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The Franchise Memorandum

Court Dismisses Licensee’s Fraud Claim Based on Parol Evidence Rule

In Palermo Gelato, LLC v. Pino Gelato, Inc., 2013 U.S. Dist. LEXIS 85925 (W.D. Pa. June 19, 2013), a federal court in Pennsylvania revisited its decision to dismiss the case for lack of subject matter jurisdiction. As reported in Issue 164 of The GPMemorandum, Palermo, a licensee of Pino, brought suit after discovering that Pino allegedly had misrepresented the origins of the gelato product it supplied. Palermo claimed that it was led to believe it was purchasing Pino’s own exclusive recipe gelato when in fact the gelato was manufactured in bulk by a wholesaler. Palermo further asserted that the agreement amounted to a franchise relationship and that Pino had failed to comply with disclosure laws that would have required it to reveal the source of its gelato. Pino moved to dismiss on the grounds that the parol evidence rule precludes any evidence that would support Palermo’s fraud claim, and that the absence of any basis to invalidate the agreement barred Palermo’s claim for unjust enrichment.

In granting Pino’s motion, the court held that parol evidence was inadmissible because the parties’ agreement contained terms that directly addressed the subject matter of the alleged misrepresentations. The agreement discussed topics relating to the gelato recipe and specifically stated that the parties did not intend to enter into a franchise relationship. The agreement also contained an integration clause in which Palermo acknowledged that the contract superseded any prior understandings between the parties and that it encompassed the entirety of matters concerning the gelato license. Relying on several recent decisions by the Pennsylvania Supreme Court, the federal court determined that the combination of these factors was sufficient to prohibit evidence of any prior misrepresentations that may have induced the licensee to enter into the contract. The court therefore dismissed the cause of action for fraud in the inducement, reasoning that Palermo could not state a viable claim without such evidence. Because Palermo could not demonstrate the invalidity of the agreement, its claim for unjust enrichment also failed.

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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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