The Franchise Memorandum

The United States District Court for the Middle District of Florida recently dismissed a hotel franchisee group’s claim against several hotel franchisor entities for violation of the New Jersey Consumer Fraud Act (NJCFA). Amar Shakti Enters., et al. v. Wyndham Worldwide, Inc., et al. , 2011 U.S. Dist. LEXIS 146903 (M.D. Fla. Dec. 21, 2011). The franchisee group brought a variety of claims against the franchisors of multiple hotel brands in connection with the franchisors’ alleged practices of automatically enrolling hotel guests in brand loyalty programs and automatically matching guest stays with loyalty accounts (regardless of whether the guest requested it), thereby increasing loyalty program related fees to the franchisees. Although the court declined to dismiss the plaintiffs’ claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and violation of the Florida Unfair and Deceptive Trade Practices Act, the court did dismiss a claim for violation of the NJCFA. The NJCFA prohibits unconscionable and fraudulent conduct in connection with the sale of “merchandise,” defined as “any objects, wares, goods, commodities, services or anything  offered directly or indirectly to the public for sale.” The court found that because franchise sales are “complex transactions entered into only after an extensive prequalification process,” they are not the type of consumer sales that the NJCFA is designed to protect.