The Franchise Memorandum

In Klosek v. American Express Co., 2008 WL 4057534 (D. Minn. Aug. 26, 2008), the United States District Court for the District of Minnesota addressed issues arising from the American Express Company’s decision to spin off its subsidiary, American Express Financial Advisors, and the spin-off‘s subsequent adoption of a new brand name—“Ameriprise”. The plaintiffs, former American Express Financial Advisors (now Ameriprise) franchisees, brought a putative class action asserting claims for breach of contract, breach of the implied covenant of good faith and fair dealing, violations of the Minnesota Franchise Act, and tortious interference with contract. The plaintiffs based their claims on the contention that any brand substitution authorized by the parties’ franchise agreements required that the new brand be “well-recognized.” The court granted the defendants’ motions to dismiss and ruled that the franchise agreements unambiguously indicate that Ameriprise had no obligation to supply a ”well recognized” brand, and that the franchise agreements expressly reserved Ameriprise’s right to substitute new marks at its discretion. 

The court rejected the plaintiffs’ argument that because Ameriprise did not supply a well-established brand, it breached the implied covenant of good faith and fair dealing. Rather, the court found that because Ameriprise had no obligation to provide a well-established brand, its purported failure to do so could not be a basis for breach of the implied covenant. The court further rejected the plaintiffs’ argument that American Express wrongfully interfered with the franchise agreements when it deprived Ameriprise of the American Express brand.