Franchise Fraud by Steak n Shake
Aug 14, 2015 - Franchise Articles by Jeffrey M. Goldstein |Steak n Shake Franchisor Fraud: Franchisor Shakes Down New Franchisee by Fraudulently Hiding Costs By: Jeffrey M. Goldstein Goldstein Law Firm, PLLC goldlawgroup.com (202) 293 3947 jgoldstein@goldlawgroup.com Cornerstone Investment Partners, LLC v. Steak N Shake Enterprises, Inc., 2015 WL 4094630, United States District Court, D. New Jersey (July 6, 2015) Franchise fraud again. Not surprisingly, another franchisee carcass was spotted lying outside the federal district court in New Jersey last week. The franchisee plaintiff, Cornerstone Investment Partners I, LLC (“Cornerstone”), sued its franchisor, Steak n Shake Enterprises, Inc., the defendant. The franchisor moved to dismiss the franchisee’s case, and the Court granted the motion. In deciding the motion, the Court, as required, relied exclusively upon the allegations of the franchisee in its Complaint; a summary of these facts is set forth below as part of the analysis. Defendant Steak n Shake operates and grants franchises for restaurants offering burgers and milkshakes. Cornerstone initially sought information about one of Steak n Shake’s traditional “Classic” restaurants, which notably operate twenty-four hours a day for seven days a week, feature a full menu, contain typically between 3000 and 4000 square feet of space, and offer dine-in, drive-thru, and carry-out service. Beginning January 2011, defendant began to also offer franchises for “Signature” restaurants, which, in contrast to the Classic restaurant, are smaller and offer a more limited menu. Defendant opened its first Signature restaurant in New York City on January 12, 2012, and this unit […]
Franchise Termination and Spanking
Aug 13, 2015 - Franchise Articles by Jeffrey M. Goldstein |Franchise Termination Upheld: Federal Court Harshly Spanks Terminated Immigrant Childcare Franchisees By: Jeffrey M. Goldstein Goldstein Law Firm, PLLC (202) 293 3947 goldlawgroup.com jgoldstein@goldlawgroup.com Creative American Education, LLC, v. The Learning Experience Systems, LLC, 2015 WL 4655087, United States District Court, S.D. Florida. (July 31, 2015) Reading between the lines of this franchise termination case, it appears that the franchisees in this case were doomed from the very moment they uttered their first words at the trial. The scathing and lengthy decision was a victory for the Defendant, the franchisor, The Learning Experience (“TLE”), which had terminated the Plaintiff, the franchisee, Creative American Education (“CAE”). The individuals who had created and managed the Plaintiff business entity were Bernard Loganathan and his wife, Katijah Alaudeen–Loganathan (collectively referred to as the Loganathans). The case pivoted off of two agreements including a Franchise Agreement and a Management Agreement. CAE expectedly contended that TLE breached these agreements through TLE’s failure to provide appropriate training, advice, and guidance and through an improper seizure of the CAE franchise. TLE argued that CAE breached the agreements through a failure to comply with TLE standards and state regulations. The Loganathans were citizens of Singapore, and in June of 2011 the Loganathans began to explore a plan to immigrate to the United States. Because Ms. Alaudeen–Loganathan had some experience in the childcare industry in Singapore, she began to research childcare franchises in the United States. The Loganathans believed that a childcare franchise would be a good vehicle […]
Wrongful Constructive Franchise Termination Claim Succeeds
Jul 21, 2015 - Franchise Articles by Jeffrey M. Goldstein |Wrongful Constructive Franchise Termination Claim Succeeds By: Jeffrey M. Goldstein Goldstein Law Firm (202) 293 3947 jgoldstein@goldlawgroup.com goldlawgroup.com Wrongful Constructive Franchise Termination Claim Succeeds. Tilstra v. BouMatic LLC, United States Court of Appeals, Seventh Circuit, June 30, 2015, 2015 WL 3953403, is a somewhat rare example of a franchisee decimating a franchisor through jury trial on a de facto termination claim. In this pro-franchisee decision by Judge Posner, of the United States Circuit Court for the Seventh Circuit, a dealer in dairy (“milking parlor”) equipment (the corporate plaintiff, owned by Sid Tilstra), in southwestern Ontario, sued a manufacturer of this equipment, BouMatic, a Wisconsin company. Tilstra had been a dealer in BouMatic's dairy equipment for about twenty years. He claimed that the franchisor, in bad faith and deviously, forced him to sell his dealership to a neighboring BouMatic dealer at a below-market price. After a trial, the jury agreed with Tilstra and awarded him $471,124 in damages. The appellate court was asked to rule the district court’s decision upholding the jury verdict.
Post-Term Franchise Restrictive Covenant in Franchise Agreement Haunts Franchisees
Jul 19, 2015 - Franchise Articles by Jeffrey M. Goldstein |Court Slams Former Franchisees That Steal Franchise Secrets After Franchise Termination By: Jeffrey M. Goldstein jgoldstein@goldlawgroup.com goldlawgroup.com (202) 293-3947 Post-Term Franchise Restrictive Covenant in Franchise Agreement Haunts Franchisees in Capital Meats, Inc., v. The Meat Shoppe, LLC, 2015 WL 4249166 (D.C. Md. July 9, 2015). In Capital Meats, the United States District Court for the District of Maryland granted in part and denied in part a motion by the franchisee defendants to dismiss the case. The Plaintiff in Capital Meats, Capital Meats, Inc. (“CMI”), sued several entities referred to collectively as “The Meat Shoppe” and several former CMI employees who went to work for The Meat Shoppe (collectively, “defendants”). CMI alleged in nine counts that the defendants, when they resigned en masse to establish and operate a competing business, The Meat Shoppe, carried out the following: violated Virginia contract law; transgressed the Maryland Uniform Trade Secrets Act (“MUTSA”); infringed the post-term restrictive covenant not-to-compete; and committed several Maryland business and competition-related torts.
Fair Franchising Difficult to Achieve
Jun 11, 2015 - Franchise Articles by Jeffrey M. Goldstein |Most franchise attorneys and franchise lawyers will agree that fair franchising is one of the most-used and least understood concepts in the franchise world. If you want to know the truth about fair franchising, sign up for our newsletter, Franchise Trends. Fair franchising is an elusive concept. Many of the best franchise lawyers in the world are not able to readily provide a definition of the term. Without the assistance of a frachise lawyer who represents only franchisees, it is very difficult to achieve fair franchising. As a franchisee, if you believe that your franchisor owes you fair franchising, you’ll be disappointed. Nevertheless, an experienced franchisee lawyer or franchisee law firm can still provide tremendouos support to franchisees seeking franchise agreement assistance. Indeed, franchise lawyers have frequently managed to make franchise agreements more acceptable. But you need to begin the dialogue with your franchise attorney before you sign a franchise agreement. As a franchise law firm, Goldstein has the expertise to analyze every aspect of proposed franchise agreements. Contact us online or call 202.293.3947 to evaluate your franchise agreement and ensure you’re treated fairly.
Franchisees’ Weapons Used for Franchisee Terminations
Jun 10, 2015 - Franchise Articles by Jeffrey M. Goldstein |Franchisees' Weapons Used for Franchisee Terminations By: Jeffrey M. Goldstein 202 293 3947 goldlawgroup.com Washington, DC jgoldstein@goldlawgroup.com New Jersey is normally considered a ‘good state’ for franchisee terminations and franchise lawyers who represent only franchisees and dealers. This case, however, shows that on any given day, and despite the sophistication of legal representation, franchisees are subject to being blown out of the water on almost any ground. In this case, we see the Court use two relatively potent pro-franchisee legal weapons – the New Jersey Franchise Protection Act and the common law covenant of good faith and fair dealing – to bludgeon the franchisees to a legal death. Plaintiffs (franchisees) acted as independent insurance agents for Allstate under Exclusive Agency Agreements (“EAs”). Plaintiffs sought damages contending, inter alia, that Allstate wrongfully terminated their EAs and breached the implied covenant of good faith and fair dealing. The parties cross-moved for summary judgment, and the judge ruled against the franchisees concluding that: (1) applying the New Jersey Franchise Practices Act (“the Act to the insurer-agent relationships would interfere with the regulatory framework set out in New Jersey’s insurance code; (2) the relationship between Allstate and plaintiffs did not constitute a franchise under the Act; and (3) Allstate’s termination of the EAs did not contravene the implied covenant. First, the Court rejected the franchisees’ contention that the Act applies to their EAs based upon the Court’s finding that there was a direct and unavoidable conflict between the insurance laws and the franchise laws. […]
Massage Envy Franchisee Wage Violations
Jun 10, 2015 - Franchise Articles by Jeffrey M. Goldstein |By: Jeffrey M. Goldstein (202) 293-3947 jgoldstein@goldlawgroup.com Massage Envy escapes franchisee wage violations liability. Vicarious franchise liability is a pervasive problem for franchisors nowadays. In Vann, an Individual, o/b/o Himself and All others Similarly Situate v. Massage Envy Franchising LLC, 2015 WL 74139 (S.D.Cal. 2015), the United States District Court for the Southern District of California dismissed claims against a massage franchisor, Massage Envy Franchising, LLC (“MEF”), for alleged violations of California minimum wage laws. Mr. Vann, one of the plaintiffs, worked as a massage therapist at two different California Massage Envy franchises, one of which was in Chula Vista, California (“Spa Chula Vista”), which was owned by Charis Group. In essence, the franchisor argued that MEF is not an employer of Mr. Vann and cannot be liable for any wage and hour violations made by a franchisee. Under California Labor Code section 1194, an employee who received less than the legal minimum wage is entitled to recover the unpaid balance. Only an employer has a duty to pay wages. The federal court’s ruling, using an analysis previously applied by California and some other states’ courts, focused on the degree of control that the franchisor had and exercised over the franchisee (Charis Group), which in turn directly employed the plaintiff. In so doing, the Court pointed out that: · MEF provided franchisee Charis Group with an Operations Manual that “contain[ed] mandatory and suggested specifications, standards, operating procedures and rules that [MEF] periodically prescribe[s] for operating a [franchise].” · Pursuant to […]
Franchise Renewal – Pitfall For Franchisees
May 7, 2015 - Franchise Articles by Jeffrey M. Goldstein |FRANCHISE RENEWAL: THEY’VE GOT YOU COMING AND GOING Franchise Renewal has always been a hot topic in the franchise world. Not surprisingly, most, but not all, of the legal history on the franchise renewal issue shows franchisees to be the definitive losers. Historically, in most instances, franchisees have argued that a right to renew should always be available, regardless whether such a right exists in the franchise agreement, and franchisors have contended that no such right should exist, unless it is explicitly provided for in the franchise agreement. Wrongful non-renewal cases are frequently handled by the franchise attorneys at Goldstein Law Firm. Absent the applicability of state or federal franchise legislation, the underlying legal principles that govern most franchise renewal disputes include: (1) any contract, including a franchise agreement, will remain in effect until the end of the term identified in that agreement; (2) unless the agreement contains a right to renew, neither of the parties has a right to renew; (3) if the agreement does contain a right to renew, and the electing party chooses to renew, the agreement will be renewed only on the terms identified in the agreement. Where no renewal provision is explicitly included in the franchise agreement, and where no state or federal statute can be used to imply such a renewal right, the court will usually never imply such a term. The common law has a clear and definitive penchant for limiting the duration terms of contracts absent the parties’ expressed crystal clear intention to provide for renewals. […]
Ladies of the Night – Franchise Underreporting
May 7, 2015 - Franchise Articles by Jeffrey M. Goldstein |LADIES OF THE NIGHT AND FRANCHISEE UNDERREPORTING What is franchise underreporting? If you have to ask, and you’re a franchisee, you’re probably not doing it. But, then again, maybe you are; unwittingly. In its simplest incarnation, franchisee underreporting occurs when a franchisee “reports” to his franchisor less income or sales than what he actually makes or earns. Franchise underreporting is a very dangerous area of franchisee wrongdoing, and courts have little sympathy for franchisees who fail to report all revenues. Historically franchisors have focused almost exclusively on trying to sell as many franchises as possible, not on trying to augment their revenues through under reporting investigations. Not only were audits time-consuming and expensive, but they engendered considerable bad-will in the franchise community. Soon, however, audits became “the in-thing.” A cottage industry was born. A savvy franchisor law firm said: “Hey; wait a minute. If I’m able to guarantee my franchisor client that by using my new “auditing program” it will be able to at least cover my lawyer’s fees with the increased revenues from the alleged franchisee under reporters this will be a ‘win-win’ situation; at least for everyone but the falsely accused franchisee under reporter. Some franchisors, including one of the very biggest coffee and doughnut franchisors in the world, in consultation with leading “statistical wizards” from mathematical departments of major universities, thereafter devised cutting-edge forensic models capable of easily identifying underreporting. These models were so effective and potent that they were able to definitively identify underreporting even where none […]
Accountability in a Franchise Advertising Fund
May 7, 2015 - Franchise Articles by Jeffrey M. Goldstein |Disclosure And Accountability In Franchise Marketing Or Advertising Fund There should be greater Franchisor disclosure and accountability concerning the expenditure of marketing and reservation fees collected from Franchisees that are held in a franchise advertising fund. On an annual basis, Franchisors should disclose how the marketing and reservation fees are spent, including identifying the specific products and services that are paid for with the fees. A Franchisor should not profit directly from the marketing and reservation fees it collects from the Franchisees, or use such fees to pay for marketing and advertising related to a Franchisor’s sale of hotels. Franchisors should have their books and records audited on an annual basis concerning the collection and disbursement of marketing and reservation fees, and should share the results of the audits with the Franchise Advisory Councils (FACs), or the designated audit committees of the FACs. Putting the Cards on the Table Almost all franchise agreements establish advertising and marketing funds into which franchisees make regular periodic payments. Some franchise agreements also require franchisors, in addition to their franchisees, to make contributions to these funds, and others do not. In contrast to most other obligations of franchisors in franchise agreements, the duties and obligations assumed by franchisors in administering and spending monies in the fund are delineated with much greater certainty. This is for two reasons. First, UFOC disclosure rules require that franchisors describe in their disclosure documents all aspects of their advertising programs by answering a list of very detailed questions, including: […]
