Pasture Gate Holdings, Inc. v. Gruzd, Bus. Franchise Guide (CCH) ¶ 17,731 (S.D. Cal. May 19, 2025). Case Summary In the case of Pasture Gate Holdings, Inc. v. Nadia Gruzd, the U.S. District Court for the Southern District of California addressed claims brought by Pasture Gate Holdings, Inc. (“Plaintiff”) against Nadia Gruzd (“Defendant”) concerning alleged violations of the California Franchise Investment Law (CFIL) and the California Unfair Competition Law (UCL). The Plaintiff, a North Carolina corporation, purchased a franchise business from Gruzd, who was associated with the “AllMed Search” brand, a healthcare recruiting service. The Plaintiff alleged that Gruzd provided incomplete and misleading information in the Franchise Disclosure Document (FDD) and made unlawful financial performance representations, which induced the Plaintiff to purchase the franchise. Court Decision The court denied Gruzd’s motion to dismiss the Plaintiff’s claims. The court found that the Plaintiff had adequately pleaded claims under both the CFIL and UCL, and that the Defendant’s objections, including the statute of limitations defense, were not sufficient to warrant dismissal at this stage. Legal Analysis CFIL Claims The Plaintiff’s CFIL claims were based on alleged statutory violations related to disclosures in the MSC-FDD. The Plaintiff argued that Gruzd failed to disclose the existence of a predecessor entity, Unlimited Med Search Franchise System, Inc. (UMFS), which was relevant under Item 1 of the FDD. The court found that the Plaintiff’s allegations were sufficient to support a reasonable inference that UMFS was a predecessor to MSC, thus supporting the claim of inadequate disclosure. Additionally, the Plaintiff […]

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News Business Franchise Guide – Report Letter No 550 BUSINESS Subway Franchise Termination in Russia Subway International B.V. (“SIBV”), the international franchising arm of Subway, entered into a series of master franchise agreements (MFAs) with Subway Russia Franchising Company, LLC (“Subway Russia”) beginning in 1993, granting Subway Russia exclusive rights to develop and operate Subway® restaurants throughout Russia, with the initial MFA allowing for unlimited renewals provided timely notice and full compliance with the contract’s terms. The final MFA, executed in 2015 for five years, mandated compliance with a development schedule, “McDonalds clause” (requiring as many locations as Russia’s largest fast-food chain), achievement of specified average unit volumes (AUVs), and included an arbitration clause. Subway Russia was persistently in default of one or more MFA requirements, but previous SIBV management had repeatedly negotiated renewals, citing challenging Russian political and economic circumstances. In 2019, a new, less tolerant SIBV management team opted not to renew the MFA and later terminated it based on Subway Russia’s chronic noncompliance; Subway Russia contended this was improper, arguing that SIBV’s pre-nonrenewal pronouncements constituted a counteroffer, which Subway Russia claimed to have accepted, creating a new MFA. Arbitration followed, resulting in an award that Subway Russia lacked a right to automatic renewal because of its defaults. SIBV successfully petitioned a federal district court for confirmation, and after a remand to assess Subway Russia’s counteroffer argument, the arbitrator rejected the existence of any renewed agreement. The district court confirmed both awards, and Subway Russia appealed, arguing (1) […]

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Monjazeb v. Jaguar Land Rover N. Am., LLC, 2025 U.S. Dist. LEXIS 171623. Case Background In the case of Monjazeb v. Jaguar Land Rover North America, LLC, the plaintiffs, Arastou Monjazeb, J&L Holdings, Inc., and Jaguar-Land Rover Bellevue, Inc., owned two authorized Jaguar Land Rover dealerships in Lynnwood and Bellevue, Washington. They entered into negotiations to sell these dealerships to Go Auto Dealership, Inc. for a combined goodwill purchase price of $75 million. However, during the negotiations, JLRNA’s president, Mr. Eberhardt, allegedly made false statements about the awarding of a new dealership point in the Seattle market, which led Go Auto to reduce its offer to $50 million. Eventually, JLRNA exercised its right of first refusal and assigned the purchase to Fields PAG, Inc., resulting in the sale of the dealerships at the reduced price. Court Decision The United States District Court for the Western District of Washington, presided over by Judge Richard A. Jones, denied JLRNA’s motion to dismiss the case. The court found that the plaintiffs adequately pleaded the elements of fraudulent misrepresentation, negligent misrepresentation, breach of the implied covenant of good faith and fair dealing, and tortious interference with business expectancy. Legal Analysis Fraudulent Misrepresentation The court analyzed the elements of fraudulent misrepresentation under Washington law, which include a representation of existing fact, its materiality, falsity, the speaker’s knowledge of its falsity, intent, ignorance of its falsity by the person to whom it is made, reliance, the right to rely, and consequent damage. The court found that the plaintiffs […]

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Burke Automotive Group, Inc. v. FCA US, LLC, No. 1:24-cv-12263 (N.D. Ill. Apr. 25, 2025). Facts Burke Automotive Group, Inc. (“Burke Auto”) was an automobile dealership that sold vehicles and parts from FCA US LLC, which included the Chrysler, Jeep, Dodge, and RAM brands. The dealership alleged that FCA’s conduct forced it to sell its assets, leading to this lawsuit under the Federal Automobile Dealers’ Day in Court Act (ADDCA), the Illinois Motor Vehicle Franchise Act (IMVFA), and for breach of contract and the covenant of good faith and fair dealing under Illinois common law. Burke Auto claimed that FCA manipulated its “turn and earn” vehicle allocation system, which was supposed to align vehicle allocations with dealership productivity, to deprive Burke Auto of sufficient inventory, thereby pushing it into a “death spiral.” Burke Auto alleged that FCA favored other dealers by providing them with more vehicles, even when Burke Auto had a higher turnover rate. As a result, Burke Auto was forced to sell its assets in the summer of 2022, and the new dealer had significantly more vehicles in stock shortly after the sale. Court Decision The U.S. District Court for the Northern District of Illinois granted in part and denied in part FCA’s motion to dismiss. The court denied the motion to dismiss Burke Auto’s ADDCA claim, finding that Burke Auto plausibly alleged that FCA manipulated the allocation system to starve Burke Auto of inventory, which could constitute coercion under the ADDCA. The court also denied the motion to […]

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Hameed v. Syed, 2025 Cal. App. Unpub. LEXIS 5562. Factual Background In 2018, Rashid Hameed, Gurmit Singh, and Kaleem Syed purchased four Burger King restaurants in Alaska, forming HS&S Restaurants, Inc. to manage the venture. Syed, with prior experience in the fast-food industry, was appointed to manage the day-to-day operations. However, disputes arose over financial management and renovation plans, leading to a breakdown in their business relationship. Burger King Corporation (BKC) issued an ultimatum to sell the restaurants or face termination of the franchise agreement, resulting in a “fire sale” of the restaurants. Procedural History Hameed and Singh filed cross-claims against Syed for breach of fiduciary duty, among other causes of action. The trial court ruled in favor of Hameed and Singh, awarding them compensatory and punitive damages. Syed appealed, arguing that the respondents lacked standing to pursue damages incurred by HS&S directly. Court Decision The trial court found Syed liable for breach of fiduciary duty, awarding Hameed and Singh $210,000 each in compensatory damages and $20,000 each in punitive damages. HS&S was awarded $121,000 against Syed for unauthorized payroll payments. The court denied Syed’s motion for a new trial, and his appeal was rejected. Legal Analysis The court determined that Hameed and Singh had standing to pursue individual claims against Syed, as his actions caused harm to them personally, not just to the corporation. The court found that Syed’s mismanagement and breach of fiduciary duty led to a toxic environment and the rushed sale of the franchise. The damages were […]

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Lead-Off Mgmt., Inc. v. Congo Brands Holding Co., Inc., No. RDB-24-2060 (D. Md. Mar. 31, 2025). Facts Lead-Off Management, Inc., a beverage distributor based in Maryland, filed a lawsuit against Congo Brands Holding Co., Inc., a beverage producer and supplier, alleging promissory estoppel and fraud. The dispute arose when Congo approached Lead-Off in late 2020 to expand its brand presence in the region and gain access to Giant supermarkets. Lead-Off claimed that Congo repeatedly promised to sign a standard distribution agreement, which was never executed. Despite assurances, Lead-Off signed a Brokerage Agreement in March 2021, which it claimed did not establish relevant compensation terms. Congo products were delivered to Giant stores in April 2021, but Congo severed the relationship with Lead-Off in March 2022. Lead-Off alleged that Congo reapproached them for guidance and again promised to sign the Distribution Agreement, leading Lead-Off to continue its efforts until October 2023. Lead-Off claimed to have spent $1,499,700 on product and distribution based on Congo’s misrepresentations. Court Decision The U.S. District Court for the District of Maryland granted Congo’s Motion to Dismiss both claims. The court dismissed the promissory estoppel claim without prejudice, allowing Lead-Off to amend the complaint. The fraud claim was dismissed with prejudice, as the court found that Lead-Off failed to meet the heightened pleading standard required for fraud under Rule 9(b). Legal Analysis For the promissory estoppel claim, the court found that Lead-Off did not establish a “clear and definite promise” from Congo to sign the Distribution Agreement, which […]

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Factual Background In August 2023, National Equipment Dealers, LLC (NED) and IROCK Crushers LLC (IROCK) entered into an industrial machinery distribution agreement, under which IROCK sold equipment to NED for resale. The agreement included a mandatory forum selection clause requiring legal proceedings to be conducted in Cuyahoga County, Ohio, and a choice of law clause stating that Ohio law would govern the agreement. IROCK terminated the agreement in August 2024 under a “Termination for Convenience” clause, which allowed termination with or without cause upon ninety days’ notice. Upon termination, IROCK refused to repurchase NED’s inventory, as the obligation to repurchase only applied if the agreement was terminated for breach by IROCK, which was not the case here. Procedural History Following the termination, NED filed a lawsuit in North Carolina state court, claiming IROCK’s refusal to repurchase inventory violated the North Carolina Farm Machinery Franchise Act and the Unfair Trade Practices Act. IROCK removed the case to federal court and filed motions to transfer the venue to the Northern District of Ohio and to dismiss the case. NED filed a motion to remand the case back to state court, arguing procedural defects in IROCK’s removal. Court Decision The U.S. District Court for the Middle District of North Carolina denied NED’s motion to remand, finding that IROCK complied with the federal removal statute and that any procedural omissions, such as the late filing of a corporate disclosure statement, did not warrant remand. The court granted IROCK’s motion to transfer the case to […]

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While several states have franchise laws, many do not. If you live in a state that doesn’t have a franchise law, what does this mean for you? National franchisee lawyer Jeffrey M. Goldstein explains.

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As a franchisee, you have the right to expect your franchisor to comply with the terms of your franchise agreement. You also have the right to expect your franchisor to comply with applicable law. But what does this mean, exactly? National franchisee attorney Jeffrey M. Goldstein explains.

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For franchisees, holding franchisors accountable often means pursuing franchise arbitration. The substantial majority of franchise agreements include mandatory alternative dispute resolution (ADR) provisions, and most of these require franchisees to pursue arbitration rather than going to court. For franchisees who are considering legal action against their franchisors, consulting with an experienced franchise lawyer is generally the first step toward determining whether arbitration is warranted.

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