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Court Allows Association to Proceed Only on Good Faith and Fair Dealing Portion of Challenge to Burger King Price Plan

A Florida federal court has dismissed the claim of the National Franchisee Association that Burger King Corporation lacks contractual power to set maximum prices for its franchisees, but has allowed the association to pursue its alternative claim that the exercise of that power to put the double cheeseburger on the chain’s dollar menu violates the duty of good faith and fair dealing. National Franchisee Association v. Burger King Corp., 2010 U.S. Dist. LEXIS 50721 (S.D. Fla. May 20, 2010). The NFA had sought a declaratory judgment that the franchisor does not have authority under its franchise agreements to impose maximum prices. The current ruling came on initial motions by BKC to dismiss the complaint on the merits, as well as for lack of associational standing.

The court’s mixed decision went against the franchisor on the standing issue (at least for now) and as to the attempt to have the entire case dismissed on the merits at the outset. BKC’s contractual power to set maximum prices, however, was upheld by the court. On that point, the court determined that the question had already been decided in BKC’s favor by the Eleventh Circuit and that the contracts provide the franchisor pricing authority. The only remaining issue is whether BKC exercised its contractual power in good faith. Those claims are permitted under Florida law’s implied covenant of good fair and fair dealing and by the good faith language in the franchise documents, the court noted. The franchisee association has standing to pursue this claim in the initial stages because it is unclear that individual franchisee participation will be needed given that the NFA is directing its challenge at the uniform, systemwide practices of the franchisor. We will continue to monitor this case. 

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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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