To Walk Or Not To Walk: Franchisee Abandonment

May 7, 2015 - Franchise Articles by |

Franchisees often become so frustrated with the lack of success of their franchises that they choose to abandon or “walk away” from their franchises.  Under most state laws, however, a franchisee who walks away from his franchise may be successfully sued by his franchisor for abandonment.  Further, under many state laws, a franchisee who walks away from his franchise may forfeit some or all of the claims that he may have had against his franchisor. A recent federal court case in Illinois ( Zeidler v. A&W Restaurants, Inc.) is an example of how a franchisee’s abandonment of his franchise resulted in the franchisee’s loss of his claims against his franchisor.  Zeidler involved an A&W restaurant franchisee, Zeidler, who had signed a franchise agreement with A&W Restaurants, Inc. (“A&W”) in 1993.  Approximately four years after Zeidler signed the franchise agreement, his relationship with A&W began to deteriorate.  A&W suddenly started alleging that Zeidler was not operating his franchise in compliance with A&W’s health and sanitation standards and was not maintaining the minimum amounts of insurance required by the parties’ franchise agreement.  A&W sent letters to Zeidler threatening to terminate Zeidler’s agreement. Believing that A&W was acting in bad faith and trying to “drive him out of business” in order to take back and then resell his franchise to another franchisee, Zeidler closed his restaurant and removed all of his equipment.  Shortly after learning that Zeidler had abandoned his restaurant, A&W sent a letter to Zeidler formally terminating the franchise. Approximately one […]

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Arbitration: Fast But Not Necessarily Fair

May 7, 2015 - Franchise Articles by |

Arbitration: Fast But Not Necessarily Fair Fair Arbitration is not always achievable by franchisees. An increasing number of franchise agreements contain arbitration clauses that require disputes to be resolved by binding arbitration instead of in state or federal courts.  While franchisors argue that the purpose of an arbitration clause is to obtain a faster and more efficient way of resolving litigation, it cannot be disputed that several aspects of an Arbitration heavily favor the franchisor over the franchisee.

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Don’t Expect Support From Franchisors

May 7, 2015 - Franchise Articles by |

BEWARE: FRANCHISEES MAY HAVE NO GENERAL RIGHT TO RELY ON THEIR FRANCHISORS FOR SUPPORT Franchisees often purchase a franchise based on the mistaken belief that their franchisors will provide the assistance necessary to help franchisees succeed.  Unfortunately, most franchisors intentionally draft franchise agreements that impose very few, if any, obligations requiring them to provide “support” to franchisees.  Further, even in those rare instances where franchisors do include support requirements in their franchise agreements, the franchise agreements tend to state the requirements in broad, unenforceable language, usually reserving to the franchisor the right to exercise its “sole discretion” in deciding whether to provide support.  In contrast, obligations of franchisees, such as the monthly payment of royalties and other “recurring fees” to the franchisor, are always set forth in great detail in franchise agreements.

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April 2010 Recent Franchise Cases

May 7, 2015 - Franchise Articles by |

Franchisees Purchase Half-Million Dollar Franchise Computer System A recent case by the United States Circuit Court for the Sixth Circuit, Heartland v. La Quinta and Baymont, rejected the hotel franchisee’s argument that the franchisor breached the franchise agreement through its implementation of a new and costly computerized reservations system standards regulation. In so doing, the court held that the franchisee breached the franchise agreement when it failed to install the computer system in conformance with the franchisor’s modified system standard regulation.

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Hotel Franchises: Some Advice On Advice

May 7, 2015 - Franchise Articles by |

HOTEL DISPUTES: SOME ADVICE ON ADVICE – LAWYERS OR CONSULTANTS? Hotel franchises are preyed upon frequently by consultants masquearding as lawyers. Franchise consulting companies have recently begun advertising that they are able to provide “all solutions to all people.” In turn, many clients and potential clients of The Goldstein Law Group, PC, have asked us whether franchise consulting companies have the ability to provide them with effective solutions to their business problems.

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July 2010 – Recent Franchise Cases

May 7, 2015 - Franchise Articles by |

SURVEY OF FRANCHISE DECISIONS JULY-AUGUST 2010 Franchisor’s President Found Personally Liable For Franchisor’s Misrepresentations Zantum, LLC, v. Daniel Wencel, (June 2010) The founder and president of a franchisor of remanufactured ink cartridge businesses was liable to one of its area franchisees for making negligent misrepresentations that induced the franchisee to sign an area franchise development agreement. After the franchisor went out of business, the area developer, who had been terminated, sued the franchisor and its President and founder. In finding that the President could be held personally liable, the court applied the general rule that vicarious liability for torts is imposed upon employers for acts of their employees within the course and scope of employment. The specific misrepresentations found to exist included the following: (1) That Caboodle’s remanufactured cartridges met OEM quality and specifications; (2) That remanufactured Caboodle cartridges could be sold at a price 50 to 65% lower than OEM prices; (3) That Caboodle remanufactures nearly five hundred different cartridges, and (4) That “all of this is done at our centralized manufacturing facilities.'” Even though the court found that the President made the representations in good faith, it also found that the President lacked a reasonable basis for the representations at the time they were made.

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KFC Franchisee Terminated For Not Remodeling

May 7, 2015 - Franchise Articles by |

KFC Corp. v. Kazi, Slip Copy, 2013 WL 2257606 (W.D.Ky. 2013) A federal court in the Western District of Kentucky on May 22, 2013, decided in essence to wipe out the protections that had been given to a KFC franchisee in a formal written settlement agreement that had resolved a previous remodeling dispute between the franchisor and franchisees in the Kentucky Fried Chicken System. On May 2, 2011, the franchisee Defendants’ franchise agreements for its California stores were terminated when Defendants failed to comply with the agreements' express conditions and several remodel agreements. As part of the Settlement Agreement, KFCC reinstated Defendants' franchise agreements for three California stores, conditioned on Defendants remodeling the stores by certain deadlines. In this case, KFCC moved to enforce the parties' Settlement Agreement, asking the Court to order the franchisee to close the stores because the franchisee did not meet its remodeling obligations that had been reestablished in the settlement agreement. The Settlement Agreement provided the consequences for Defendants' failure to remodel in a timely manner. In Paragraph 4(c), the Settlement Agreement stated: “If the upgrade actions set forth in paragraph (a) above are not completed within the Time Frame for any California Stores, the Respective Franchisees must close and complete for each non-upgraded California Store the De–Image Obligations as described in paragraph 12 below no later than thirty (30) calendar days after the respective Time Frame.” The franchisees did not meet this deadline, although they had what they viewed to be a valid legal […]

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Not Many Bullets Left for Car Franchisee – Case Identification Summer 2013

May 7, 2015 - Franchise Articles by |

Volvo Trucks North America v. Andy Mohr Truck Center, Slip Copy, 2013 WL 2938913 (S.D.Ind. 2013) This case involves at bottom an incredibly common allegation made in franchise litigation: that a franchisor made an oral misrepresentation to the franchisee in order to entice the franchisee to sign the franchise agreement and then failed to perform on that promise. This case also is a perfect example showing how lopsided franchise law has become over the last 5-10 years. In this case, the court appears to go out of its way to construe even specific, admittedly applicable, “pro-franchise” legislation, which was passed to balance the economic inequities between franchisors and franchisees, to the ultimate advantage of the franchisor. The only reason that a small portion of the franchisee’s case remained in place after this decision is that the state’s law in issue, Indiana, had a couple of esoteric non-franchisee specific consumer statutes that had not yet been definitively interpreted to bar franchise misrepresentation claims.

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No Ice Cream (or Claims) for Gelato Franchisee – Case Identification Summer 2013

May 7, 2015 - Franchise Articles by |

Palermo Gelato, LLC v. Pino Gelato, Inc., 2013 WL 3147312 (W.D.Pa.) Many legal doctrines have developed over time to shield franchisors from suits based on fraudulent statements they have made to franchisees to induce them to purchase franchises. One such doctrine is the parol evidence rule, which prohibits franchisees from introducing evidence of a franchisor’s fraudulent representations if the franchise agreement in dispute can be characterized as being “the entire agreement” between the parties.

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The Stars and Planets Align for Franchisor Loss on Post-Term Covenant Enforcement Action

May 6, 2015 - Franchise Articles by |

Novus Franchising, Inc. v. Dawson, 2013 WL 3970250 (C.A.8 (Minn.)) In many court cases in which a franchisor sues its former franchisee to prevent the former franchisee from operating an independent non-franchise-trademarked business after a termination of the franchise agreement, the franchisor prevails, in that the court issues an order preventing and banning the former franchisee from operating his or her business. However, in a recent case out of the Eighth Circuit federal court of appeals, which is one of the – if not the most — conservative of the thirteen federal circuit courts in the country, a three-judge appellate panel affirmed a trial judge’s refusal to grant the franchisor’s motion for a preliminary injunction to enforce the post-term covenant-not-to-compete in the franchise agreement.

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