Franchise Case Results
For almost thirty years Jeffrey Goldstein and attorneys at the Goldstein Law Group have helped franchisees prevail in disputes with their franchisors. The Goldstein Law Group is one of only two nationally-recognized franchise law firms that represent only franchisees but not franchisors. Here are a few of our success stories.
Stopped Wrongful Termination
A real estate franchisee in New Jersey received a notice from its franchisor that the franchisor would terminate the franchisee unless it signed a brand new renewal franchise agreement that included very many new burdensome and costly provisions that had not been included in the franchisee’s previous franchise agreement. As the termination deadline approached, Jeffrey Goldstein spent hours researching some of the esoteric state laws regarding franchise terminations and non-renewals and discovered that, although the franchisor’s extortionary demands would have been permissible in other states, they were not in New Jersey. As a result of the intervention of our firm, the franchisee’s threatened termination was rescinded.
Prevented Liquidated Damages
A hotel franchisee sought the assistance of the Goldstein Law Group when it had been sued in federal court for hundreds of thousands of dollars of liquidated damages. Our client informed us that other attorneys had opined that the liquidated damages provision would be upheld and that there was little use in opposing the case in court. We looked at the franchise agreement and determined that a release addendum to the franchise agreement failed to explicitly state that the liquidated damages provision would apply after execution of the addendum. After filing papers in opposition to the hotel franchisor’s suit, the court agreed with our analysis and dismissed the franchisor’s suit.
Collected Wrongful Termination Damages
One of our clients, a hotel franchisee of a major international hotel franchise in Texas, had been terminated for its failure to carry out countless unreasonable significant remodeling and renovation demands that would have cost several hundred thousand dollars to complete. Making matters worse, the franchisor sought damages of almost $300,000. The financials at the hotel showed that the hotel’s most recent revenues were running significantly below those it had historically earned. Textbook litigation books argued for a defense based solely on the unreasonableness of the demanded changes. Rather than accepting this traditional model as the order of battle, Jeffrey Goldstein chose instead to file a counterclaim against the franchisor for its having wrongfully removed our client’s hotel’s “airport” designation. We argued that the wrongful withdrawal of the “airport designation” itself was the primary cause of the hotel’s financial woes that prevented it from completing the remodeling. The Arbitrator agreed with our firm and awarded the franchisee over $250,000 and at the same time refused to award the franchisor close to $300,000 in damages. [Jeffrey’s successful strategy in this case impressed not only our clients, but also a competing law firm specializing in hotel franchise work in Maryland as well; in that firm’s website its founding partner unexplainably claims that he personally had been the winning trial attorney in this case].
Beat Enforcement of Unreasonable Post-Term Non-Compete Clause
Our client, a franchisee of a national tax franchise out west, was terminated and sued for damages and permanent injunctive relief preventing the franchisee from operating as a tax preparer for two years after the termination. After many years of mistreatment by its franchisor, the franchisee finally drew the line when the franchisor demanded that the franchisee install new costly signage. The franchisee protested by making its own sign, which involved putting the franchisor’s name in a chain-link fence with multi-colored plastic cups. Even though the franchise agreement defined a material breach as any violation of the franchise agreement, Jeffrey Goldstein argued that the chain-link fence violation was not sufficiently substantial to permit a lawful termination. Facing off against five senior litigators on the other side of the courtroom, Jeffrey Goldstein convinced a federal court jury that the franchisee had in fact been wrongfully terminated. The jury’s award denied any damages to the franchisor and held that our client could not be restricted by the post-term covenant not to compete in the franchise agreement.
Beat Enforcement of Unreasonable Covenant Not To Compete
Our client, a franchisee of a national tax franchise in the mid-west, had been terminated right before the April 15th tax filing deadline. The franchisor sought emergency injunctive relief demanding that our client immediately shut its doors. After carefully researching the relevant franchise law of the franchisee’s state, Jeffrey Goldstein determined that in order to prevail on its emergency relief, the franchisor would have had to make a clear and convincing case that the immediate cessation of the franchisee’s business would have been in the public interest. Jeffrey prepared papers arguing that it would not be in the public interest to enforce an immediate termination because hundreds of the franchisee’s clients would not have been able to meet their deadlines to file their tax returns. The Court agreed with our legal position and refused to grant the franchisor’s emergency request. Unfortunately, during a subsequent Mediation of the case, at a break, shortly after a favorable agreement-in-principle had been reached with the franchisor, the elderly client went to the men’s room, had a heart attack and passed away.
Forced Franchisor To Rescind Termination
Our client, a large franchisee of a national donut franchise, got a surprise termination notice from its franchisor. The franchisor claimed that the franchisee had “underreported” its revenues and stolen money that belonged to the franchisor. We looked at the underreporting revenue analysis prepared by the franchisor and concluded that the mathematical ingredients measurements assumptions were erroneous. Our firm hired a recognized financial expert and prepared a counter-report showing that the franchisor’s evaluation was defective. After staring down the franchisor’s threats of termination, Jeffrey Goldstein was able to persuade the franchisor to rescind its termination and permit the franchisee adequate time to sell its franchise for full fair market value.
Withstood Franchisor’s Emergency Injunction Request
Our client, a multi-unit a franchisee of a large nutritional supplement franchise, was terminated for allegedly selling ephedra after the FDA’s ban on selling the herb. The franchisor had reports from its undercover employee describing the exact placement of the product on the franchisee’s store shelves. When Jeffrey Goldstein interviewed the client regarding the allegations and the operations of the franchise stores, the issue of security for the stores was discussed. That evening, Jeffrey Goldstein called the franchisee to ask whether it used a camera surveillance system, which the client confirmed it did. When we went back to the video surveillance tape it suggested that the franchisor’s representative might have put the bottles on the shelves. Based on this evidence, the franchisor’s initial emergency motion to terminate our client was denied. After that emergency hearing, apparently not believing that sometimes franchisors do lose in court, the franchisor’s large team of lawyers and executives chased Jeffrey Goldstein and our client down the hallway in the courthouse yelling that he turn over the keys of the stores to them immediately. After additional wrangling in court, we were able to negotiate a favorable settlement with the franchisor.
Prevented Wrongful Termination
Our client, one of the largest donut franchisees in the system, was terminated for alleged quality assurance deficiencies. The franchisor went to federal court and filed a motion to force the franchisee to turn over his multi-unit franchise business worth many millions of dollars to the franchisor without compensation. Our client, with many stores in downtown NYC, was an easy target for the franchisor, which, at that time, was fighting a public relations war with investigative reporters regarding the cleanliness of its franchise stores. [Around this time, a famous network TV show began airing a multi-episode report of downtown NYC restaurants, and began photographing rats that it found in restaurants. In a story identifying the franchisor as one of many who allegedly had rats, a non-franchise restaurant owner was quoted as saying: “We’re at war. There are more rats in the city than there are people... We haven’t found anything, but we’re prepared. If he’s here, I’ll catch him."]. Jeffrey Goldstein carefully and painstakingly examined the years of quality assurance reports for our client’s stores, and found that the most recent reports upon which the termination was based contained many unsupportable inconsistencies and gaps. Our firm retained two experts – one a former inspector of the franchisor, and the other a former NYC food safety inspector – to immediately visit the stores, take photographs, and provide their own grades using the same criteria as did the franchisor. After we filed papers, the Court agreed with us that the franchisor’s emergency request for termination of the stores should be rejected. Thereafter a very favorable settlement with the franchisor was reached.
Exposed Franchisor Self-Dealing
Our client, a franchisee of solutions to organize garages and work spaces, was almost bankrupt. It retained our firm to assist it in disengaging from the franchise system, since it believed that it could be profitable if permitted to operate as an independent business. However, the post-term restrictive covenant prevented our client from conducting its business after any termination, even one by the franchisee itself. After Jeffrey Goldstein reviewed the franchise agreement and the FDD he focused in on the franchisee’s supply costs. Even though the franchisor promised that it would not restrict our client from using its own sources of supply, it nevertheless refused to allow our client to purchase products from companies that sold the same brand and quality of merchandise as the “approved vendors.” After interviewing many other franchisees and vendors, we determined that the franchisor had received undisclosed payments, mark-ups, and kick-backs from the franchisees’ purchases from the “approved vendors.” After significant wrangling in court, the franchisor entered into a favorable settlement with our client.
Prevailed in Beating Franchisor’s Motion to Dismiss Racketeering (RICO) Charges
Our client, a multi-unit California franchisee of nutritional supplements, was being driven out of business by the direct competition of its franchisor through company-owned stores. During the intake interview the franchisee hesitatingly explained that it had been forced to sign legal “releases’ by the franchisor in exchange for promised “better pricing” of supplies sold by the franchisor. Our client told us that it other franchise lawyers had told it that the releases were valid and that “there was nothing more that can be done.” Jeffrey Goldstein refused to accept the conclusion that the oppressive releases were valid. Instead, after many hours of legal research and review of the language of the release documents, Jeffrey concluded that the franchisee’s release of liability of the franchisor unambiguously applied only to one store, and did not bar claims brought with respect to the franchisee’s other store. One release defined “store” as merely one store, and all references in the agreement were in singular, and the other release had been made applicable to “any and all franchise locations.” Accordingly, since the broader release had been signed before the more narrow one, our client’s case with regard to the second store was carved out of the sweep of the release. Based on this decision, which Jeffrey Goldstein won in front of the United States Circuit Court for the Ninth Circuit, our client thereafter was able to enter into a favorable settlement agreement.
Prevailed in Striking Unfair Arbitration Clause
Our client, a franchisee of a national real estate franchise, came to us after having refused to sign an onerous renewal agreement. The franchisor refused to give its approval for the franchisee to operate independently after the disassociation. Our client, based in California, came to us for assistance. After reviewing the voluminous documents in the case, Jeffrey Goldstein determined that our client’s case had a much greater chance of success if we were able to try it in court instead of in an Arbitration. However, the franchise agreement contained an explicit Arbitration clause. After researching the relevant law on the subject, we attacked the validity of the Arbitration clause on its face as being substantively and procedurally unconscionable. Jeffrey came up with the novel argument that the Arbitration clause itself was unenforceable because it was asymmetrical: although it permitted the franchisor to sue in court it permitted the franchisee to sue only in an Arbitration. We also argued that the provision was invalid because it was presented to our client on a take-it-or-leave-it basis as part of a contract of adhesion. The Court agreed with the arguments in the papers filed by Jeffrey and it denied the franchisor’s motion to compel arbitration. Shortly after this Court decision in favor of the client, we were able to structure a very favorable termination agreement with the franchisor.
Avoided Wrongful Termination
Our client, a multi-unit franchisee of the largest tax preparation franchises in the world, came to our firm after it became fed up with its franchisor’s heavy-handed demands that it purchase and install in its offices new and costly tax preparation software. When our client had resisted these demands, the franchisor attempted to extort compliance by wrongfully withholding certain supplies, including copiers and advertising funds and allowances, which, under our client’s franchise agreements, the franchisor was obligated to provide. The franchisor also threatened to terminate our client unless it acquiesced. Even though the franchisor had intimidated and strong-armed many of its franchisees into installing the software, Jeffrey concluded that the language in our client’s contracts could not support the franchisor’s position. After our firm’s initial efforts to negotiate an amicable resolution were gruffly rebuffed by the franchisor, Jeffrey Goldstein and our lawyers prepared a lengthy Arbitration Demand and served it on the franchisor. After almost a week’s worth of hearings before a Three-Arbitrator Panel, an Award on this issue was issued in our client’s favor, holding that, under the franchise agreements, our client could not be forced to purchase and use the new software.