The Franchise Memorandum

In JMF, Inc., et al. v. Medicine Shoppe International, Inc., 2011 U.S. Dist. LEXIS 106100 (D.N.D. Sept. 19, 2011), the federal district court for North Dakota denied, in part, a franchisor’s motion for summary judgment, finding that issues of fact existed regarding whether the franchisor had offered new franchises in North Dakota sufficient to trigger a “most favored nations” (MFN) clause contained in the plaintiffs’ franchise agreements. Defendant Medicine Shoppe International, Inc. (MSI), the franchisor of nationwide prescription pharmacies, in 2009 announced an overhaul of its franchise program. At the time of the overhaul, the plaintiffs were operating under franchise agreements with most favored nations clauses, which provided that the franchisees could adopt any new or updated terms the franchisor later offered. When MSI later registered a new Medicine Shoppe disclosure document with the North Dakota Securities Commissioner, the plaintiffs asked to convert to the new, more favorable terms it contained. MSI refused. In the ten states where franchisees owned franchise agreements with MFN clauses, MSI declined to offer new Medicine Shoppe franchises. Instead, MSI offered Medicap franchises, a wholly owned subsidiary of MSI, in North Dakota.

In denying MSI’s motion for summary judgment, the court found that genuine issues of fact existed with regard to whether MSI “offered” new franchises in North Dakota sufficient to trigger the MFN clause. The court found that registering the FDD in North Dakota and offering Medicap franchises raised fact issues inappropriate for summary judgment. The court did, however, grant summary judgment in MSI’s favor on plaintiffs’ claims of breach of contract pertaining to advertising, bookkeeping and accounting services, and continuing training and guidance because MSI had retained discretion over the type and amount of such services to offer franchisees.