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The Franchise Memorandum

Economic Loss Doctrine Does Not Bar Claim That Franchisor Promised to Mediate Franchisee Dispute

The U.S. District Court for the District of New Jersey granted in part and denied in part franchisor Meineke Car Care Center’s motion to dismiss several counterclaims lodged against it by franchisee JNMVR Enterprises. Meineke Car Care Ctrs., LLC v. Juliano, 2018 WL 4629517 (D.N.J. Sept. 26, 2018). The parties’ franchise agreement required JNMVR to obtain Meineke’s approval before relocating or selling the franchised business. The agreement also contained a territorial protection clause prohibiting Meineke from granting others the right to operate another Meineke franchise within a 3-mile radius of JNMVR’s franchised business without first giving JNMVR a right of first refusal. JNMVR sought to relocate after learning that its landlord intended to sell the location of JNMVR’s Meineke franchise. After several failed attempts to relocate, JNMVR found a location that was less than a mile away from another franchisee’s Meineke franchise. That franchisee had the same territorial protection clause in its franchise agreement with Meineke. The two franchisees attempted unsuccessful negotiations to facilitate JNMVR’s transfer to the new location. JNMVR subsequently rescinded its relocation request to Meineke and sold its assets to another car care business. Meineke sued JNMVR for breach of the parties’ franchise agreement, and JNMVR counterclaimed for negligent misrepresentation and other claims.

The court dismissed all of JNMVR’s counterclaims except its allegation that Meineke promised, but failed, to mediate the territorial protection dispute between the franchisees. The court’s decision turned on the economic loss doctrine, which requires a claimant pursuing a tort cause of action to allege a breach of a duty that is separate and distinct from a contractual obligation. Meineke acknowledged, and the court held, that the franchise agreement did not require Meineke to mediate or help settle the franchisees’ territorial dispute. Since the negligent misrepresentation claim regarding Meineke’s promise to mediate alleged an independent duty outside of the scope of the agreement, the claim was not barred by the economic loss doctrine.

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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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