), a federal district court in Pennsylvania handed down three decisions concerning pretrial motions filed by the parties. The case arose following the termination of Baker’s franchise in Tallahassee, Florida, after an investigation by AAMCO showed that Baker was not dealing with the public fairly and honestly. Baker filed counterclaims against AAMCO for, among other things, breach of contract and intentional ...

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Posted in Procedure

In Brunet v. Quizno’s Franchise Company LLC, 2008 WL 5378140 (D. Colo. Dec. 23, 2008), a United States Magistrate Judge for the District of Colorado issued a discovery ruling notable for its requirement that the plaintiff-franchisees create a detailed list of particular statements they claim were made by the defendant-franchisor before the franchisor would be required to produce a corporate representative to testify regarding the statements. The franchisees had demanded that the franchisor produce the corporate representative(s) most knowledgeable regarding “all ...

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Posted in Procedure

In Citgo Petroleum Corporation v. Ranger Enterprises, Inc., 2008 WL 3927470 (W.D. Wis. Aug. 27, 2008), the operator of 39 Citgo gas stations alleged that its franchisor failed to live up to its obligations by providing less fuel to the franchisee’s locations than was contractually required and because demand for Citgo branded fuel allegedly dropped when Venezuelan President Hugo Chavez began making hostile statements in the press about the United States. (Citgo is owned by the Venezuelan government).  When Citgo ultimately announced that it would not renew the franchise ...

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Posted in Procedure

In Casual Dining Development, Inc. v. QFA Royalties, LLC, 2008 WL 4186692 (E.D. Wis. Sept. 5, 2008), the plaintiffs, Quiznos franchisees, filed a complaint for declaratory relief related to the Area Director Marketing Agreement between the parties. The plaintiffs sought a declaratory judgment excusing them from their development quota obligations under the development agreement. The plaintiffs argued that their failure to develop additional franchises was the result of unfavorable press and negative customer attitudes toward the franchisor. However, as the Court noted ...

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Posted in Procedure

A franchisor’s lawsuit against the operators of two franchises in California was transferred this month to that state despite contractual forum selection clauses that had specified venue in the franchisor’s home state of New Jersey. Elite Sports Enterprises, Inc. v. Lococo, 2008 WL 4192045 (D.N.J. Sept. 5, 2008). Noting that the forum selection clauses “may be considered” in the court’s analysis of a transfer motion, the parties’ choice of venue is “not dispositive,” the New Jersey court held. In this case, the court found more significant that the “operative ...

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Posted in Procedure

In Blockbuster, Inc. v. C-Span Entertainment, Inc., 2008 WL 3318882 (Tex. App. Aug. 12, 2008), a Texas Court of Appeals overturned a huge judgment that had been won by a franchisee on breach of warranty, conversion, and fraudulent inducement claims. The provision at issue was a broad release in a transfer agreement, through which agreement the franchisor had been released from all claims by the franchisee.

Sunil Dharod purchased a number of Blockbuster® shops in Tyler, Texas. At closing, Dharod signed the franchise agreement for the shops in his individual capacity. Blockbuster ...

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Posted in Procedure

In Hopkins v. GNC Franchising, Inc., 2008 WL 3845375 (3d Cir. Aug. 19, 2008), the Third Circuit Court of Appeals overturned a Pennsylvania federal court’s decision dismissing a terminated franchisee’s second lawsuit against franchisor GNC for breach of contract and tortious interference with contract. The Third Circuit allowed both claims to proceed against the franchisor.

The district court had found that the terminated franchisee’s claims were barred by the doctrine of issue preclusion, which bars a subsequent action from being decided when there previously has been a ...

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Posted in Procedure

A panel of the California Court of Appeals has reversed a summary judgment and award of $270,000 in attorney’s fees that had been won by a franchisor in Gogri v. Jack In The Box, Inc., 166 Cal. App. 4th 255 (Cal. App. 4 Dist. August 25, 2008). The basis of the reversal was that the plaintiff-franchisee had voluntarily withdrawn his claims prior to the summary judgment ruling. The appellate court found that the voluntary dismissal was timely under California state procedures even though the summary judgment motion had been pending at the time of the franchisee’s withdrawal of claims ...

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Posted in Procedure

In a separate order in R&K Lombard Pharmacy Corp. v. Medicine Shoppe International, 2008 WL 648506 (E.D. Mo. March. 5, 2008), the court sided with defendant Medicine Shoppe International, the franchisor of the “Medicine Shoppe” system, and granted its motion for a more definitive statement regarding the allegations contained in the complaint filed against it by 25 franchisees. The plaintiffs’ complaint contained roughly 20 pages of general allegations, which were then incorporated by reference into each of the 19 counts asserted against the defendant. The franchisor ...

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Posted in Procedure

A trio of recent decisions addresses issues of personal jurisdiction in the franchise context. In Noble Roman’s, Inc. v. French Baguette, LLC, 2008 WL 975078 (S.D. Ind. April 8, 2008), Noble Roman’s brought suit against terminated franchisees in Indiana, which was franchisor Noble Roman’s home state. The franchisees sought to dismiss that action, arguing that they were Florida residents with no contacts with the state of Indiana. The court disagreed and found that Noble Roman’s had demonstrated that defendants had sufficient contacts with Indiana to justify the ...

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Posted in Procedure

Manufacturers and franchisors who settle cases with their dealers and franchisees often do so in part to stop harm to the supplier’s reputation in the marketplace. In those circumstances, the settlement agreement often includes a non-disparagement clause. The Supreme Court of Connecticut strongly upheld such a clause on March 25 in TES Franchising, LLC v. Feldman, 2008 WL 726293 (Conn. March 25, 2008). The court enjoined Feldman from any further violation of the settlement agreement and remanded to the trial court to determine how much he would have to pay for his past violations ...

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Posted in Procedure

In Ridge Chrysler Jeep, LLC v. DaimlerChrysler Financial Services Americas LLC, 2008 WL 441758 (7th Cir. Feb. 20, 2008), the United States Court of Appeals for the Seventh Circuit affirmed a district court’s dismissal of two car dealerships’ lawsuit based on the dealerships’ deceit. The lawsuit had been based on the manufacturer’s exercise of its right to require dealerships to pay up front for inventory. After Chrysler exercised its right to the up-front payment, two dealerships responded with a lawsuit under the Automobile Dealers’ Day in Court Act, accusing Chrysler ...

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Posted in Procedure

In a franchise termination case, the United States District Court for the Eastern District of Pennsylvania recently denied AAMCO’s motion for a protective order to stop the deposition of its in-house counsel who signed the termination letter, but granted the franchisor’s motion to strike the franchisee’s jury demand. AAMCO Transmissions, Inc. v. Baker, 2008 WL 509220 (E.D. Pa. Feb. 25, 2008).

AAMCO sought the admission of its vice president and general counsel, James Goniea, to practice before the court for the purpose of the case. The franchisee opposed the admission of Mr ...

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Posted in Procedure

In Super 8 Motels, Inc. v. Deer Lodge Super 8, Inc., 2007 WL 4246454 (D.S.D. Nov. 29, 2007), the franchisor’s default judgment against its franchisee was set aside conditioned upon the franchisee paying the franchisor $15,000 in return for the right to participate in a hearing on whether damages should be awarded to the franchisor. The court also left in place the injunctive portion of the default judgment, ruling that the franchisee can no longer use the franchisor’s trademarks.

Based on the totality of the circumstances and in balancing the policies of prompt and efficient ...

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Posted in Procedure

A federal district court in Louisiana overturned a default judgment in a case that serves as a warning to franchisors who are named in lawsuits that should have been brought (if at all) only against a franchisee. Matthews v. International House of Pancakes, Inc., 2007 WL 4591232 (E.D. La. Dec. 28, 2007), was an employment-law action in which both the franchisee and franchisor were named as defendants. The franchisor failed to file an answer or other response, and the court entered a default judgment against it.

In moving to set aside the judgment, the franchisor argued that it did not ...

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Posted in Procedure

The United States District Court for the Eastern District of Virginia this month upheld franchise agreement provisions waiving the franchisee’s right to a jury trial and punitive damages claims. Dunkin’ Franchised Restaurants, Inc., et al. v. Manassas Donut, Inc., et al., 2008 WL 110474 (E.D. Va. Jan. 8, 2008). (This was a case handled for the franchisor by Gray Plant Mooty.)

In considering the validity of a jury waiver, the court considered: (1) the parties’ negotiations concerning the waiver provisions; (2) the conspicuousness of the provision in the contract; (3) the ...

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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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