Edible Arrangements Franchisee Forced to Litigate Fraud Claims in Arbitration Fruit Creations, LLC v. Edible Arrangements, LLC, No. 3:20-cv-00479, 2020 U.S. Dist. LEXIS 156779 (M.D. Tenn. Aug. 27, 2020) In a recent case in the United States District Court for the Middle District of Tennessee, the Court rejected as ‘meritless’ the Edible Arrangements franchisee’s argument that the franchisee’s claims were not subject to arbitration under the Edible Arrangements franchise agreement stating that “the plaintiff’s claim that a reading of the “Enforcement” section of the contract as a whole leads to a conclusion that the parties did not intend to arbitrate their dispute borders on nonsense.” Excerpts of the Case: Fruit Creations, LLC v. Edible Arrangements, LLC United States District Court for the Middle District of Tennessee, Nashville Division August 27, 2020, Filed Case No. 3:20-cv-00479   Reporter 2020 U.S. Dist. LEXIS 156779 * FRUIT CREATIONS, LLC, FRUIT CREATIONS OF CLARKSVILLE, LLC, FRUIT CREATIONS OF NASHVILLE, LLC, TONY CONSTANT, and KIMBERLY CONSTANT, Plaintiffs, v. EDIBLE ARRANGEMENTS, LLC, NETSOLACE, INC., EDIBLE CONNECT, LLC, BERRY DIRECT, LLC, EDIBLE BRANDS, LLC, INCREDIBLE EDIBLES, LLC, and TARIQ FARID, Defendants. Counsel:  [*1] For Fruit Creations, LLC, Fruit Creations of Clarksville, LLC, Fruit Creations of Nashville, LLC, Tony Constant, Kimberly Constant, Plaintiffs: Colby Conforti, Robert F. Salkowski, Robert Zarco, Zarco Einhorn Salkowski & Brito, P.A., Miami, FL; James R. Tomkins, Smith & Tomkins, One Lakeview Place, Nashville, TN. For Edible Arrangements, LLC, Netsolace, Inc., Edible Connect, LLC, Berry Direct, LLC, Edible Brands, LLC, Incredible Edibles, LLC, Tariq Farid, Defendants: Kevin […]

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7-Eleven Prevails on Franchisee’s Vendor and Inventory and Good Faith Breach Claims By: Jeffrey M. Goldstein Takiedine v. 7-Eleven, Inc., No. 17-4518, 2020 U.S. Dist. LEXIS 161103 (E.D. Pa. Sep. 2, 2020) In a recent case in the United States District Court for the Eastern District of Pennsylvania, a former 7-Eleven franchisee Takiedine filed a complaint against 7-Eleven alleging breach of the covenant of good faith and fair dealing and breach of contract. The Court dismissed the franchisee’s complaint, but with leave to amend. In his amended complaint, Takiedine pleaded claims for breach of the covenant of good faith and fair dealing, breach of contract, unconscionability, unjust enrichment, impracticability, conversion, and fraud. In turn, 7-Eleven moved to dismiss the amended complaint and filed a separate motion to stay the arbitrable claims, arguing that certain of Takiedine’s breach of contract claims concerning vendor negotiating practices were required to be arbitrated under the terms of the Franchise Agreements. The Court granted 7-Eleven’s motion to stay the arbitrable claims, ruling that Takiedine’s vendor negotiating practices claims under Section 15 of the Franchise Agreements, including those concerning 7-Eleven’s proprietary products, fell within the scope of the Franchise Agreements’ arbitration provision. The Court also at that time dismissed three of the franchisee’s breach of contract claims concerning (1) fair and accurate merchandise audits under Section 14 of the Franchise Agreements; (2) failure to market and advertise under Section 22; and (3) recommended vendors under Section 15(g). Three of  Takiedine’s breach of contract claims survived relating to […]

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With the novel coronavirus pandemic affecting businesses across the United States in unprecedented ways, franchisors’ responses have largely fallen into two categories: There are franchisors that have stepped up to help their franchisees survive, and there are those that have chosen to aggressively enforce franchisees’ standard contractual obligations—even knowing that their inability to meet their financial obligations is a direct result of the COVID-19 crisis. Franchisors Need to Support Their Franchisees During the Novel Coronavirus Pandemic In a recent blog article, the International Franchise Association (IFA) writes that it is now more important than ever for franchisors to support their franchisees. As the author, Lauren Moorman, writes: “[M]any of the most vulnerable franchise systems will be looking to mitigate those losses by scaling back spending and imposing new austerity measures for franchisees. “This is a mistake. “While budget-tightening will be unavoidable for most franchise systems, franchisors should be careful not to create new burdens or restrictions on franchisees. . . . Instead, franchisors in every segment should focus on fortifying their front lines, ensuring that franchisees have everything they need to stay afloat now and recover quickly later . . . .” In order to help their franchisees weather the storm and ensure that their brands remain as strong as possible, the article recommends that franchisors take several steps during the COVID-19 crisis. Some of these steps include: Listening to Franchisees’ Concerns – Franchisees are on the front lines; and, while franchisors are feeling the effects of the COVID-19 crisis […]

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As discussed in a recent article published by Nation’s Restaurant News (NLN), some franchisors have begun offering financial relief packages to their franchisees during the COVID-19 crisis. According to NLN, major restaurant franchisors including Yum Brands (KFC, Pizza Hut and Taco Bell), Subway, McDonald’s, Chick-fil-A and Qdoba are offering relief ranging from, “deferring all 2020 capital obligations for remodels and new unit development through the end of this year,” to deferral of royalty and rent payment obligations. These relief packages come as these (and other) franchisors are requiring franchisors to severely limit their operations in order to help combat the spread of the novel coronavirus. In many franchise systems, franchisees have the option to implement social distancing and other safety protocols consistent with local practices as well. Regardless of the impetus, many franchisees are struggling as a result of the economic impacts of COVID-19, and this makes financial relief packages an attractive option for franchisees to whom they are available. Do Franchisor Relief Packages Come with Strings Attached? Before accepting financial relief packages from their franchisors, however, franchisees need to make sure that the relief being offered does not come with strings attached. Or, if it does come with strings attached, then franchisees need to know what these strings are, and they need to decide if the associated costs and risks are worth it. If royalty payments are being deferred, are they being deferred with interest? Will past-due royalties eventually be due in a lump sum; and, if so, when? […]

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While buying a franchise is generally considered to be less risky than starting an independent business in the same industry with the same start-up costs, many franchisees still fail. There are several reasons why, and these reasons are not necessarily consistent across industries or franchise systems, or even within individual franchisors’ ranks. The risk of failure is one of the primary reasons why all prospective franchisees need to work with an experienced franchise attorney before buying, and it is why active franchisees should engage legal counsel promptly if they run into issues or have a dispute with their franchisor. While the question, “Why do franchisees fail?” does not have one single straightforward answer, there are a number of possible reasons for franchisee failure. Some of these reasons include: 1. The Franchise System Isn’t Sound Like anything else, some franchise systems are simply better than others. If a franchise system isn’t sound – if the brand doesn’t resonate with customers, if the products or services are subpar, or if the marketing plan just doesn’t work – then franchisees are going to struggle. If Item 20 of the Franchise Disclosure Document (FDD) shows a high volume of franchisee turnover (including a large number of franchisees leaving the system “for other reasons”), this may be a sign that there issues with the system as a whole. 2. The Franchisor Doesn’t Provide Adequate Training or Support Lack of training can be an issue in systems where (i) there are a significant number of complex […]

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When researching franchise opportunities online, you will come across several lists with names like, “Top Franchises Under $30,000” and “Cheap Franchises Under $10k”. While these make for good headlines, does it really make sense to shop for a franchise by price point? Here, national franchise lawyer Jeffrey M. Goldstein shares his thoughts. 1. What is the “Price Point”? When talking about franchise price points, it is important to ask: What “price point” are we talking about? Generally speaking, there are three options: The Initial Investment Fee disclosed in Item 5 of the Franchise Disclosure Document (FDD) The total estimated initial investment disclosed in Item 7 of the FDD The total cost of ownership over the lifetime of the franchise Most online lists focus only on the Initial Investment Fee. There are a couple of reasons why. First, this number is easy to find, and this makes it easy to compile a list. Second, this is the lowest number that can reasonably be characterized as the “price point” for a franchise. So, while this number ultimately only reflects a small fraction of the cost of franchise ownership, it is a good choice for marketers seeking to get clicks from prospective franchisees. 2. Price Point is Only One of Several Factors to Be Considered While the amount of money you have available to invest in a franchise is certainly a factor to be considered, it is not the only factor that should drive your franchise buying decision. From brand recognition and franchisor […]

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Buying a franchise is not a simple process. There are several steps involved, and you need to do everything you can to make sure you feel as confident as possible that you will be able to succeed as a franchisee. Too often, prospective franchisees rush the buying process—either because they are excited about the franchise opportunity, or because the franchisor’s sales reps encourage them to sign quickly without doing their full due diligence. When buying a franchise, there is no substitute for hiring an experienced franchise attorney to guide you through the process. With that said, as a prospective franchisee, there are several steps you can take on your own, and it is important to be aware of the overall timeline of the franchise buying process. Here is a checklist you can follow: 10 Steps in the Franchise Buying Process 1. Compare Franchise Opportunities Before settling on one particular franchise opportunity to pursue, it is important to consider the competition. How are the franchised brands similar? How are they different? 2. Choose a Franchise Opportunity to Pursue Next, it is time to choose the franchise opportunity you are going to target. From this point forward, you will be devoting a lot of time and effort to your chosen opportunity, so you will want to choose wisely. 3. Meet with the Franchisor Once you choose a franchise opportunity to target, it is time to meet with the franchisor. Schedule an appointment via videoconference or in person, and be prepared with a […]

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Liberty Tax Loses Preliminary Injunction to Former Liberty Franchisee Regarding Enforcement of Post-Term Restriction Liberty Tax Franchisee Represented by GLF Wins in Post-Term Covenant Case in Federal Court ——————————————————— UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT TACOMA JTH TAX LLP, doing business as Liberty Tax Service , Plaintiff, v. MARK KELLY, Defendant. CASE NO. C20-5484RJB ORDER ON MOTION FOR TEMPORARY RESTRAINING ORDER AND PRELIMINARY INJUNCTION JULY 6, 2020 THIS MATTER comes before the Court on the Plaintiff’s Motion for Temporary Restraining Order and Preliminary Injunction (Dkt. 14). The Court is familiar with the file and all documents filed in support of and in opposition to the motion. DISCUSSION This is a business dispute. The facts are sharply in dispute. It is inappropriate, and not justified by the record, for the Court to preliminarily takes a side now for the following reasons: The Court is unable to determine that Plaintiff is likely to succeed on the merits; It does not appear that Plaintiff is likely to suffer irreparable harm in the absence of preliminary relief. If Plaintiff’s position ultimately prevails, monetary damages should adequately recompense Plaintiff. Nothing in the parties’ contract trumps this conclusion; The balance of equities is as hazy as is Plaintiff’s likelihood of success; A preliminary injunction or restraining order is not shown to be in the public interest. Particularly, third party taxpayers’ interests have not been successfully shown to be at risk under the status quo. For these reasons, Plaintiff’s Motion for Temporary Restraining Order […]

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Virtual Healthcare Franchisee’s Fraud Claims Based on Franchisor’s Financials Must be Reasserted  A virtual healthcare franchisee’s common law fraud claim that the franchisor of a cloud-based marketplace for telehealth services fraudulently induced the franchisee to invest in the franchise and in so doing also violated the anti-fraud provision of the New York Franchise Sales Act (NYFSA) based on statements allegedly made at a Franchise Expo regarding future performance were mere puffery under Missouri law, and to the extent other similar claims were based on the franchisor’s misrepresentations made during the negotiations and execution of the parties’ franchise agreement (including specific representations about future revenue and expense ‘projections’), the allegations were insufficient to sufficiently identify which individual defendants made which statements; further, issues of fact remained as to whether the franchisee’s alleged reliance on the representations made by the defendants was reasonable.  CHARLES FABIUS, ET AL., PLAINTIFFS V. MEDINEXO USA, LLC, ET AL., DEFENDANTS, U.S. District Court, E.D. Missouri, Eastern Division. No. 4:19CV2526 JCH. Dated April 3, 2020  ———————————————–  Excerpts from case:   DISCUSSION  Fraud In The Inducement  As noted above, in Count III of their Complaint Plaintiffs assert a claim for fraud in the inducement. (Compl., ¶¶ 86-92). Specifically, Plaintiffs allege as follows: In the initial meeting between Mr. Fabius and defendants Toro and Adelman, the defendants made several false, misleading and fraudulent statements and representations of material facts to him, including unsupported statements about the potential earning capacity as a [] Medinexo franchisee. Subsequently during the negotiation of the […]

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Connecticut Federal Court Rules for Franchisee and Strikes Unfair Floating Forum Selection Clause The United States District Court for the District of Connecticut has ruled that a franchisee of Doctors Express who purchased the exclusive rights to develop and manage Doctors Express Urgent Care franchises in two counties in New York and Connecticut was permitted to sue the franchisor in a court in Connecticut despite a forum selection clause in the agreement requiring that the litigation be filed in Alabama since the forum selection clause could not be presumed enforceable, because it was not reasonably communicated to the franchisee that he agreed to file suit in the jurisdiction where a future assignee of Doctors Express was based and because enforcement by that assignee, AFC Franchising, LLC, was not sufficiently foreseeable to him; accordingly, it would be “unfair, unjust, and unreasonable” to hold the franchisee to a clause that did not provide sufficient notice as to the forum being selected. DANILO PURUGGANAN, PLAINTIFF V. AFC FRANCHISING, LLC, DEFENDANT, Bus. Franchise Guide (CCH) P 16657 (C.C.H.), 2020 WL 3274207 (May 13, 2020)   —————————————————– Excerpt of Court’s Decision:   Because the Defendant’s motion turns on the interpretation and enforceability of the MDA’s forum selection clause, as indicated above, the Court’s assessment of the four inquiries set forth by the Second Circuit supplants the traditional inquiry undertaken in a forum non conveniens analysis. Federal common law governs the fourth inquiry, and the Second Circuit has assumed without deciding that federal common law likewise applies to the first inquiry. Starkey […]

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