Federal Court Drives Final Nail in Dunkin’ Franchisee’s Coffin Dunkin Donuts Franchising, LLCv. Claudia I, LLC, and Claudia I, LLC v. Spring Hill Realty Inc., 2014 WL 5353724 (E.D. Pa., Oct. 20, 2014). After a long and litigious period, the United States District Court for the Eastern District of Pennsylvania granted Dunkin’ a permanent injunction against franchisee Claudia on October 20, 2014. This case is a prototypical example of what can happen when a franchisor loses trust, faith and patience with an underperforming franchisee. In this regard, it is important to note that the franchisee in this case also tightened the legal noose around its neck by unhelpfully focusing its attention and resources on relatively minor infractions of the franchisor and landlord rather than the most detrimental and objectionable franchisor conduct. This left Dunkin’ in the driver’s seat from the time of the execution of the franchise agreement through the final decision of the Court.

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This case shows that, as predicted last week, a mid-western jury answers to nobody, finding, in contrast to recent California courts, that franchisors can be subjected to serious vicarious liability for the conduct of their franchisees’ employees. In Bruntjen v. Bethalto Pizza, LLC, 2014 IL App (5th) 120245, 18 N.E.3d 215, 385 Ill.Dec. 215(2014) (decision follows below under comments), a passenger in a van that was struck by the car being driven by a pizza delivery driver brought an action against the driver, the driver’s employer (the franchisee), the franchisor of driver’s employer, and others for negligence. The Circuit Court of Illinois, Madison County, entered judgment in favor of the injured passenger for approximately $2.28 million. The appeal was rejected and the judgment affirmed.

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A post-term restrictive covenant in franchise agreement tripped-up  a “Rogue Franchisee” in London In Oven Clean Domestic Limited v Read (January 2015). In this case, the High Court in London, in issuing an interim injunction shutting down the franchisee, held that a post termination non-compete obligation in a UK franchise agreement was reasonable and enforceable. Tim Harris, the CEO of OvenClean and Franchise Brands predictably stated “we do not have many disputes with our franchisees and we always try to resolve any issues with franchisees before they escalate. However, every now and then all franchisors have a rogue franchisee who threatens the very core of the franchisor's business.” The CEO of OvenClean tried to explain why he and OvenClean felt it necessary to put the franchisee out of business: "We do not have many disputes with our franchisees and we always try to resolve any issues with franchisees before they escalate.  However, every now and then all franchisors have a rogue franchisee who threatens the very core of the franchisor's business.  We had to act against [the franchisee] to protect our business and the businesses of all our franchisees.” Of course the CEO also warned other franchisees about acting in a similarly roguish manner stating the after the case, the franchisor has “a very useful set of precedent documents which will reduce our costs for future applications.”  Franchisees that find themselves at the other end of a disputed termination are in almost every state subject to enforcement of the restrictive covenant […]

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Although the Vann decision is indisputably a franchisor victory, it would be an expensive mistake for franchisors and their advocates to interpret the case as signaling any serious shift in the way that agencies, courts and legislatures around the country (or even other courts and agencies in California) view the issue of franchisor vicarious liability, conceptually or practically. As I wrote in a franchise column recently, "A recent case in California federal court, Vann v. Massage Envy Franchising LLC, 2015 WL 74139 (S.D.Cal. 2015), has given franchisors a win on a fact-specific application of the "employer control" issue in a vicarious liability setting. In this case, Mr. Vann, a massage therapist who worked at various Massage Envy franchisee spa locations, filed a class-action complaint against the franchisor MEF, and two franchisees, alleging violations of California's minimum-wage laws." Read More

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No need to wait for the other shoe to drop on vicarious franchisor liability. Read More

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Suit: 7-Eleven illegally terminated Philly franchisee’s contract — According to the complaint, during the changeover of the stores, 7-Eleven representatives discarded merchandise without properly crediting Patel for their purchase, and in one location removed $20,000 in cash the plaintiff had been holding in the safe for a relative’s wedding.

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One franchise restaurant in Brockville has suddenly closed, while another that recently departed may be looking to re-establish its presence in the city. As these restaurant doors continuously “open and close”, based on decisions from the top, how many only-franchisee dollars have been thrown in the river of no return. When economic control is separated from ownership in a capitalistic system. Read More

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