David Abbo, Colorado Toyz, Inc., and Wireless Phones, L.L.C.v. Wireless Toyz Franchise, L.L.C., Joe Barbat, Richard Simtob, Jsb Enterprizes, Inc., and Jack Barbat, 2014 Wl 1978185, Court Of Appeals Of Michigan (May 13, 2014) Wireless Toyz Franchise, L.L.C. (WTF), a franchisor, and David Abbo, its franchisee, initially entered into a franchise agreement for a retail store in Colorado and subsequently signed a development agent agreement under which Abbo was required to open additional Wireless Toyz franchise stores. Wireless Toyz franchises are retail stores that sell electronic communication devices and initiate cellular telephone services with various providers. Franchisees earn commissions by selling third-party service contracts and additionally profit by marketing cell phones and related merchandise.  Abbo paid a $20,000 franchise fee, in addition to $180,600 for the exclusive right to market and sell Wireless Toyz franchises throughout Colorado.

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More Franchisee Dis-Information To Grease the Efficient Franchise Purchase Information Market The most serious mistake that potential franchisees make is to rely exclusively upon their franchisors to provide them with information regarding potential franchise investments. The Franchise Disclosure Document (FDD) for sure provides some information, although far too little. Indeed, the FDD is deceptively useless if prospective franchisees limit their due diligence solely to the FDD and any other information given to them by franchisors. In this regard, Item 20 of the FDD was supposed to serve the altruistic and efficiency-promoting purpose of providing the potential franchisee with a gateway to obtaining other valuable sources of information about the franchise system, most notably contact information for current and former franchisees of the system.

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RE/MAX of New England, Inc., and RE/MAX, LLC, Plaintiffs v. Prestige Real Estate, Inc., d/b/a LAER Realty Partners, Stacey Alcorn, and Andrew F. Armata, Defendants, U.S. District Court, D. Massachusetts, July 7, 2014. A real estate brokerage franchisor RE/MAX of New England, Inc. was denied a temporary restraining order or preliminary injunction after one of its franchisees terminated its relationship with RE/MAX and started to do business under a different name. According to the Court, in denying RE/MAX's motion for temporary restraining order and preliminary injunction, the real estate franchisor failed to demonstrate a likelihood of success on the merits of any of its claims. The franchisee, Prestige Real Estate, Inc. entered into 13 franchise agreements with RE/MAX, each for a different real estate office. Three of the agreements had expired prior to the dispute and had been continued on a month-to-month basis. The other ten agreements were active when, in April 2014, Prestige sent RE/MAX a demand letter terminating their relationship. The franchisee, Prestige, subsequently started doing business as LAER Realty Partners.

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A column last week in the Los Angeles Times, entitled “The NLRB-McDonald’s Ruling Could Be the Beginning of a Franchise War” is another example of how top franchise industry  ‘experts’ and ‘talking heads’ too frequently lack sufficient knowledge about the facts and theories they are discussing. Most notably, for example, contrary to the ‘fact’ set forth in the column, the NLRB matter was not a ‘ruling’ nor was it ‘issued’ by the NLRB. It was, instead, a policy decision made by a rank political appointee in the NLRB. This was nothing more than a personal choice made by the NLRB’s ‘in house’ counsel to include McDonald’s as a named defendant in certain pending internal NLRB labor cases. This choice was not litigated before the ALJ, the NLRB or the courts.

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Do you suspect that your franchisor misrepresented important details about its product, or the company itself? Misrepresentations to franchisees violate the Franchise Disclosure Rule. To get a clearer idea of how this has violated your rights, consult a franchise attorney.

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Did your franchisor suddenly terminate your franchise agreement without giving you the required 30-day minimum written notice? Under the Franchise Rule, the franchisor is required to give a minimum of at least 30 days, in written form, before terminating a franchise agreement. Franchise lawyers can help you determine if the termination was unlawful. Protect yourself against an unlawful termination. 

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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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