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The Franchise Memorandum

The Franchise Memorandum

Posts in State Franchise and Dealer Laws.

A federal court in California denied a gasoline station and convenience store franchisee’s motion for summary judgment on its claim that there was an unlawful material modification to its franchise agreement under the California Franchise Investment Law (CFIL). BP Prods. N. Am., Inc. v. Grand Petroleum, Inc., 2021 WL 4804275 (N.D. Ca. Oct. 14, 2021).

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A federal court in Wisconsin has recently granted defendant Garmin International’s motion to dismiss a claim under Wisconsin’s dealer law, which it concluded did not apply to the parties’ relationship.

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A federal court in Michigan granted 7-Eleven’s motion for summary judgment and enforced the franchisor’s right to terminate a franchisee following repeated defaults. 7-Eleven, Inc. v. CJ-Grand, LLC, 2021 WL 429332 (E.D. Mich. Feb. 8, 2021). The franchise agreement at issue permitted immediate termination if 7-Eleven issued four notices of default to its franchisee within a two-year period, regardless of whether any of the defaults were cured. 7-Eleven sought a declaratory judgment from the court vindicating 7-Eleven’s right to terminate its franchise agreement with ...

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A federal court in Minnesota recently denied General Motors’ motion to dismiss a lawsuit brought by one of its dealers, Lupient Chevrolet. Lupient Chevrolet, Inc. v. General Motors LLC, 2020 WL 335996 (D. Minn. Jan. 21, 2020). Lupient operates a Chevrolet motor vehicle dealership. Under the parties’ dealership agreement, Lupient is required to maintain a certain level of sales performance, which is measured by comparing Lupient’s sales to the sales opportunities within the geographical areas assigned to Lupient. The agreement also prohibits GM from unreasonably ...

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A federal court in New Jersey held that the release contained in an assignment agreement did not violate the New Jersey Franchise Practices Act (NJFPA). Scism v. Golden Corral Corp., 2019 WL 6522738 (D.N.J. Dec. 4, 2019). The NJFPA prohibits a franchisor from requiring that a franchisee assent to a release that would relieve any person of liability imposed by the Act at the time the franchisee enters into a franchise arrangement. The Scisms entered into a franchise agreement dated May 24, 2007. The franchise agreement was later assigned to GC of Vineland, LLC, in which the Scisms are ...

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A federal court in the Western District of Wisconsin has granted partial summary judgment to a pizza distributor, holding that the Wisconsin Fair Dealership Law (“WFDL”) applies to its relationship with its former manufacturer. A&B Distrib., Inc. v. Heggie's Pizza, LLC, 2019 WL 6118718 (W.D. Wis. Nov. 18, 2019). Plaintiff A&B Distributing is a one-man company that, over the course of 13 ½ years, sold pizzas made by Heggie’s Pizza. Without ever entering into a written agreement, A&B would buy discounted pizzas from Heggie’s and sell them to retail customers in northwest ...

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The Washington Supreme Court has answered two certified questions from a federal district court regarding the meaning of the phrase “fair and reasonable price” under Washington’s Franchise Investment Protection Act (“FIPA”). Money Mailer, LLC v. Brewer, 2019 WL 4508353 (Wash. Sept. 19, 2019). FIPA prohibits franchisors from selling to a franchisee any product or service “for more than a fair and reasonable price.” A federal district court certified two questions regarding that prohibition: (1) whether a franchisee may rely on the price at which the franchisor is ...

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In the last issue of The GPMemorandum, we covered the “Protect Alabama Small Businesses Act,” the first major state franchise relationship bill to be considered this year. The Alabama State Senate version of the bill (SB129) passed the Alabama Senate on March 16, 2019. The identical House companion bill (HB352) was voted out of committee with a favorable recommendation on April 4, 2019. While a final vote on the bill was expected by many to occur this month, the Alabama Legislature did not take the bill up for final vote before adjourning the 2019 regular session on May 31, 2019.

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The Alabama Legislature recently introduced two companion bills in the House of Representatives (HB134) and State Senate (SB129) to create “The Protect Alabama Small Businesses Act,” the first major state franchise relationship bill to be seriously considered this year. The bill, which purports to promote fair business relationships between franchisors and franchisees, contains some of the most expansive relationship law requirements seen in recent legislation. It requires good cause for termination and nonrenewal, and governs sales, transfers, or assignment of ...

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The Washington Legislature recently passed HB1450, a bill that will codify certain limits on the enforceability of noncompetition agreements and outlaw anti-poaching agreements in Washington. It is anticipated that Governor Jay Inslee will sign the bill into law soon, and once enacted, it will take effect on January 1, 2020. HB1450 applies to any noncompetition agreement by which an employee or independent contractor is prohibited or restrained from engaging in a lawful profession, trade, or business of any kind. It does not include: (i) nonsolicitation agreements; (ii ...

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A federal court in Minnesota denied a motion to dismiss a lawsuit alleging wrongful termination of a sales representative agreement. Hedding v. Pneu Fast Co., 2019 WL 79006 (D. Minn. Jan. 2, 2019). Minnesota resident Curt Hedding was a sales representative for nail and staple manufacturer Pneu Fast. Under the parties’ 2006 agreement, Hedding represented Pneu Fast in selling and distributing products across nine states, including Minnesota and Ohio. In 2018, Pneu Fast terminated the agreement without explanation or an opportunity to cure. Hedding filed suit, alleging the ...

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A Wisconsin federal court recently upheld the termination of two dealer agreements, finding that the agreements were not subject to California and Washington state franchise laws, both of which require good cause for termination of an agreement. PW Stoelting, L.L.C. v. Levine, 2018 WL 6603874 (E.D. Wis. Dec. 17, 2018). This dispute arose after PW Stoelting, a manufacturer of food service and cleaning equipment, terminated, without cause, its agreements with two related dealers based in California and Washington. Although the agreements permitted termination without cause ...

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In another case involving the Wisconsin dealership statute, a federal court granted a manufacturer’s motion for summary judgment after finding that a distributor was not a “dealership” under the Wisconsin Fair Dealership Law (WFDL). PMT Machinery Sales, Inc. v. Yama Seiki USA, Inc., 2018 WL 5775919 (E.D. Wis. Nov. 2, 2018). In October 2015, PMT was incorporated to sell Yama Seiki machines and immediately contacted Yama Seiki seeking to become an exclusive distributor in eastern Wisconsin. The general manager of Yama Seiki sent PMT an “exclusive letter of dealership,” ...

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In Arena Restaurant & Lounge LLC v. Southern Glazer’s Wine & Spirits, LLC, 2018 WL 4334631 (N.D. Cal. Sept. 10, 2018), a federal court in Northern California granted Southern Glazer’s motion to dismiss a putative class action lawsuit brought by plaintiffs who purchased liquor from Southern Glazer, an international wine and spirits distributor. The plaintiffs alleged that Southern Glazer engaged in various unlawful and unfair business practices, including violations of California’s Unfair Practices Act consisting of (1) below-cost sales, (2) loss-leader sales, (3 ...

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A federal court in Minnesota recently ruled that a manufacturer was not liable under Minnesota or Wisconsin dealer statutes when its five-year relationship with a dealer ended over disputes about the noncompete obligation in a new form of annual contract. In Tri-State Bobcat Inc. v. FINN Corp., 2018 WL 4268898 (D. Minn. Sept. 6, 2018), Tri-State Bobcat brought suit against FINN Corp., a manufacturer of hydroseeders and other landscaping equipment, after the parties failed to agree on terms for a 2016 dealer agreement. While the parties were negotiating terms for the new contract ...

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A Connecticut federal court recently allowed a plaintiff to continue with his claim that Allstate violated state franchise laws by terminating him without good cause. In Kollar v. Allstate Ins. Co., 2018 WL 4688301 (D. Conn. Sept. 28, 2018), Kollar alleged a violation of the Connecticut Franchise Act after Allstate terminated his longtime position as an insurance agent without cause in 2014. Allstate disputed that a franchise relationship existed, noting that Connecticut already had extensive legislation governing the relationship between insurance companies and their ...

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A federal court in California has denied a franchisor’s motion to dismiss a claim that it violated California’s disclosure law because it failed to redisclose a prospective franchisee with, among other things, the franchisor’s then-effective amended FDD. Schulenburg v. Handel’s Enters., Inc., 2018 WL 4282637 (S.D. Cal. Sept. 7, 2018). Handel’s provided its FDD to the prospective franchisee, Schulenburg, in October 2015. In December 2015, Schulenburg sent a small deposit of the initial franchise fee to Handel’s, without signing the franchise agreement. On ...

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A federal court in New Jersey has granted a motion to dismiss a challenge to the “immediate” termination of a distribution agreement because the distributor failed to plead adequately that the agreement contemplated its maintenance of a New Jersey place of business, as required for the New Jersey Franchise Practices Act (NJFPA) to apply. Lawmen Supply Co. of N.J., Inc. v. Glock, Inc., 2018 WL 3201790 (D.N.J. June 29, 2018). The parties had entered into a distribution agreement for Lawmen Supply to distribute “Glock Only” pistols to the law enforcement market. Glock ...

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An Arkansas state appellate court upheld a motion for default judgment against a wholesale distributor for failing to adhere to the Arkansas Farm Equipment Retailer Franchise Protection Act. R.W. Distributors, Inc. v. Texarkana Tractor Co., 2018 Ark. App. 345 (June 6, 2018). R.W. supplied riding lawnmowers that Texarkana Tractor sold in stores. Texarkana was unable to sell the tractors and demanded that R.W. take them back and repay Texarkana in accordance with the statute. After originally defaulting, R.W. unsuccessfully opposed the claim and then appealed.

The appellate ...

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The United States District Court for the Western District of Washington held that a franchisee does not have a direct cause of action against a franchisor for violations of the Washington Franchise Investment Protection Act (FIPA), unless the claim is in connection with the offering or sale of a franchise. Money Mailer, LLC. v. Brewer, 2018 WL 3156901 (W.D. Wash. June 28, 2018). Brewer, a franchisee of Money Mailer, brought an action alleging that the franchisor was charging unreasonable fees in violation of FIPA and the Washington Consumer Protection Act (CPA). During discovery ...

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A federal court in Indiana has granted a franchisor’s motion to dismiss five of the six claims brought against it by a franchisee. Gre-Ter Enters. v. Mgmt. Recruiters Int'l, Inc., 2018 WL 3145572 (S.D. Ind. June 26, 2018). Gray Plant Mooty represents the franchisor in this case. In 1998 and again in 2005, the franchisee, Gre-Ter, entered into franchise agreements with Management Recruiters International (“MRI”), a franchisor of recruiting and contract-staffing businesses. In 2017, Gre-Ter brought suit against MRI, alleging violations of the Indiana Franchise Act and the ...

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The District of Minnesota recently dismissed a plaintiff’s claims under two Minnesota dealer statutes arising out of terms imposed on the sale of the dealership. Bobcat of Duluth, Inc. v. Clark Equip. Co., 2018 WL 559531 (D. Minn. Jan. 25, 2018). Plaintiff Bobcat of Duluth had been a dealer of Bobcat equipment since 2000, and it also sold other lines of equipment including two Kubota products that compete with Bobcat’s equipment. In 2012, Bobcat implemented a new policy in its dealer agreements prohibiting the sale of products that compete with Bobcat’s lines, but this policy ...

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The United States District Court for the Southern District of Florida granted a manufacturer’s motion to dismiss fraud claims brought by one of its dealers in Broward Motorsports of Palm Beach, LLC v. Polaris Sales, Inc., 2018 WL 1072211 (S.D. Fla. Feb. 27, 2018). The plaintiff, Broward Motorsports, was a dealer of various Polaris products, including Victory motorcycles. In late 2016, it entered its first dealer agreement with Polaris for six product lines, with a term ending June 30, 2017. After entering into the agreement, Broward Motorsports received a letter from Polaris ...

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The U.S. District Court in Bismarck, North Dakota entered a preliminary injunction that enjoined the State of North Dakota from enforcing amendments to the North Dakota Farm Equipment Dealership Statute, which were enacted in Senate Bill 2289 (SB 2289) on March 16, 2017. Association of Equipment Mfrs. v. Burgum, No. 1:17-cv-151 (D.N.D. Dec. 14, 2017). The plaintiffs included several farm equipment manufacturers and the Association of Equipment Manufacturers. The defendants were the North Dakota Governor, and the dealer association that had drafted the legislation. The ...

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We reported in The GPMemorandum, Issue No. 223, that the Virginia State Corporation Commission had issued an Order to Take Notice regarding the state’s franchise law. That Order stated that the Virginia Division of Securities and Retail Franchising had recommended certain revisions to Chapter 110 of Title 21 of the Virginia Administrative Code entitled “Retail Franchising Act Rules.” The proposed amendment would have provided an exemption from Virginia’s franchise registration law for franchisors that offer or sell a “single unit” franchise in which the ...

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The Supreme Court of Missouri recently reversed an award of lost profits as damages for an improper notice of termination of a distributorship under the Missouri Franchise Act. Sun Aviation, Inc. v. L-3 Commc’ns Avionics, 2017 WL 4930870 (Mo. Oct. 31, 2017). Sun Aviation, a former distributor of L-3’s aircraft instrument products, sued L-3 on the grounds that L-3 had failed to provide 90 days’ written notice of termination as required by the Missouri Franchise Act when it terminated Sun’s distributorship. The trial court found L-3 liable and awarded Sun eighteen years of ...

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The United States District Court for the Southern District of Texas has granted supplier Thermo King Corporation’s motion for summary judgment, finding that Thermo King did not violate Texas’ Fair Practices of Equipment Manufacturers, Distributors, Wholesalers, and Dealers Act by denying a dealer’s request to transfer its dealership to Doggett Company, LLC. Doggett Co., LLC v. Thermo King Corp., 2017 WL 3267796 (S.D. Tex. Aug. 1, 2017). Thermo King’s basis for denying the transfer was that Doggett was affiliated with another trucking company. Doggett alleged that this ...

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A federal district court in South Dakota recently held that a truck trailer manufacturer violated the South Dakota motor vehicle dealer law by terminating and failing to renew its dealer without providing the requisite notice and opportunity to cure. Black Hills Truck & Trailer, Inc. v. MAC Trailer Mfg., Inc., 2017 WL 4236546 (D.S.D. Sept. 22, 2017). Black Hills claimed it was wrongfully terminated when, less than a year after entering into a written distributor agreement, MAC sought to amend the agreement and refused to accept any orders until Black Hills signed an amended dealer ...

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The Virginia State Corporation Commission issued an Order to Take Notice on October 11, 2017, stating that the Virginia Division of Securities and Retail Franchising has recommended certain revisions to Chapter 110 of Title 21 of the Virginia Administrative Code entitled “Retail Franchising Act Rules.” The proposed amendment provides an exemption from Virginia’s franchise registration law for franchisors that offer or sell a single unit franchise in which the actual minimum initial investment exceeds $5 million. The proposed exemption does not exempt franchisors from ...

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The United States Court of Appeals for the Sixth Circuit has reversed a district court's grant of a preliminary injunction enjoining termination of a beer distributor who failed to obtain the brewer's consent before a change of the distributor's ownership. S. Glazer's Distribs. of Ohio, LLC v. Great Lakes Brewing Co., 860 F.3d 844 (6th Cir. June 26, 2017). The parties' agreement required the brewer's written consent prior to any change in ownership of the distributor. Yet, without obtaining consent, the distributor merged with another distributor and requested consent only after a ...

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Meanwhile, the United States District Court for the Southern District of New York held that a license agreement between Safe Step Walk In Tub and CKH Industries created an accidental franchise, and therefore partially denied Safe Step's motion to dismiss CKH's claims. Safe Step Walk In Tub Co. v. CKH Indus., Inc., 2017 WL 1050126 (S.D.N.Y. Mar. 17, 2017). Under both the FTC's "Franchise Rule" and applicable state laws, the court found that the following three indicia of a franchise were readily met: (1) the franchisee obtained the right to operate a business or sell or offer goods or ...

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A federal court in California has allowed various claims by a distributor against its supplier to go to trial, including a California Unfair Competition Law ("UCL") claim alleging the supplier should have provided a Franchise Disclosure Document. G.P.P., Inc. v. Guardian Protection Prods., Inc., 2017 WL 220305 (E.D. Cal. Jan. 18, 2017). The Pennsylvania-based plaintiff was the exclusive distributor of defendant Guardian's products in several different territories, which did not include California. But the distributor had originally entered into distribution agreements ...

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The Eighth Circuit Court of Appeals recently affirmed a district court’s dismissal of a contractor’s claims against FedEx Corporation. Neubauer v. FedEx Corp., 2017 WL 655434 (8th Cir. Feb. 17, 2017). From 2004 to 2011, Neubauer and his corporate entity were parties to a series of Standard Operating Agreements with FedEx under which Neubauer would pick up and deliver FedEx packages within specific geographic areas in return for weekly payments based on stops made. Neubauer was described as an independent contractor of FedEx. In early 2011, FedEx transitioned to a new business ...

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The United States Court of Appeals for the Sixth Circuit has affirmed a judgment granting rescission of a purported franchise agreement and holding the franchisor and its salesperson jointly and severally liable for damages. Lofgren v. AirTrona Canada, 2017 WL 384876 (6th Cir. Jan. 27, 2017). The lower court’s judgment was summarized in Issue 202 of The GPMemorandum. AirTrona Green Technologies had previously sold an “ozone process” automobile deodorizer business plan and related equipment to the plaintiff, Lofgren. In 2011, AirTrona Canada (the apparent ...

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The United States Court of Appeals for the First Circuit partially affirmed a lower court’s decision that a product distributor’s claims based on an allegedly exclusive distribution agreement were barred by the three-year statute of limitations under Puerto Rico’s Dealers Act (“Law 75”). Medina & Medina Inc. v. Hormel Foods Corp., 840 F.3d 26 (1st Cir. 2016). Medina, the distributor, entered into a verbal distribution arrangement with Hormel in 1988, which Medina alleged gave it the exclusive right to distribute Hormel’s retail refrigerated products in Puerto ...

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A Wisconsin federal court recently granted summary judgment in favor of Dean Foods on the plaintiff’s claim that a hauling agreement between the parties was governed by the Wisconsin Fair Dealership Law (“WFDL”). Andrea Distrib., Inc. v. Dean Foods of Wis., LLC, 2016 WL 3199544 (W.D. Wis. June 8, 2016). Dean Foods and Andrea Distributing were parties to two agreements: (1) a hauling agreement, under which Andrea Distributing hauled Dean Foods’ products directly to Dean Foods’ customers, and (2) a distribution agreement, under which Andrea Distributing purchased ...

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In Miller Construction Equipment Sales, Inc. v. Clark Equipment Co., 2016 WL 2626803 (D. Alaska May 6, 2016), the federal court in Alaska found that a distributor did not have an obligation to repurchase several pieces of equipment in its former dealer’s inventory under Alaska’s distributorship statute. After the parties’ distribution agreement ended, Miller demanded that Clark repurchase several pieces of heavy equipment (and associated attachments) under a statute which governs the disposition of a dealer’s remaining merchandise upon the termination of a ...

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The United States Court of Appeals for the Sixth Circuit has affirmed a lower court’s finding that the successor-manufacturer exception to Ohio’s alcohol distributor protection law applies when termination follows the sale of an alcohol supplier’s parent company to a third party. Tri County Wholesale Distribs., Inc. v. Labatt USA Operating Co., LLC, 2016 WL 3618970 (6th Cir. Mar. 17, 2016). Under ordinary circumstances, the Ohio statute requires a supplier to have “just cause” for termination of an alcohol distributor. There is, however, an exception to the just cause ...

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Following a bench trial, a Missouri federal court found an automobile cosmetic repair franchisor not liable to a former master franchisee under the Texas Business Opportunity Act (“TBOA”). Restored Images Consulting, LLC v. Dr. Vinyl & Assocs., Ltd., 2016 WL 3064142 (W.D. Mo. May 31, 2016). Restored Images had been a franchisee of Dr. Vinyl before entering into a master franchise agreement with Dr. Vinyl. The master franchise agreement obligated Restored Images to sell a minimum number of franchises, though Restored Images repeatedly repudiated this obligation, and the ...

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A federal court in New Jersey granted 7-Eleven’s motion for summary judgment on a franchisee’s four counterclaims that 7-Eleven: (1) violated the New Jersey Franchise Practices Act (“NJFPA”); (2) breached the implied covenant of good faith and fair dealing; (3) violated the federal Fair Labor Standards Act (“FLSA”); and (4) violated the New Jersey Law Against Discrimination (“NJLAD”). 7-Eleven, Inc. v. Sodhi, 2016 WL 3085897 (D.N.J. May 31, 2016). After identifying accounting discrepancies in the records of Sodhi, its franchisee, 7-Eleven terminated the ...

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The Supreme Court of Minnesota has reversed the denial of a motion to enjoin one Nissan dealership from relocating to a location within ten miles of another. Wayzata Nissan, LLC v. Nissan North Am., Inc., 2016 WL 626069 (Minn. Feb. 17, 2016). The relocation resulted from the sale of the dealership by its previous owner, who wanted to retain the dealership premises for other purposes. The sale contemplated relocation of the dealership to a location approximately 7.5 miles from an existing Nissan dealership operated by the appellant, Wayzata. Nissan approved the sale and relocation and ...

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The state's Supreme Court has held that New Hampshire may regulate equipment dealerships in the same way it regulates motor vehicle dealerships, without violating the Contracts Clause of either the state or federal constitutions. Deere & Co. v. New Hampshire, 130 A.3d 1197 (N.H. Dec. 29, 2015). At issue was an amendment to New Hampshire's "Auto Dealer's Bill of Rights." Specifically, SB 126 amended the bill of rights to include "equipment" in the definition of "motor vehicle." This addition could be read to increase regulation of equipment manufacturer/dealer relationships in a ...

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A Minnesota federal court has dismissed a franchisee's claim against The UPS Store, Inc. ("TUPSS") under the Minnesota Franchise Act (MFA) and has transferred the rest of the case to a California federal court in accordance with the forum selection clause contained in the parties' franchise agreement. Moxie Venture L.L.C. v. The UPS Store, Inc., 2016 WL 128136 (D. Minn. Jan. 12, 2016). Moxie alleged that TUPSS had fraudulently induced it to enter into the franchise agreement by misrepresenting the best location for Moxie's UPS Store and the franchise's anticipated revenue, cash ...

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Following a bench trial, a Michigan federal court granted rescission of a contract relating to a vehicle deodorizing and sanitation business on the grounds that the business met the definition of a "franchise" under the Michigan Franchise Investment Law (MFIL). Lofgren v. AirTrona Canada, 2016 WL 25977 (E.D. Mich. Jan. 4, 2016). Lofgren had originally purchased equipment for the business from non-party AirTrona Green Technologies in 2009 and subsequently purchased upgraded equipment from AirTrona Canada in 2011. While the parties did not sign a formal, written agreement ...

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The United States District Court for the Southern District of Indiana dismissed a franchisor's claims under the Minnesota Franchise Act ("MFA") in a case recently transferred from a Minnesota federal court. Rogovsky Enterprise, Inc. v. Masterbrand Cabinets, Inc., 2015 WL 7721223 (S.D. Ind. Nov. 30, 2015). Rogovsky, the franchisor of Kitchen & Home Interiors remodeling franchises, brought suit against Masterbrand, a manufacturer and distributor of cabinets, following Masterbrand's termination of the exclusive distribution agreement between the parties. Under the ...

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A federal court has ruled that a plaintiff could not state a claim for negligence per se based on a defendant's alleged failure to comply with the disclosure requirements under the FTC's Franchise Rule. In G.P.P. Inc. v. Guardian Protection Products, 2015 U.S. Dist. LEXIS 85999 (E.D. Cal June 30, 2015), a distributor, Guardian Innovative Solutions ("GIS"), brought suit against its supplier, Guardian, regarding numerous distribution contracts covering multiple regions across the United States. GIS's central allegation was that the distribution agreements between the parties ...

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The Third Circuit Court of Appeals, after certifying the issue to the Delaware Supreme Court, has ruled that a supplier's inventory repurchase obligation under Delaware's dealer law is limited to new, unused, undamaged and complete inventory. Southern Track & Pump, Inc. v. Terex Corp., 2015 U.S. App. LEXIS 11190 (3d Cir. June 30, 2015). Plaintiff Southern Track terminated its distributorship agreement with Terex after Southern Track had difficulty marketing approximately $4 million worth of construction equipment purchased from Terex. Although Delaware's Equipment Dealer ...

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A Wisconsin district court granted a distributor's motion for summary judgment finding that the distributor was entitled to the termination protections provided by the Texas Fair Practices of Equipment Manufacturers, Distributors, Wholesalers and Dealers Act (the "FPA") even though no written agreement existed between distributor and manufacturer. Texas UJoints, LLC v. Dana Holding Corp., 2015 WL 3454431 (E.D. Wis. June 1, 2015). In 2012, Texas UJoints, a distributor, acquired the assets of Automotive Industrial Supply Co., Inc. ("AISCO"), a distributor of Dana's ...

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A federal court recently denied defendant Harley-Davidson's motion to dismiss a claim under the Hawaii Franchise Investment Law ("HFIL"). Cycle City Ltd., v. Harley-Davidson Motor Co., 2015 WL 3407825 (D. Haw. May 26, 2015). Cycle City alleged that HarleyDavidson failed to renew a license agreement between the parties in violation of the HFIL. In response, Harley-Davidson argued that Cycle City failed to state a claim under the HFIL because the relationship between the parties is not a franchise governed by the law. Under the parties' license agreement, Cycle City was granted the ...

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The U.S. District Court for the Northern District of Texas confirmed that the FTC's Franchise Disclosure Rules do not confer a private right of action. In Yumilicious Franchise, LLC v. Barrie, 2015 U.S. Dist. LEXIS 64407 (N.D. Tex. May 18, 2015), Yumilicious had filed breach of contract claims against a franchisee, Barrie, which had failed to make required payments and closed its franchised frozen yogurt store without consent. Barrie responded with counterclaims alleging violations of the Texas Deceptive Trade Practices Act ("DTPA"), the Franchise Rule, and the Texas and South ...

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A franchisor recently prevailed on a motion to dismiss an amended complaint filed by a former franchisee, which alleged the franchisor had violated the Wisconsin Franchise Investment Law during the franchise sales process. Braatz, LLC v. Red Mango FC, LLC, 2015 U.S. Dist. LEXIS 54885 (N.D. Tex. Apr. 27, 2015). On November 4, 2011, Red Mango provided Braatz with its current FDD, which included a form franchise agreement. On December 28, 2011, Red Mango provided Braatz with an official franchise agreement to sign, which was executed and returned by Braatz with a check on January 5, 2012 ...

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In DeTemple v. Leica Geosystems Inc., Bus. Franchise Guide (CCH) ¶ 15,460 (N.D. Ga. Feb. 9, 2015), the United States District Court for the Northern District of Georgia determined that a genuine issue of material fact existed as to whether a manufacturer and its distributor shared a community of interest within the meaning of the Wisconsin Fair Dealership Law (WFDL). The dispute arose when Leica Geosystems, a manufacturer of surveying and construction products, terminated DeTemple d/b/a TPSG, one of its Wisconsin-based distributors, after TPSG failed to meet performance ...

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A federal court in Minnesota has found that the parties' exclusive distribution agreement did not meet the definition of a franchise under the Minnesota Franchise Act (MFA). Rogovsky Enter., Inc. v. MasterBrand Cabinets, Inc., 2015 U.S. Dist. LEXIS 24834 (D. Minn. Feb. 13, 2015). The agreement provided for Rogovsky (the franchisor of the "Kitchen and Home Interiors" system of kitchen and bath remodeling businesses) to source cabinetry products for its franchisees exclusively through MasterBrand. MasterBrand terminated the agreement approximately two years into its ...

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In a case defended by Gray Plant Mooty, a Minnesota federal court recently denied an injunction motion brought by a party claiming to be a putative franchisee under the Minnesota Franchise Act (MFA). Wave Form Sys., Inc. v. AMS Sales Corp., 2014 U.S. Dist. LEXIS 175927 (D. Minn. Dec. 22, 2014). Wave Form was an Oregon corporation that supplied health care providers with laser equipment and services, including medical procedures that use “GreenLight” lasers marketed by AMS Sales Corp. In 2012, Wave Form signed a two-year agreement with AMS that provided nonexclusive use of AMS’s ...

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The court in Chicago Male Medical Clinic v. Ultimate Management, Inc., determined that a “consulting agreement” was a franchise under the Illinois Franchise Disclosure Act (IFDA), and awarded the plaintiff rescission of the agreement. 2014 U.S. Dist. LEXIS 174478 (C.D. Cal. Dec 16, 2014). Chicago Male operated a medical clinic under a “Continuing Compensation and Consulting Agreement” with Ultimate Management. Approximately nine months after executing the agreement, Chicago Male sued for rescission. Chicago Male claimed it was a “franchisee” under the IFDA ...

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The United States District Court for the District of New Jersey recently denied a Nestle distributor's request for preliminary injunctive relief under the New Jersey Franchise Practices Act because the distributor failed to demonstrate that it maintained a "place of business" in New Jersey, within the meaning of the Act. Watchung Spring Water Co., Inc. v. Nestle Waters N. Am., Inc., 2014 U.S. Dist. LEXIS 151178 (D.N.J. Oct. 23, 2014). The court defined "place of business" to mean a location where selling is the predominant activity and where there is a substantial level of marketing ...

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The federal court in Connecticut recently granted summary judgment in favor of a manufacturer on its motion to dismiss a distributor's claim under the Connecticut Franchise Act ("CFA"). Kinsley Group, Inc. v. MWM Energy Sys., Bus. Fran. Guide 91 15,389 (D. Conn., Sept. 23, 2014). Kinsley had been a distributor and authorized servicer of power generators manufactured by MWM since 2010. The relationship was not exclusive, however, and Kinsley derived the majority of its revenue from sales of a different manufacturer's products, in a noncompetitive sector. In 2012, MWM was acquired ...

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A Louisiana Court of Appeal recently upheld dismissal of a franchisee's complaint, which alleged that a franchisor's refusal to grant development rights and to approve the transfer of additional franchises to the existing franchisee violated the Louisiana Unfair Trade Practices Act (LUTPA). LeCompte v. AFC Enters., Inc., Bus. Franchise Guide (CCH)1 15,386 (La. Ct. App. Oct. 1, 2014). LeCompte was a franchisee for AFC Enterprises' Popeye's restaurants. He requested development rights after AFC announced its intent to expand in his local market. LeCompte's requests for ...

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On Monday, Sept. 29, 2014, California Governor Jerry Brown vetoed Senate Bill 610, a much-debated provision that would have altered all franchise relationships subject to the state's laws. In rejecting the bill, Governor Brown wrote that the new termination requirement of "substantial and material breach" of the franchise agreement was new and untested, in contrast with the "good cause" requirement in place today. More generally, he acknowledged SB 610 "would significantly impact California's vast franchise industry that relies on the certainty of well-settled laws." The ...

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On Sept. 16, 2014, the North American Securities Administrators Association, Inc. adopted the Multi-Unit Commentary prepared by its Franchise and Business Opportunity Project Group. You can access a copy of the Commentary at: http://www.nasaa.org/wp-content/uploads/2011/08/Franchise-Multi-UnitCom mentary-effective-Adopted-Sept.-16-2014.pdf.

The Commentary represents the culmination of a process that took place over the past few years, and involved three separate public comment periods on various iterations of the document. The final version of the Commentary ...

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In Ocean City Express Co., Inc. v. Atlas Van Lines, Inc., 2014 U.S. Dist. LEXIS 127231 (D.N.J. Sept. 11, 2014), the United States District Court for New Jersey denied Atlas' motion to dismiss the New Jersey Franchise Practices Act (NJFPA) claim because the amended complaint adequately pled the "place of business" element. The court found the complaint sufficient to establish the agent's office constituted a "place of business" under the NJFPA because it was more than merely an office, warehouse, storage facility, residence, or distribution center. As pleaded, it was an actual sales ...

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In Interstate Equipment Co. v. ESCO Corp., 2014 U.S. Dist. LEXIS 97263 (W.D.N.C. July 17, 2014), a court established a broad interpretation of a supplier's obligations under the North Carolina Farm Machinery Franchise Act to repurchase inventory from a dealer upon termination of the parties' relationship. In particular, the court held that: (1) the repurchase requirements applied even if the dealer originally purchased the inventory for resale at a location outside of North Carolina; (2) so long as title to inventory would be free and clear at the time it was transferred back to the ...

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In a case of first impression, the Massachusetts Supreme Judicial Court has clarified the duty that a motor vehicle manufacturer owes a dealer to assume defense of a claim. Ferreira v. Chrysler Grp. LLC, 2014 Mass. LEXIS 336 (Mass. June 11, 2014). Ferreira purchased a new Jeep Wrangler from Somerset Auto Group, which came with a limited warranty by Chrysler. After experiencing ongoing problems with the vehicle, Ferreira sent a letter to Somerset and Chrysler alleging that both were at fault for the problems with the vehicle. In response, Somerset demanded that Chrysler assume its ...

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A New Jersey federal district court last week dismissed a franchisee's wrongful termination counterclaims alleging violation of the New Jersey Franchise Practices Act ("NJFPA"). Kumon N. Am., Inc. v. Timban, 2014 U.S. Dist. LEXIS 84907 (D.N.J. June 23, 2014). Under the NJFPA, a franchisor normally may not terminate, cancel, or fail to renew a franchise unless it provides advanced written notice of such action and the action is taken for "good cause." After Kumon asserted claims against franchisee Timban for continuing to operate his formerly franchised Kumon Math and Reading ...

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The California Department of Business Oversight has announced that "Beginning at noon on June 18, 2014... franchise applications and exemption notices filed under the Franchise Investment Law may be filed and paid for online using the DOCQNET selfservice portal." All franchise filings may be completed online after that date.

Although CALEASI, the electronic database of franchise filings, is being phased out, information previously found there is being transferred to the DOCQNET website. Information about the DOCQNET system is available at www.dbo.ca.gov/DOCQNET.

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A New Jersey appellate court affirmed a state trial court's ruling that terminated insurance agents were not in a franchise relationship with Allstate Insurance Company and that the New Jersey Franchise Practices Act did not apply to their termination. DeLuca v. Allstate N.J. Ins. Co., 2014 N.J. Super. Unpub. LEXIS 1090 (N.J. Super. Ct. App. Div. May 13, 2014). In this case, three terminated independent insurance agents sued Allstate for wrongful termination, seeking to apply the NJFPA to their relationship. The trial court issued an order dismissing the complaints, concluding ...

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The Illinois Court of Appeals recently held that the "Warranty Supplemental Cost Recovery" charge that Nissan imposed on its Illinois Infiniti dealers violated the Illinois Motor Vehicle Franchise Act. Nissan N. Am., Inc. v. Motor Vehicle Review Bd., 2014 III. App. LEXIS 93 (III. App. Ct. Feb. 20, 2014). Two dealers sued after Nissan sought to recover a portion of the warranty payments made to dealers by imposing a "Warranty Supplemental Cost Recovery" surcharge on each Infinity vehicle sold to each dealer.

Section 6 of the Act describes the process by which dealers may be reimbursed ...

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In McPeak v. S-L Distribution Co., 2014 U.S. Dist. LEXIS 10794 (D.N.J. Jan. 29, 2014), a federal district court held that held that a distributor had pled sufficient facts to be considered a franchisee under the New Jersey Franchise Practices Act ("NJFPA"), even though the distribution agreement specifically disclaimed that the parties were in a franchise relationship. McPeak was a distributor for a large snack food manufacturer, and the agreement specifically prohibited McPeak from using S-L's trademarks and trade name without its prior written permission. In addition, the ...

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A federal district court in Ohio dismissed claims brought by two beverage distributors alleging that a successor manufacturer's termination of their distribution agreements constituted an unlawful taking under the Ohio and U.S. Constitutions. In Tri County Wholesale Distributors, Inc. v. Labatt USA Operating Co., LLC, 2014 U.S. Dist. LEXIS 903 (S.D. Ohio Jan. 6, 2014), the distributors entered into written distribution agreements with Labatt that granted them exclusive rights to distribute specified brands of alcoholic beverages in designated territories. Later, a new ...

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In Ocean City Express Co., Inc. v. Atlas Van Lines, Inc., 2014 U.S. Dist. LEXIS 20885 (D.N.J. Feb. 19, 2014), the United States District Court for the District of New Jersey denied the plaintiff’s motion to amend its complaint and dismissed without prejudice its claim under the New Jersey Franchise Practices Act. Ocean City Express, which was a party to an agency agreement with Atlas Van Lines, failed to plead that that it had a qualifying place of business in New Jersey. It merely pled that it had a principal place of business within the state of New Jersey.

To qualify for protection under ...

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In U-Bake Rochester, LLC v. Utecht, 2014 U.S. Dist. LEXIS 7106 (D. Minn. Jan. 21, 2014), the United States District Court for the District of Minnesota recently held that a plaintiff’s prior acknowledgement that it was not a franchisee barred the plaintiff from later asserting claims under Minnesota and Wisconsin state franchise statutes. U-Bake Rochester (“UBR”) executed a trademark license agreement with Utecht Bakeries that allowed UBR to use the U-BAKE trademark in connection with a retail store located in Rochester, Minnesota. After revenues plummeted in its second ...

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A federal court in Wisconsin recently denied a dealer’s motion for summary judgment under the Wisconsin Fair Dealership Law (“WFDL”), due to a genuine fact dispute regarding the existence of a community of interest between the parties. In Wholesale Partners, LLC v. Masterbrand Cabinets, Inc., Bus. Franchise Guide ¶ 15,136 (CCH) (E.D. Wis. Oct. 4, 2013), a newly formed cabinetry retailer orally agreed to take over the dealership of an insolvent former dealer of manufacturer Masterbrand. At the same time, Wholesale Partners also agreed to take on the former dealer’s debt to ...

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A federal court in Illinois has granted in part and denied in part a manufacturer’s motion to dismiss claims brought under the Illinois Franchise Disclosure Act of 1987 (“IFDA”) and the California Franchise Relations Act (“CFRA”) arising from the termination of a distribution agreement. H.C. Duke & Son, LLC v. Prism Mktg. Grp., 2013 U.S. Dist. LEXIS 140254 (C.D. Ill., Sept. 30, 2013). H.C. Duke & Son and Prism Marketing Group were parties to an agreement in which Prism distributed Duke’s line of soft-serve ice cream machinery and related equipment. Duke terminated the ...

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In Nature’s Plus Nordic A/S v. Natural Organics, Inc., 2013 U.S. Dist. LEXIS 159157 (E.D.N.Y. Nov. 6, 2013), the United States District Court for the Eastern District of New York found that the local advertising requirement in a distributorship agreement did not constitute a “franchise fee” under the New York Franchise Sales Act (“NYSA”). In the case, Natural Organics, Inc. terminated a distributorship agreement when the distributor, Nature’s Plus, failed to meet the agreement’s minimum local advertising requirement and minimum gross sales requirement ...

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The Ohio Supreme Court recently affirmed an appellate court’s decision finding that the Ohio Alcoholic Beverages Franchise Act clearly permits a successor manufacturer to appoint its own distributors, provided that the successor manufacturer gives the existing distributor notice and compensation. Esber Beverage Co. v. Labatt USA Operating, Slip Op. 2013-Ohio-4544 (Ohio Oct. 17, 2013). Esber Beverage Company had been a distributor of Labatt brands for many years. The Labatt brands were acquired by Labatt USA Operating in March 2009 and Labatt notified Esber that it intended ...

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In James River Cos. v. BB Buggies, Inc., No. 4:13-cv-00004 (W.D. Va. Sep. 6, 2013), the United States District Court for the Western District of Virginia denied summary judgment for BB Buggies on a dealer’s claim for failure to repurchase inventory pursuant to the Virginia Equipment Dealers Protection Act (“VEDPA”), but granted summary judgment to BB Buggies’ parent company. The parties’ relationship began in 2006 when James River entered into an oral dealer agreement with Bad Boy Enterprises, LLC and purchased several buggies. In October 2010, Bad Boy sold its assets to ...

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During the same October 31, 2013, MSBA Franchise Committee meeting, Commissioner Lubin and Deputy Commissioner Cantone reiterated their pledge to form an advisory committee to review their office’s policies and procedures, as well as the state’s franchise regulations, with the intent of streamlining the renewal process. The first meeting of that group is being planned for December.

Commissioner Lubin also announced that their office had agreed that it would no longer require a franchisor’s financial statements to be current within 90 days when filed in Maryland. In an ...

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There have been further developments following the October 3, 2013, meeting of the Maryland State Bar Association’s Franchise Committee, at which Jon Cardin, a member of the Maryland House of Delegates who also is a candidate for Maryland Attorney General, presented proposed revisions to several sections of the Maryland Franchise Law. (Under the proposal, the time the Attorney General’s office would be allowed to process franchise renewals and amendments would have been substantially curtailed, Maryland based franchisors would be exempt from compliance with the law when ...

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The United States District Court for the District of Massachusetts recently explained the meaning of “community of interest” as it relates to Massachusetts franchise law. C.N. Wood Co. v. Labrie Envtl. Grp., 2013 U.S. Dist. LEXIS 78977 (D. Mass. June 5, 2013). C.N. Wood Company entered into an exclusive distributorship agreement with Labrie Environmental Group, under which Wood served as Labrie’s exclusive distributor in Massachusetts and Rhode Island. The agreement had an initial term of one year, which automatically renewed unless a party gave notice of its intent to ...

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Applying Connecticut law, the United States Court of Appeals for the Second Circuit held last month that an insurance agent is not protected by the state’s franchise relationship law. Garbinski v. Nationwide Mut. Ins. Co., 2013 U.S. App LEXIS 12856 (2d Cir. June 24, 2013). In this decision, the Second Circuit reviewed and affirmed the district court’s dismissal order that we reported in Issue 159 of The GPMemorandum. Readers may recall that Nationwide, the insurance company, terminated its contract with Garbinski, who sold Nationwide insurance policies, after local media ...

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In Strassle v. Bimbo Foods Bakeries Distribution, Inc., 2013 U.S. Dist. LEXIS 34560 (D.N.J. Mar. 13, 2013), a federal court in New Jersey declined to dismiss a claim under the New Jersey Franchise Practices Act (NJFPA) brought by a group of distributors against Bimbo, a manufacturer of bakery goods. The distributors filed a class action complaint alleging that Bimbo breached their contracts and violated the NJFPA by refusing to allow them to buy and resell various types of bread products in their designated territories.

Bimbo moved to dismiss the NJFPA claim and the distributors’ ...

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The Minnesota Court of Appeals recently affirmed rulings against a dealership which alleged violations of Minnesota distribution and dealership laws. North Star Int’l Trucks, Inc. v. Navistar, Inc., 2013 Minn. App. Unpub. LEXIS 294 (Minn. Ct. App. Apr. 8, 2013). In this case, a franchised truck dealership, North Star, alleged that truck manufacturer Navistar violated the dealership agreements between the parties as well as Minnesota’s laws against unfair practices by manufacturers, changing the competitive circumstances of a dealership agreement without good cause ...

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An agreement by which an automobile manufacturer and its dealer resolved a termination dispute violated New Hampshire’s dealer protection statute, the state’s highest court held this month. Strike Four, LLC v. Nissan North America, Inc., 2013 N.H. LEXIS 37 (N.H. April 12, 2013). After Nissan originally sent a notice of termination, which its dealer protested, the parties reached a settlement by which the dealer would be given a new two-year contract but would be required to sell or lose its dealership without protest if any future defaults or breaches occurred, including the ...

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The Court of Appeals of Texas has reversed a trial court ruling and held that terminated distributors could not assert claims against their supplier under the Texas Deceptive Trade Practices Act (DTPA). AdvoCare Int’l, L.P. v. Ford, 2013 Tex. App. LEXIS 1162 (Tex. Ct. App. Feb. 5, 2013). After AdvoCare (a supplier of Ephedra® and certain other products) terminated their distributorships, several of the distributors filed suit alleging various claims including violations of the DTPA. At trial, a jury awarded them damages and attorneys’ fees under that claim. The court of ...

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In Long John Silver’s Inc. v. Nickleson, 2013 U.S. Dist. LEXIS 18391 (D. Ky. Feb. 12, 2013), a federal court in Kentucky granted in part and denied in part a franchisor’s motion for summary judgment on a former franchisee’s counterclaims. After Long John Silver’s initiated a lawsuit against Nickleson in connection with multiple failed franchises in Minnesota, Nickleson brought various counterclaims, alleging violations of the Minnesota Franchise Act (MFA) and common law fraud, among other claims. Nickleson’s counterclaims were based on Long John Silver’s ...

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The Virginia State Corporation Commission issued an Order to Take Notice on November 16, 2012, stating that the Virginia Division of Securities and Retail Franchising had recommended certain revisions to Chapter 110 of Title 21 of the Virginia Administrative Code entitled “Retail Franchising Act Rules” (Virginia Franchise Rules), with a proposed effective date of March 1, 2013. For the most part, these changes are technical, but they may require some modifications to franchisors’ renewal filings in Virginia. The proposed modifications are as follows:

  • All filings must ...
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Last month, another state appellate court in New York affirmed summary judgment in favor of two franchised Audi dealers who challenged as discriminatory Audi of America’s incentive programs designed to encourage dealers to purchase more Audi vehicles returned by customers at the expiration of their leases (so-called “lease-returns”). Audi of Smithtown, Inc. v. Volkswagen of America, Inc., d/b/a Audi of America, Inc., 2012 N.Y. App. Div. LEXIS 7586 (N.Y. App. Div. Nov. 14, 2012). The “CPO Purchase Bonus” was a payment by Audi to dealers. Existing dealers qualified for ...

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In a case that could apply to all types of franchises, a former machinery distributor’s claims under the Maine Unfair Trade Practices Act (MUTPA) were dismissed last month in The Oliver Stores v. JCB, Inc., Bus. Franchise Guide (CCH) ¶ 14,913 (D. Maine Oct. 5, 2012). Defendant JBC brought a motion to dismiss the MUTPA claim on the grounds that the remedies of attorney’s fees and other relief under the MUTPA are not available when the parties had a commercial relationship such as a franchise or distributorship. In 1993, Maine’s legislature had amended the Maine Franchise Act to ...

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The United States District Court for the District of Connecticut recently held that a terminated insurance agent could not claim the protection of the Connecticut Franchise Act (CFA). In Garbinski v. Nationwide Mut. Ins. Co., Bus. Franchise Guide (CCH) ¶ 14,872 (D. Conn. July 24, 2012), Garbinski entered into an Independent Contractor Agent’s Agreement with Nationwide. Under that agreement, Garbinski had the right to sell Nationwide insurance products to his customers, but also the right to sell products offered by other insurers. After Garbinski was charged in connection ...

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An Indiana district court recently allowed a terminated distributor to allege that a manufacturer had violated a state deceptive franchise practices act by terminating its distributor agreement without good cause, even though the distributor’s challenge to the agreement’s unilateral termination provision was time-barred under the terms of the agreement itself. Irvin Kahn & Son, Inc. v. Mannington Mills, Inc., 2012 U.S. Dist. LEXIS 116308 (S.D. Ind. Aug. 17, 2012). The plaintiff, a wholesale distributor of floor coverings, entered into a 1999 distributor agreement ...

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Ohio recently revised its business opportunity law, effective September 30, 2012. Notably, the scope of the law was expanded to increase the threshold for the definition of the initial payment, clarify the process for agreement cancellation, and prohibit any “venue or choice of law provision that deprives a purchaser who is an Ohio resident” from the benefits of the law. Although any franchisor who complies “in all material respects” with the FTC’s franchise rule is exempt from the Ohio business opportunity law, any franchisor who does not materially comply with the FTC ...

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In John R. Atchely and Michael Gilroy v. Pepperidge Farm, Inc., 2012 U.S. Dist. LEXIS 30878 (E.D. Wash. March 8, 2012), the United States District Court for the Eastern District of Washington found that a genuine issue of material fact existed as to whether Pepperidge Farm charged plaintiffs a franchise fee under the Washington Franchise Investment Protection Act by deducting from commissions owed to plaintiffs a fee for services related to a pallet delivery program. Under the program, Pepperidge Farm delivered shrink-wrapped pallets of bakery products directly to large ...

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On March 29, 2012, the State of Washington amended its Franchise Investment Protection Act to align it with the FTC Franchise Rule. These amendments became effective June 7, 2012, and made the following changes to the act:

  • Changed the term "offering circular" to "disclosure document" throughout the statute;
  • Brought the definition of "prospective franchisee" in line with the FTC Franchise Rule definition;
  • Changed the time period for which a prospective franchisee must have a disclosure document from 10 business days to 14 calendar days; and
  • Added a provision stating that a ...
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In Tankersley, et al. v. Lynch, et al., 2012 U.S. Dist. LEXIS 27762 (E.D. Mich. Mar. 2, 2012), a federal court in Michigan denied a motion for summary judgment brought by two former franchisees claiming that the franchisor’s officers were liable for an arbitration award obtained against the franchisor for violations of the Michigan Franchise Investment Law (“MFIL”). The plaintiffs owned and operated a Collision of Wheels (“CoW”) mobile auto body repair franchise. The franchise relationship soured, and the plaintiffs brought an arbitration demand claiming that CoW ...

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In Samica Enterprises, LLC v. Mail Boxes Etc., Inc., 2011 U.S. App. LEXIS 25530 (9th Cir. Dec. 1, 2011), the court affirmed a district court’s grant of summary judgment in favor of two franchisors who were sued by a large number of their franchisees under California law relating to their initial investment in the franchises and the franchisors’ administration of the franchise system. More than 200 franchisees of The UPS Store and Mail Boxes Etc. franchise systems brought various claims under the California Franchise Investment Act (CFIL) and common law against UPS and MBE. The ...

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In Izzy Poco v. Town of Springfield, et al., 2011 U.S. Dist. LEXIS 125080 (D. Utah Oct. 28, 2011), the court held that Springfield town officials were entitled to qualified immunity for enforcing an ordinance that banned franchises from opening in town. In 2006, Springfield, Utah passed an ordinance banning “formula restaurants” that were “required by contractual or other arrangement to provide any of the following: substantially identical named menu items, packaging, food preparation methods, employee uniforms, interior décor, signage, exterior design, or name as any ...

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A federal district court in Minnesota recently clarified that the reach of the Minnesota Franchise Act does not extend to protect entities operating outside Minnesota. In Johnson Brothers Liquor Co. v. Bacardi U.S.A., Inc., 2011 U.S. Dist. LEXIS 132768 (D. Minn. Nov. 17, 2011), plaintiff Johnson Brothers was a Minnesota entity whose out of state subsidiaries entered contracts with Bacardi and Brown-Forman Corporation to distribute their products in states other than Minnesota. Bacardi and Brown-Forman terminated their distributorship agreements with Johnson Brothers’ ...

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In contrast to the Minnesota district court ruling discussed in the previous summary, the United States Court of Appeals for the Ninth Circuit last week ruled that the Washington Franchise Investment Protection Act (FIPA) does apply to protect a non-Washington franchisee. Red Lion Hotels Franchising, Inc. v. MAK, LLC, et al., 2011 U. S. App. LEXIS 24152 (9th Cir. Dec. 7, 2011). Reversing in part a Washington federal court’s grant of summary judgment, the Ninth Circuit remanded the case to the district court to determine the merits of the FIPA counterclaims brought by a ...

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The United States Court of Appeals for the Seventh Circuit affirmed summary judgment last month in favor of a supplier and its replacement distributor in an interesting case brought by a terminated distributor under the Connecticut Franchise Act. Echo, Inc. v. Timberland Machines & Irrig., Inc., 2011 U.S. App. LEXIS 21502 (Oct. 25, 2011). After Echo terminated its dealer, Timberland Machines & Irrigation Equipment (TMI), Echo filed suit to collect past amounts due. TMI brought a counterclaim for violation of the Connecticut Franchise Act and brought a third-party complaint ...

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In Scholl’s 4 Season Motor Sports, Inc. v. Illinois Motor Vehicle Review Board, et al., 2011 Ill. App. LEXIS 979 (Ill. Ct. App. Sep. 8, 2011), an Illinois dealer of ATVs and snowmobiles appealed a ruling by the Illinois Motor Vehicle Review Board that the state’s Motor Vehicle Franchise Act does not apply to off-road vehicles such as ATVs and snowmobiles.  The dealer had sought the protection of the Act in connection with a discount program and an impending termination by snowmobile manufacturer Arctic Cat. The central issue presented by the dealer was whether the Act’s definition ...

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In James D. Cohen v. Roll-A-Cover, LLC, 2011 Conn. App. LEXIS 473 (Conn. App. Sept. 20, 2011), defendants—manufacturers of a Roll-A-Cover residential pool cover system—appealed the trial court’s holding that they had violated Connecticut’s Business Opportunity Investment Act and Unfair Trade Practices Act (CUTPA) through the sale of New Jersey territories to a distributor. The plaintiff/distributor had signed a distribution agreement for the exclusive rights to distribute the pool cover product in New Jersey. During negotiations, Roll-A-Cover had made certain ...

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The New Jersey Franchise Practices Act (NJFPA) makes it unlawful for a franchisor to terminate or fail to renew a franchise agreement without good cause. In BP Prod. N. Am., Inc. v. Hillside Service, Inc., 2011 U.S. Dist. LEXIS 10473 (D.N.J. Sept. 14, 2011), a federal district court in New Jersey noted that the NJFPA was not limited to “those situations in which the franchisor seeks to arbitrarily and capriciously terminate the franchise agreement. . . .” It held that the NJFPA also requires the franchisor to renew franchise agreements with New Jersey franchisees regardless of ...

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A Girl Scouts organization has successfully sued to enjoin Girl Scouts USA (GUSA) from taking away its territory, convincing the Seventh Circuit that the action violated Wisconsin’s Fair Dealership Law (WFDL). In Girl Scouts of Manitou Council, Inc. v. Girl Scouts of the USA, Inc., 2011 U.S. App. LEXIS 10911 (7th Cir. May 31, 2011), the appeals court reversed a district court and granted summary judgment to the local organization. The Seventh Circuit rejected the lower court’s reasoning that application of the WFDL would violate GUSA’s First Amendment freedom of expression ...

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In Echo, Inc. v. Timberland Machines & Irrigation, Inc., et al., 2011  U.S. Dist. LEXIS 4574 (N.D. Ill. Jan. 18, 2011), the United States District Court for the Northern District of Illinois granted  a supplier’s motion for summary judgment against its former distributor, finding that the Connecticut Franchise Act did not offer the distributor its protections because the parties were not in a franchise relationship. Echo, an Illinois-based supplier of power equipment products, terminated its distributor agreement with Timberland, a Connecticut-based distributor, and filed ...

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In Engines, Inc. v. MAN Engines & Components, Inc., 2010 U.S. Dist. LEXIS 76541 (D.N.J., July 29, 2010), a New Jersey federal court granted a preliminary injunction prohibiting MAN Engines & Components, Inc. from terminating its dealer agreement with Engines, Inc. because the relationship is likely a franchise under the New Jersey Franchise Practices Act (NJFPA). Engines was an authorized provider of repair, conditioning, and replacement services for MAN for many years. During that time, Engines made certain investments in its business in connection with its activities under ...

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A Minnesota federal court in Coyne’s & Co. v. Enesco, LLC, 2010 U.S. Dist. LEXIS 83630 (D. Minn. Aug, 16, 2010), issued a lengthy opinion addressing cross motions for summary judgment filed by a Minnesota distributor and the assignee of its original supplier, Enesco, LLC. While the court addressed several issues, most notably it held that Enesco could not succeed on its motion for summary judgment on the plaintiff’s claim under the Minnesota Franchise Act (MFA), finding that both sides had put forth viable arguments as to whether their relationship included an indirect franchise ...

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The Wisconsin Court of Appeals has rejected Seventh Circuit jurisprudence concerning the “community of interest” test as applied to the Wisconsin Fair Dealership Law (WFDL). In The Water Quality Store v. Dynasts Spas, Inc., 2010 Wisc. App. Lexis 550 (Wisc. Ct. App. Jul. 15 2010), a Wisconsin retailer had been selling the defendant manufacturer’s line of spa and spa equipment, on a nearly exclusive basis, for approximately seven years. The manufacturer terminated the relationship without good cause and without observing the notice and opportunity to cure requirements of ...

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In Bye v. Nationwide Mutual Ins., 2010 U.S. Dist. LEXIS 78930 (E.D. Mich., Aug. 5, 2010), a Michigan federal court last month granted Nationwide Mutual Insurance Company’s motion for summary judgment, holding that the Michigan Franchise Investment Law did not apply to the relationship between Nationwide and its insurance agent because the agent did not pay a franchise fee. The plaintiff was a Nationwide insurance agent for many years. The agent eventually opened a competing business, and Nationwide terminated his agency. In response, the plaintiff filed suit alleging, among ...

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In The Dry Dock, LLC v. The Godfrey Conveyor Co., 2010 U.S. Dist. LEXIS 55628 (E.D. Wis. June 7, 2010), the plaintiff, a boat retailer, sued a manufacturer from which it purchased boats, claiming that the boats were defective and needed repairs. The retailer brought claims for breach of contract, breach of warranty, and violation of the Wisconsin Fair Dealership Law (WFDL), seeking consequential damages and reimbursement for the cost of repairs. The retailer claimed that the manufacturer’s failure to honor warranty claims and its removal of the retailer from the “dealer ...

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Last week a federal district court judge in Wisconsin issued a comprehensive opinion that elucidates what a terminated distributor or dealer must show to survive summary judgment under the Wisconsin Fair Dealership Law. The case is Brio Corp. v. Meccano S.N., 2010 U.S. Dist. LEXIS 11711 (E.D. Wis. Feb. 10, 2010). In denying summary judgment to defendant Meccano, which is the maker of the “Erector” brand of toys, the court ultimately and simply determined that fact questions precluded summary judgment. But the length and detail of the court’s opinion could recommend it as a ...

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In Boyle v. Vanguard Car Rental USA, Inc., 2009 WL 3208310 (D.N.J. Sept. 30, 2009), the plaintiff, the owner of a car rental agency, sued Vanguard under the New Jersey Franchise Practices Act (NJFPA) for terminating the parties’ agreement without good cause and without the required 60-days’ notice. Vanguard moved to dismiss, contending that the NJFPA did not apply because the parties were not in a franchise relationship, there was no “community of interest” between the parties, and the plaintiff did not have $35,000 in gross sales with Vanguard to impute the NJFPA. The court ...

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A trial court preliminarily enjoined termination of a distributor based on the Connecticut Unfair Trade Practices Act in Walker Indus. Prods. v. Intelligent Motion Sys., Inc., 2009 WL 3417438 (Conn. Super. Ct. Oct. 1, 2009). The distributor-plaintiff brought wrongful termination claims under both the Connecticut Franchise Act and CUTPA. The court held that the plaintiff failed to show a likelihood of success on the merits of its claim under the Connecticut Franchise Act because its business was not “substantially associated” with the manufacturer’s trademarks, as ...

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In Saccucci Auto Group, Inc. v. Am. Honda Motor Co., Inc., 2009 WL 2175762 (D.R.I. July 21, 2009), the court granted Honda’s motion for summary judgment, finding that Honda did not violate a Rhode Island dealer law by banning internet sales of Honda vehicle service contracts (“VSCs”). After dealers and customers complained about price differences between VSCs sold online and at dealerships, Honda enacted a policy temporarily banning dealers from selling VSCs over the internet. 

The plaintiff, a Honda dealer who had set up a web site of its own to sell VSCs, alleged that the policy ...

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A New Jersey appeals court has held that the constructive termination of a dealer agreement violates the New Jersey Franchise Practices Act.  Maintainco, Inc. v. Mitsubishi Caterpillar Forklift Am., Inc., 2009 WL 2365960 (N.J. Super. A.D., July 30, 2009). Plaintiff Maintainco signed an agreement that, it believed, made it the exclusive Mitsubishi dealer in a designated territory in New Jersey. Mitsubishi subsequently appointed Mid-Atlantic as a dealer in the plaintiff’s territory, under terms that gave Mid-Atlantic a competitive advantage over the plaintiff.

The New Jersey ...

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In Gabana Gulf Dist., Ltd. v. Gap Int’l Sales, Inc., 2009 WL 2585678 (9th Cir. Aug. 24, 2009), Gap prevailed over Gabana, a United Kingdom distributor. Gap had terminated Gabana’s distribution agreement for the Middle East.  Gabana sued, claiming that its arrangement with Gap constituted a franchise under the California Franchise Relations Act and, therefore, that Gap needed good cause to terminate the distribution agreement. The Ninth Circuit disagreed, finding that the trademark element of a franchise under California law was not present. While Gabana was a distributor or ...

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In Kenaya Wireless, Inc. v. SSMJ, LLC d/b/a All Star Wireless USA, 2009 WL 763496 (Mich. Ct. App. March 24, 2009), the Michigan Court of Appeals found that non-mandatory service fees do not amount to “franchise fees” under the Michigan Franchise Investment Law (MFIL). The lawsuit was brought by a wireless phone distributor, Kenaya Wireless, against its communication services provider, All Star. Kenaya claimed it should be considered All Star’s franchisee under the MFIL because All Star allegedly charged an indirect franchise fee by selling Kenaya phones in excess of the ...

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The Alabama Motor Vehicle Franchise Act provides that “notwithstanding the terms, provisions, or conditions of any dealer agreement or franchise or the terms or any provisions of any waiver . . . any person who is injured . . . by a violation of this chapter . . . may bring a civil action . . . “ (emphasis added). In response to a certified question, the Alabama Supreme Court has determined that the Act’s language did not render unenforceable the settlement and release of existing claims. With that direction, the Court in Edwards v. Kia Motors America, Inc., 2009 WL 24198 (11th Cir. Jan ...

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In Raines Imports, Inc. v. American Honda Motor Co., Inc., 2009 WL 230644 (W. Va. Jan. 30, 2009), Raines Imports sought relief pursuant to a state statute requiring manufacturers and distributors to give written notice to motor vehicle dealers located within 15 miles of a location at which the manufacturer or distributor intends to establish or relocate a new dealer. Upon receipt of  the notice, the affected dealer may bring a declaratory judgment action to determine whether good cause exists for establishing or relocating the proposed new motor vehicle dealer. 

The West ...

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In Kay Beer Distributing, Inc. v. Energy Brands, Inc., 2009 WL 425821 (E.D. Wis. Feb. 20, 2009), a beverage distributor sued Energy Brands, Inc., alleging violation of the Wisconsin Fair Dealership Law (“WFDL”) and breach of contract. The plaintiff distributor, Kay Beer Distributing, Inc., had been a distributor of Energy Brands’ “Glacéau” line of products, which includes Vitaminwater drinks, but these products  were a very small part of Kay’s business. Kay signed a termination and release agreement ostensibly terminating the distributorship and clearing the way ...

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In Girls Scouts Manitou Council, Inc. v. Girls Scouts Of The United States Of America, Inc., Bus. Franchise Guide (CCH) ¶ 14,037 (7th Cir. Dec. 15, 2008), the Seventh Circuit held that a local Girl Scout council was entitled to the protections of the Wisconsin Fair Dealership Law as a “dealer” and issued an injunction preventing the Girls Scouts of the United States of America, Inc. from reducing the size of the council’s territory. This case arose out of the GSUSA’s attempt to consolidate its national network of local councils into fewer, larger organizations. Girls Scouts ...

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The federal Eighth Circuit Court of Appeals has affirmed the denial of an injunction sought by a distributor under the Minnesota Franchise Act. Coyne’s & Co., Inc. v. Enesco, LLC, 553 F.3d 1128 (8th Cir. Jan. 23, 2009). The distributor had sought to prevent the termination of its distributorship agreement. Coyne’s & Co. had entered into an exclusive North American Distributorship Agreement with Country Artist, Ltd. (“CA”) for a product line manufactured in England. Several years later, CA was placed into receivership and its assets were sold to Enesco, LLC. Soon ...

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In SDMS, Inc. v. Rocky Mountain Chocolate Factory Inc., 2008 WL 4838557 (S.D. Cal. Nov. 6, 2008), the United States District Court for the Southern District of California considered claims brought by terminated franchisees under the California Unfair Business Practices and Unfair Competition Acts. The franchisees alleged that the sale of products by Rocky Mountain to discount retail outlets such as Costco.com, without disclosure to the franchisees prior to execution of the franchise agreement, violated their rights under the California statutes. At the outset the court ...

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In It’s Just Lunch International LLC. v. Island Park Enterprise Group, Inc., 2008 WL 4683637 (C.D. Cal. Oct. 21, 2008), a federal district court in California decided not to enforce a Nevada choice of law provision set forth in the franchise agreement in the face of a franchisee’s counterclaims under the California Franchise Investment Law (CFIL) and the New York Franchise Sales Act (NYFSA). This case shows the difficultly franchisors have in enforcing choice of law provisions as to claims brought by franchisees under the CFIL and NYFSA – especially where the franchisors ...

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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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