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http://consumerist.com/2015/08/14/chick-fil-a-franchise-owner-pays-employees-during-5-month-renovation/ Labor costs no different than franchise remodel. Chick-Fil-A Franchise Owner Pays Employees During 5-Month Renovation — When there’s a good location and strong market demand even counterintuitive business decisions are possible. In the land where franchisee costs are rendered irrelevant; this is sort of a self-imposed franchise remodel. If a franchisor had foisted this labor cost increase on franchisees, they would scream more loudly than they would if they were forced to carry out a franchise remodel. 

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  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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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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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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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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