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The Franchise Memorandum

The Franchise Memorandum

Posts in System Standards/Change.

A federal court in Indiana has dismissed a franchisor’s Lanham Act claim on the grounds that the franchisor unreasonably delayed bringing the claim. Noble Roman’s, Inc. v. Hattenhauer Distrib. Co., 2017 WL 640092 (S.D. Ind. Feb. 27, 2017). Under the parties’ franchise agreements, Hattenhauer was required to use only Noble Roman’s approved ingredients at its pizza franchises. However, after Noble Roman’s changed its approved distributor in 2010, Hattenhauer began purchasing and using unapproved cheese at one of its franchised locations. In 2014, Noble Roman’s ...

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A district court in California has granted Domino’s motion to dismiss claims asserted against it by Prostar Wireless Group, a prospective supplier to Domino’s franchisees. Prostar Wireless Grp., LLC v. Domino’s Pizza, Inc., 2017 WL 67075 (N.D. Cal. Jan. 6, 2017). Prostar alleged that it had worked with Domino’s and its franchisees over the course of ten years to develop technology to assist franchisees in driver tracking and navigation. Domino’s ultimately elected to develop technology of its own, which Prostar alleged was functionally identical to Prostar’s ...

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The United States District Court for the Eastern District of Pennsylvania partially denied a motion to dismiss a complaint alleging that a transmission repair franchisor had failed to maintain its brand. Jade Grp., Inc. v. Cottman Transmission Ctrs., LLC, 2016 WL 3763024 (E.D. Pa. July 13, 2016). The plaintiff-franchisees entered into license agreements that allegedly required the franchisor, Cottman Transmission Centers, to “continue to develop, promote and protect the good will and reputation associated with the Cottman names and marks.” In 2006, Cottman purchased the ...

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As we see in some of the cases summarized above, change tends to leave some former distribution partners or would-be competitors on the outside looking in. It is in these situations when disputes, threats, and even litigation can result. In these same situations, therefore, the manufacturer is best served by having clear documentation in its files, having had legal compliance programs in place, having trained its employees how not to violate antitrust laws and other legal boundaries, and having understood and followed rules relating to pricing, exclusivity, and termination.

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In a recent award, a panel of three arbitrators in Canada concluded that H & R Block Canada was entitled to require franchisee Gerger Enterprises to use computer tax preparation software provided by Block. Gerger Enters. Ltd. v. H & R Block Canada, Inc., Private Arbitration Award (Aug. 1, 2013). The dispute arose when Block decided that it was desirable to have uniform tax preparation software used by all of its franchisees, which would, among other things, enable expanded communication between the company and its many franchised offices. Block therefore amended its operations ...

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The United States Court of Appeals for the Ninth Circuit last week affirmed a judgment won by an Avis licensee in Alaska who claimed that Avis steered business toward Budget® branded locations after the acquisition of that brand in 2002. Alaska Rent-ACar, Inc. v. Avis Budget Group, Inc., 2013 U.S. App. LEXIS 4566 (9th Cir. Mar. 6, 2013). The Alaska-based plaintiff claimed that Avis violated a prior settlement agreement, which promised licensees that any rental car companies acquired by Avis in the future would maintain separate sales, marketing, and reservation operations. An ...

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A federal district court in Illinois granted a franchisee’s motion for a preliminary injunction preventing a quick service restaurant franchisor from requiring the franchisee to comply with pricing and promotional policies. Stuller, Inc. v. Steak N Shake Enterprises, Inc., 2011 U.S. Dist. LEXIS 66455 (C.D. Ill. June 22, 2011). As reported in the June 10, 2011, edition of The GPMemorandum, the franchisee is challenging Steak N Shake’s new policy that requires franchisees to follow set menu and pricing on some items, and to participate in system promotions. The franchisee ...

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A federal court in Illinois has let stand a franchisee’s complaint about the new menu and pricing policy of its franchisor. Stuller, Inc. v. Steak N Shake Enterprises, Inc., 2011 U.S. Dist. LEXIS 57704 (C.D. Ill. May 31, 2011). Rejecting parts of a federal magistrate judge’s recommendation, the district court denied the franchisor’s motion to dismiss two counts of the complaint. In those two counts, the franchisee is challenging the Steak N Shake franchisor’s new policy that requires franchisees to follow set menu and pricing on some items, and to participate in system ...

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Last month a Massachusetts federal court narrowly interpreted a settlement agreement and determined that KFC was required to provide a notice and opportunity to cure for each separate operational deficiency under that agreement. KFC Corp. v. Springfield Food Sys., 2011 U.S. Dist. LEXIS 14218 (D. Mass. Feb. 14, 2011). At issue was the language in the settlement agreement that said that after KFC provided written notice of default to the franchisees, they “shall have ten (10) days from the date of the notice to cure the default. PROVIDED, HOWEVER, that KFC shall not be obligated to ...

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In LaQuinta Corp. v. Heartland Properties, LLC, 2010 U.S. App. LEXIS 8757 (6th Cir. Apr. 28, 2010), the Sixth Circuit affirmed a grant of summary judgment in favor of the franchisor in connection with the refusal by a franchisee of the Baymont Inns franchise system to implement a new reservation system. (Plaintiff La Quinta is the corporate parent of Baymont). Under the franchise agreement, the defendant franchisee was required to participate in, and bear the costs of, whatever reservation system Baymont established in “its sole discretion.”  Two years before the franchise ...

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The United States Court of Appeals for the Eleventh Circuit recently affirmed summary judgment in favor of Burger King Corporation in a case arising out of its termination of multiple franchise agreements based on a franchisee’s refusal to implement the Burger King “Value Menu.” In Burger King Corporation v. E-Z Eating, 41 Corporation, 2009 WL 1856744 (11th Cir. June 30, 2009), a franchisee with four financially distressed Burger King locations in New York City refused to implement Burger King’s required menu or to submit a written application to be excused from the ...

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In Klosek v. American Express Co., 2008 WL 4057534 (D. Minn. Aug. 26, 2008), the United States District Court for the District of Minnesota addressed issues arising from the American Express Company’s decision to spin off its subsidiary, American Express Financial Advisors, and the spin-off‘s subsequent adoption of a new brand name—“Ameriprise”. The plaintiffs, former American Express Financial Advisors (now Ameriprise) franchisees, brought a putative class action asserting claims for breach of contract, breach of the implied covenant of good faith and fair ...

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A California appellate court ruled late last month that United Parcel Service (“UPS) and Mail Boxes Etc., Inc. (“MBE”) should not have prevailed on summary judgment on some of the franchisee claims brought against them after UPS acquired MBE. G.I. McDougal, Inc., et. al. v. Mail Boxes Etc., Inc. et al., 2008 WL 2152911 (Cal. App. 2 Dist. May 23, 2008). The essence of the plaintiffs’ 33-count complaint is that MBE franchisees were harmed by the 2001 acquisition and the alleged subsequent emphasis on “The UPS Store” units. The trial court granted the defendants’ summary ...

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In Hyatt Corp. v. Epoch-Florida Capital Hotel Partners, Ltd., 2008 WL 490121 (M.D. Fla. Feb. 20, 2008), the United States District Court for the Middle District of Florida refused to dismiss a franchisee’s breach of contract claims against the franchisor’s parent corporation, finding that the parent was a “stranger” to the contract at the time it purchased the subsidiary franchisor such that breach of contract and tortious interference with business relationship actions could proceed against the company.

Hyatt Corporation purchased the AmeriSuites hotel chain and ...

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The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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