Monthly Archives: June 2019

GNC Franchisor Prevails in Moving to Set-Aside a Default Entered Against it For Failure to Timely Answer GNC Franchisees’ claims

Jun 28, 2019 - Franchise, Dealer & Antitrust Decisions in One Sentence by |

Federal Court ruled in favor of franchisor GNC in setting aside a default entered against it where the franchisor asserted that the failure to timely respond fell short of constituting culpability because it was attributable to a mere miscommunication between GNC’s litigation counsel and GNC’s in-house legal department, and where GNC further contended that the existence of meritorious defenses to Plaintiffs’ claims and corresponding lack of prejudice to Plaintiffs warranted setting aside the clerk’s entry of default; and where Plaintiffs opposed GNC’s Motion on the basis that GNC’s explanation for its untimely participation in this matter evinced a deliberate, strategic choice rather than a negligent oversight. Kyllonen v. GNC Franchising, LLC, No. 2:18-cv-01526-GMN-BNW, 2019 U.S. Dist. LEXIS 99822 (D. Nev. June 13, 2019) Please click on the link below to read this court decision. LINK to PDF

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Bone Cement Recipe Owner Manufacturer’s Claims Against Competitor’s Manufacturer for Theft of a Trade Secret is not Time-Barred

Jun 28, 2019 - Franchise, Dealer & Antitrust Decisions in One Sentence by |

In a distribution case, a bone cement recipe owner’s action against a manufacturer of bone cement for the owner’s competitor, alleging theft of a trade secret, misappropriations that were discovered or by the exercise of reasonable diligence should have been discovered more than three years before the suit was filed were time-barred under the Pennsylvania Misappropriations Act (PUTSA), but the owner of the trade secret was permitted to sue for misappropriations that occurred within the three-year period before filing of the Complaint because Pennsylvania applied the rule of separate accrual to trade secret misappropriations of a continuing nature based on the text of the PUTSA and Pennsylvania’s common law rule of separate accrual of the cause of action. Heraeus Med. GmbH v. Esschem, Inc., No. 18-1368, 2019 U.S. App. LEXIS 18636 (3d Cir. June 21, 2019) Please click on the link below to read this court decision. LINK to PDF

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4 Special Considerations for Buying a Low-Cost Franchise

Jun 28, 2019 - Blog by |

In a recent article, we discussed some of the practicalities of purchasing a low-cost franchise. We looked at some “cheap” franchise opportunities that have wide initial investment ranges, and noted that most franchisees should generally assume that they will not be at the bottom of the range. We also examined some of the ongoing costs that can substantially increase the total investment in a franchise, and we provided links to some of our most-popular resources for evaluating franchise opportunities. What Do You Need to Know Before You Buy a Low-Cost Franchise? In addition to these financial factors, there are a number of other special considerations involved in buying a low-cost franchise as well. Some of these factors include: 1. Brand Value When you buy a franchise, what are you really paying for? The legal definition of a franchise consists of three main elements: (i) association with a trademark and (ii) access to a marketing plan in exchange for (iii) payment of a fee. For many franchisees the association with a trademark (or “brand name”) is one of the most valuable – if not the most valuable – aspects of franchise ownership. If a franchisor offers a low franchise fee, one of the key questions you need to ask is, “Why?” Could it be because the franchisor’s brand value is minimal? If so, then you need to seriously consider if even the low franchise fee is justified in terms of the brand recognition you will enjoy as a franchisee. 2. Business […]

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Auto Manufacturer’s Charge-back of Rebates to Car Dealer Fails

Jun 23, 2019 - Judge’s Distribution and Franchise Rulings from the Front Lines by |

AUTOBAHN IMPORTS, L.P., Doing Business as Land Rover of Fort Worth v. JAGUAR LAND ROVER NORTH AMERICA, L.L.C., 896 F.3d 340 (United States Court of Appeals, Fifth Circuit) (July 13, 2018) Auto Manufacturer’s incentive and chargeback programs were shown to be an unenforceable and unreasonable sales standard that failed to legally justify the chargeback of the car franchisee by the franchisor of $317,000 of auto manufacturer’s holdbacks. After franchisee, a car dealer, successfully complained to Board of Texas Department of Motor Vehicles, asserting that franchisor’s charges of $317,000 back to franchisee for violation of rules of sales incentive program was an unreasonable sales standard, and during pendency of franchisor’s appeal of the Board’s order to the Texas Court of Appeals, franchisee brought action in state court against franchisor, seeking damages based on Board’s ruling, and claiming breach of contract and violations of the Texas Deceptive Trade Practices Act (DTPA). Franchisor removed to federal court, and the United States District Court for the Northern District of Texas, John McBryde, District Judge, 2017 WL 2684055, granted franchisee’s summary judgment motion. Franchisor appealed, and in the interim the Texas Court of Appeals affirmed the Board’s order. The genesis of the lengthy dispute, spanning across many years, courts, and court systems, hinged on incentive programs offered by Jaguar. First, Jaguar offered an incentive known as the “Business Builder Program,” which provides dealers a percentage of the retail price of every vehicle sold if certain conditions are met. The relevant terms are set out in […]

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What is an “Unfair” Franchise Practice?

Jun 21, 2019 - Blog by |

As a franchisee, many aspects of the franchise relationship can seem unfair. The longer you own your franchise, you are likely to realize how truly one-sided the relationship really is, and there is a good chance that you will grow increasingly frustrated with the power that your franchisor wields over your business. But, from a legal perspective, when are a franchisor’s practices considered “unfair”? Unfair franchise practices provide franchisees with a legal cause of action against their franchisors. However, the legal definition of an “unfair franchise practice” is limited, and not every complaint will justify arbitration or litigation. Examples of unfair franchise practices include: 1. Supplier and Sourcing Restrictions Franchisors are well within their rights to designate suppliers for products and services and impose other sourcing restrictions on their franchisees. After all, uniformity is one of the hallmarks of franchising. However, what franchisors cannot do is impose undue restrictions that harm franchisees to the franchisor’s financial gain. For example, if similar-quality products are available from multiple suppliers, it may be an unfair franchise practice for the franchisor to mandate that franchisees pay more to a supplier that offers a rebate to the franchisor. 2. Price Control Under state and federal antitrust laws, franchisors are prohibited from using their “market power” to dictate prices in individual markets. While proving that a franchisor has sufficient market power to control local prices can be a challenge, if your franchise is struggling because you cannot charge a reasonable price for your goods or services, […]

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Tim Hortons Prevails on Termination Injunction Motion Against Restaurant Franchisee

Jun 19, 2019 - Judge’s Distribution and Franchise Rulings from the Front Lines by |

Crux of Court’s Decision (Not including any subsequent appeals): Tim Hortons prevailed on its preliminary injunction motion terminating its restaurant franchisees. The franchisor was entitled to a preliminary injunction terminating the franchisees because the franchisees refused to pay fees owed to the franchisor. June 17, 2019 Name of Court: United States District Court for the Southern District of Florida Short Case Name: Tim Hortons v. Tims Milner Short Factual Background and Parties: Plaintiff is the franchisor of the Tim Hortons brand and franchises restaurants throughout the United States. In 2016, Defendants and Plaintiff and its affiliate Tim Donuts U.S. Limited, Inc. (hereafter, “Plaintiff’s Affiliate”) entered into Franchise Agreements and Lease Agreements (together, the “Agreements”) that provided for Defendants’ ownership and operation of franchised Tim Hortons restaurants at seven locations in Michigan (the “Restaurants”). Each of the Franchise Agreements grants Defendants the right to operate one Tim Hortons restaurant in a specific location and to use the Tim Hortons trademarks. Defendants, however, maintain that they reached a verbal agreement with two employees of Plaintiff prior to execution of the Agreements, that they are only required to pay rent based on a flat percentage of gross sales, and are not required to pay as additional rent all real estate taxes and assessments, sales taxes, common area maintenance charges and assessments, certain utilities, and personal property taxes (together, the “Additional Rent Amounts”) On or about June 19, 2018, Defendants entered into an Asset Purchase Agreement with Kava, for the sale of the Restaurants […]

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Court Refuses to Dismiss Dealer’s Claims that Teamsters Converted Dealer’s Territory

Jun 16, 2019 - Judge’s Distribution and Franchise Rulings from the Front Lines by |

Crux of Court’s Decision (Not including any subsequent appeals): Dealer claimed that the Teamsters converted the Dealer’s Territory. The United States District Court for the District of Kansas refused to dismiss the Plaintiff Dealer’s claims that the Teamsters converted the dealer’s territory. The Court held that the Plaintiff sufficiently alleged in its Complaint that with full knowledge of his exclusive distribution rights, the Teamsters conspired with BIMBO, the franchisor/distributor, to have union drivers take over and abruptly terminate plaintiff’s routes. Facts as Alleged Underlying Court’s Decision (Not including any subsequent appeals): Bimbo Foods, Bimbo Bakeries and their predecessors (collectively, “BIMBO”) sold individuals and small businesses the exclusive right to sell and distribute certain bakery products throughout the United States, including the Greater Kansas City Area. Specifically, BIMBO’s business model for product distribution involved the formation and operation of an “Independent Operator (IO) Distribution Network” in which BIMBO sold independent distributors the exclusive right to purchase, resell and distribute its bakery products. Under the agreement, plaintiff’s exclusive distribution rights were to continue until such time as plaintiff voluntarily sold or transferred such rights. In 2011, BIMBO’s parent company, Mexico-based “Grupo Bimbo, S.A.B. de C.V.,” purchased Sara Lee Corporation’s North American fresh bakery business, which resulted in overlapping distribution routes with BIMBO’s existing IO distribution network. The Sara Lee distribution model relied on union employee drivers. In 2017, BIMBO negotiated for the drivers of Teamsters to take over the routes owned by plaintiff and other independent route owners in the Kansas City […]

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Domino’s Franchise Agreement Supports Employee’s Antitrust Conspiracy Claim

Jun 15, 2019 - Judge’s Distribution and Franchise Rulings from the Front Lines by |

Domino’s Franchise Agreement Supports Employee’s Antitrust Conspiracy Claim Crux of Court’s Decision (Not including any subsequent appeals): Domino’s Franchise Agreement Supports Employee’s Antitrust Conspiracy Claim. The Court rejected Domino’s motion to dismiss concluding that a ‘no-hire’ provision in Domino’s franchise agreements supported the allegation that the franchisor had formed and participated in an antitrust conspiracy. In so concluding, the Court ruled that Blanton, the plaintiff employee of a Domino’s franchisee, had adequately pled that Domino’s used the franchise agreements to orchestrate a conspiracy among their franchisees to not compete for labor; Blanton says that the no-hire provision is evidence of that conspiracy and violates the Sherman Antitrust Act because it unreasonably restrains competition for Domino’s franchise employees and depresses employee wages, lessens employee benefits, and stifles employee mobility Name of Court: United States District Court for the Eastern District of Michigan, Southern Division Short Case Name: Blanton v. Domino’s Crux of Dispute: Blanton says Defendants violated the Sherman Antitrust Act by orchestrating an employee no-hire agreement among their nationwide network of franchisees. Under the no-hire provision at issue—included in every Domino’s franchise agreement from at least January 2013 to April 2018—Domino’s franchisees agreed not to solicit or hire current employees of other Domino’s franchisees and affiliated entities. Blanton worked for a Domino’s franchise in Port Orange, Florida, from January 2017 until April or May of that year; he says he quit because his hours were repeatedly cut back. The Domino’s franchise that Blanton worked for is one of many in […]

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Long-Term Thinking as a Prospective Franchisee: Avoiding Costly Mistakes When Negotiating the Franchise Agreement

Jun 14, 2019 - Blog by |

When you buy a franchise, it is easy to focus on short-term considerations: How much is the initial investment? How long will it take for you to open for business? How soon can you reasonably expect to turn a profit? While these are all undoubtedly important factors, there are several long-term factors you need to consider as well. Whether you intend to operate your franchise for as long as possible or you are hoping to build a business you can sell, there are several important provisions of the franchise agreement that should weigh into your buying decision. Some of these factors include: 1. Renewal Rights and Conditions Franchise agreements typically include numerous strict and franchisor-friendly conditions on the franchisee’s right to renew. When reviewing the franchise agreement’s renewal provisions, some of the key factors to assess include: How much is the renewal fee? Does the franchise agreement provide for unlimited renewals? Do the renewal conditions essentially give the franchisor subjective control over your right to renew? 2. Transfer Rights and conditions Similar considerations apply to the franchise agreement’s transfer provisions. Most franchise agreements require payment of a transfer fee (which can often be negotiated between the franchisee and the buyer) and impose various other conditions on the franchisee’s right to transfer. Many franchisors will also demand a right of first refusal, which can be a turn-off to prospective buyers. 3. Grounds for Termination Ideally, you will find success as a franchisee, and you will never have to think about the […]

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Home-Based, Mobile or Storefront? Considering Franchise Location Alternatives

Jun 12, 2019 - Blog by |

When choosing between potential franchise opportunities, there are numerous different factors to consider. Among these factors is the question of where you want to run your business. Do you want to run your business out of your home? Are you interested in a mobile franchise? Or, do you want to lease a retail location where you and your employees will interact with customers? 4 Factors to Consider Regarding Franchise Location While some franchises offer options, in most cases, whether you operate from home, from a vehicle or from a storefront location will be dictated by the franchise you choose. In any case, when deciding which option is most fitting for you, here are some important factors to consider: 1. Self-Direction and Discipline Some people are extremely efficient working from home. They have an office that is dedicated to their franchised business, and they have no problem sitting down and working when work needs to be done. Other people find working from home too distracting, with everything from laundry to video games getting in the way of productivity. Operating a successful franchise requires commitment, and if you cannot commit yourself to working from home, then a home-based franchise may not be for you. 2. Storage and Facilities When leasing retail space, meeting your storage and other facility-related needs is a matter of choosing a suitable location and negotiating the terms of your lease. When operating from home or operating a mobile franchise, there can be more restrictions involved. Will you have […]

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