Constructive Franchise Termination Claims are Not Dead. This case provides good advice for franchisors on devising and embracing a franchise impact policy; the problem is that very, very few franchisors follow this advice. Short run profit goals of franchisors, along with terribly thought-out court decisions like DRX Urgent Care, leave franchisees with no place to turn in the face of ongoing franchisor encroachment. This opens up franchisors to viable claims by franchisees of constructive franchise termination. The attached article written by a franchisor lawyer surprisingly shows some compassion for the devastating effects of signficant encroachment on a franchisee's ability to turn a profit, even a meager one.   http://www.thelegalintelligencer.com/id=1202733653046/Encroachment-and-Franchisee-Claims-of-Constructive-Termination

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Constructive Franchise Termination Claim Upheld by Florida Court: HRCC, LTD. v. HARD ROCK CAFE INTERNATIONAL (USA), INC, 2015 WL 3498610 (June 2015):  The Florida federal court ruled that a de facto or constructive franchise termination “‘applies where one party unilaterally modifies the terms' of a contractual relationship in a manner that ‘substantially interferes with the other party's ability to obtain the benefits of the contract.’“ Bert Smith Oldsmobile, Inc. v. Gen. Motors Corp., No. 8:04CV2666T–27EAJ, 2005 WL 1210993, at *2 (M.D.Fla. May 20, 2005) (quoting Banc One Fin. Servs., Inc. v. Advanta Mortgage Corp. USA, No. 00 C 8027, 2002 WL 88154, at *10 (N.D.Ill. Jan.23, 2002)). In so holding, the Court rejected the franchisor’s argument that: Defendants claim that a cause of action for constructive termination requires an express or implied mandate via legislation which governs the relevant franchise relationship. See Cooper Distrib. Co., Inc. v. Amana Refrigeration, Inc., 180 F.3d 542, 553 (3d Cir.1999); Petereit v. S.B. Thomas, Inc., 63 F.3d 1169, 1182 (2d Cir.1995) (requiring the controlling state law to endorse a constructive termination cause of action), cert. denied 517 U.S. 1119 (1996). For a more complete discussion of franchise termination in general see: /wrongful-franchise-terminations/

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Wrongful Constructive Franchise Termination Claim Succeeds By: Jeffrey M. Goldstein Goldstein Law Firm (202) 293 3947 jgoldstein@goldlawgroup.com goldlawgroup.com   Wrongful Constructive Franchise Termination Claim Succeeds. Tilstra v. BouMatic LLC, United States Court of Appeals, Seventh Circuit, June 30, 2015, 2015 WL 3953403, is a somewhat rare example of a franchisee decimating a franchisor through jury trial on a de facto termination claim. In this pro-franchisee decision by Judge Posner, of the United States Circuit Court for the Seventh Circuit, a dealer in dairy (“milking parlor”) equipment (the corporate plaintiff, owned by Sid Tilstra), in southwestern Ontario, sued a manufacturer of this equipment, BouMatic, a Wisconsin company. Tilstra had been a dealer in BouMatic's dairy equipment for about twenty years. He claimed that the franchisor, in bad faith and deviously, forced him to sell his dealership to a neighboring BouMatic dealer at a below-market price. After a trial, the jury agreed with Tilstra and awarded him $471,124 in damages. The appellate court was asked to rule the district court’s decision upholding the jury verdict.

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Franchise Termination based on franchise menu price fixing http://www.bluemaumau.org/14588/steak_%E2%80%98n_shake_granted_summary_judgment_colorado Franchise termination based on franchisee's refusal to fix franchise menu prices approved by court for franchisee's refusal to fix menu prices as ordered by the franchisor. The court decision also stated the record amply demonstrated that the franchisees were well aware that their actions were in contravention of the franchise agreement, and thus were committed "knowingly" for purposes of the termination. With regard to the franchisees' counterclaim for fraud, the court agreed with Steak 'n Shake that the claim failed as a matter of law because the franchise agreement contained an integration clause that preempted any claim based on statements made prior to the agreement.

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Terminated Hotel Franchise Pays Liquidated Damages With No Trial; Another Wyndham Hotel Terminated Franchisee Fails to Retain Counsel and is Defaulted by Judge in Wyndham’s New Jersey Home-Court – After the hotel franchisee defendants failed to retain an attorney or defend Wyndham’s claims, the Court considered: (1) whether the party subject to the default has a meritorious defense; (2) the prejudice suffered by the party seeking default judgment; and (3) the culpability of the party subject to default.  In so doing, the Court concluded that in the absence of any responsive pleading and based upon the facts alleged in the Complaint, the Defendants did not have a meritorious defense. Further, the Court found that Howard Johnson would suffer prejudice absent entry of default judgment as HJI will have no other means of obtaining relief. In addition, the Court found that the Defendants acted culpably as “they have been served with the Complaint, are not infants or otherwise incompetent, and are not presently engaged in military service.” In turn, the Court awarded both $104,314.02 in “Recurring Fees”, and $177,105.77 in liquidated damages. Howard Johnson Intern., Inc. v. SV Hotels, LLC, United States District Court, D. New Jersey, July 10, 2015Slip Copy2015 WL 4199280 The Goldstein Law Firm and Jeff Goldstein have been particularly successful in obtaining good settlements on behalf of hotel franchise clients in liquidated damages disputes. Call for a free consultation today. 

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Dunkin Franchisee Terminated Despite its being Unable to Complete Remodel Due to Government Interference. In this case, Defendants began, but did not complete, the required renovations. Defendants contracted with an architecture firm approved by Dunkin', A & A Architects,1 to design the remodel. The architect drew up plans for a remodel and submitted the plans to local government authorities for approval of building permits. The plans called for placing a bathroom over a “well stub,” a plugged top of a water well, and county health officials objected to the placement of a well stub in the middle of a bathroom floor. Health officials refused to allow the renovations to continue until the plans changed. Dunkin Donuts Franchising LLC v. Claudia III, LLC, United States District Court, E.D.  Pennsylvania, July 14, 2015 Slip Copy, 2015 WL 4243534

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Court Slams Former Franchisees That Steal Franchise Secrets After Franchise Termination By: Jeffrey M. Goldstein jgoldstein@goldlawgroup.com goldlawgroup.com (202) 293-3947 Post-Term Franchise Restrictive Covenant in Franchise Agreement Haunts Franchisees in Capital Meats, Inc., v. The Meat Shoppe, LLC, 2015 WL 4249166 (D.C. Md. July 9, 2015). In Capital Meats, the United States District Court for the District of Maryland granted in part and denied in part a motion by the franchisee defendants to dismiss the case. The Plaintiff in Capital Meats, Capital Meats, Inc. (“CMI”), sued several entities referred to collectively as “The Meat Shoppe” and several former CMI employees who went to work for The Meat Shoppe (collectively, “defendants”). CMI alleged in nine counts that the defendants, when they resigned en masse to establish and operate a competing business, The Meat Shoppe, carried out the following: violated Virginia contract law; transgressed the Maryland Uniform Trade Secrets Act (“MUTSA”); infringed the post-term restrictive covenant not-to-compete; and committed several Maryland business and competition-related torts.

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Opposing Franchisor and Franchisee Advocates Come to Agreement on Languge for New Franchise Amendment for California Franchise Act. The key resolution in the California Franchise Act amendment was that "The parties agreed that the bill's current language “substantially comply with the franchise agreement” was too broad; the new language addresses franchisee concerns that a termination should not be based upon a minor violation." If the goal of the parties were to create one of the most ambiguous franchise termination standards on the books in any state, then the parties were highly successful. The letter from the IFA and CFA is available from GLF by request.

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Most franchise attorneys and franchise lawyers will agree that fair franchising is one of the most-used and least understood concepts in the franchise world. If you want to know the truth about fair franchising, sign up for our newsletter, Franchise Trends.  Fair franchising is an elusive concept. Many of the best franchise lawyers in the world are not able to readily provide a definition of the term. Without the assistance of a frachise lawyer who represents only franchisees, it is very difficult to achieve fair franchising. As a franchisee, if you believe that your franchisor owes you fair franchising, you’ll be disappointed. Nevertheless, an experienced franchisee lawyer or franchisee law firm can still provide tremendouos support to franchisees seeking franchise agreement assistance. Indeed, franchise lawyers have frequently managed to make franchise agreements more acceptable. But you need to begin the dialogue with your franchise attorney before you sign a franchise agreement.  As a franchise law firm, Goldstein has the expertise to analyze every aspect of proposed franchise agreements. Contact us online or call 202.293.3947 to evaluate your franchise agreement and ensure you’re treated fairly.

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Franchisees' Weapons Used for Franchisee Terminations   By: Jeffrey M. Goldstein 202 293 3947 goldlawgroup.com Washington, DC jgoldstein@goldlawgroup.com New Jersey is normally considered a ‘good state’ for franchisee terminations and franchise lawyers who represent only franchisees and dealers. This case, however, shows that on any given day, and despite the sophistication of legal representation, franchisees are subject to being blown out of the water on almost any ground. In this case, we see the Court use two relatively potent pro-franchisee legal weapons – the New Jersey Franchise Protection Act and the common law covenant of good faith and fair dealing – to bludgeon the franchisees to a legal death. Plaintiffs (franchisees) acted as independent insurance agents for Allstate under Exclusive Agency Agreements (“EAs”). Plaintiffs sought damages contending, inter alia, that Allstate wrongfully terminated their EAs and breached the implied covenant of good faith and fair dealing. The parties cross-moved for summary judgment, and the judge ruled against the franchisees concluding that: (1) applying the New Jersey Franchise Practices Act (“the Act to the insurer-agent relationships would interfere with the regulatory framework set out in New Jersey’s insurance code; (2) the relationship between Allstate and plaintiffs did not constitute a franchise under the Act; and (3) Allstate’s termination of the EAs did not contravene the implied covenant. First, the Court rejected the franchisees’ contention that the Act applies to their EAs based upon the Court’s finding that there was a direct and unavoidable conflict between the insurance laws and the franchise laws. […]

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