The Franchise Memorandum

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. Prostar then filed a seven-count complaint alleging that Domino’s breached its fiduciary duty to Prostar (arising from an alleged joint venture relationship); breached an implied contract between the parties; breached the implied covenant of good faith and fair dealing; breached California’s trade secrets act and unfair competition laws; and intentionally and negligently interfered with Prostar’s prospective economic relations with Domino’s franchisees.

In dismissing Prostar’s fiduciary duty claim, the court held that Prostar’s complaint failed to adequately allege the existence of a joint venture relationship. Allegations that Domino’s would benefit from the technology did not amount to allegations that Prostar and Domino’s agreed to share joint profits from Prostar’s undertaking—a necessary element of a joint venture relationship. In dismissing Prostar’s implied contract claim, the court held that Prostar’s complaint failed to plead facts to demonstrate the terms of the putative contract between the parties or the consideration that Domino’s was to receive for its performance. Because Prostar had failed to adequately allege the existence of an implied contract, its implied covenant claim also failed. The court also dismissed Prostar’s interference claims because its allegations concerning potential economic relationships with franchisees failed to show existing relationships, which were required by law to state such a claim. Next, the court dismissed Prostar’s claim under California’s unfair competition law, which required Prostar to have alleged an “unlawful, unfair or fraudulent business act or practice.” According to the court, Prostar could not rely on a common law violation (the alleged breach of fiduciary duty claim) to support its contention that Domino’s conduct was “unlawful” within the meaning of the unfair competition law. Finally, the court held that Prostar had failed to adequately allege its misappropriation of trade secrets claim because it failed to allege facts from which it could be inferred that it had made “reasonable efforts” to maintain the secrecy of its trade secrets, beyond generically alleging that it had not shared the information with unnecessary parties. Prostar’s complaint was dismissed without prejudice.