Judge’s Distribution and Franchise Rulings from the Front Lines

Crux of Court’s Decision (Not including any subsequent appeals): Tim Hortons prevailed on its preliminary injunction motion terminating its restaurant franchisees. The franchisor was entitled to a preliminary injunction terminating the franchisees because the franchisees refused to pay fees owed to the franchisor. June 17, 2019 Name of Court: United States District Court for the Southern District of Florida Short Case Name: Tim Hortons v. Tims Milner Short Factual Background and Parties: Plaintiff is the franchisor of the Tim Hortons brand and franchises restaurants throughout the United States. In 2016, Defendants and Plaintiff and its affiliate Tim Donuts U.S. Limited, Inc. (hereafter, “Plaintiff’s Affiliate”) entered into Franchise Agreements and Lease Agreements (together, the “Agreements”) that provided for Defendants’ ownership and operation of franchised Tim Hortons restaurants at seven locations in Michigan (the “Restaurants”). Each of the Franchise Agreements grants Defendants the right to operate one Tim Hortons restaurant in a specific location and to use the Tim Hortons trademarks. Defendants, however, maintain that they reached a verbal agreement with two employees of Plaintiff prior to execution of the Agreements, that they are only required to pay rent based on a flat percentage of gross sales, and are not required to pay as additional rent all real estate taxes and assessments, sales taxes, common area maintenance charges and assessments, certain utilities, and personal property taxes (together, the “Additional Rent Amounts”) On or about June 19, 2018, Defendants entered into an Asset Purchase Agreement with Kava, for the sale of the Restaurants […]

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Crux of Court’s Decision (Not including any subsequent appeals): Dealer claimed that the Teamsters converted the Dealer’s Territory. The United States District Court for the District of Kansas refused to dismiss the Plaintiff Dealer’s claims that the Teamsters converted the dealer’s territory. The Court held that the Plaintiff sufficiently alleged in its Complaint that with full knowledge of his exclusive distribution rights, the Teamsters conspired with BIMBO, the franchisor/distributor, to have union drivers take over and abruptly terminate plaintiff’s routes. Facts as Alleged Underlying Court’s Decision (Not including any subsequent appeals): Bimbo Foods, Bimbo Bakeries and their predecessors (collectively, “BIMBO”) sold individuals and small businesses the exclusive right to sell and distribute certain bakery products throughout the United States, including the Greater Kansas City Area. Specifically, BIMBO’s business model for product distribution involved the formation and operation of an “Independent Operator (IO) Distribution Network” in which BIMBO sold independent distributors the exclusive right to purchase, resell and distribute its bakery products. Under the agreement, plaintiff’s exclusive distribution rights were to continue until such time as plaintiff voluntarily sold or transferred such rights. In 2011, BIMBO’s parent company, Mexico-based “Grupo Bimbo, S.A.B. de C.V.,” purchased Sara Lee Corporation’s North American fresh bakery business, which resulted in overlapping distribution routes with BIMBO’s existing IO distribution network. The Sara Lee distribution model relied on union employee drivers. In 2017, BIMBO negotiated for the drivers of Teamsters to take over the routes owned by plaintiff and other independent route owners in the Kansas City […]

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Domino’s Franchise Agreement Supports Employee’s Antitrust Conspiracy Claim Crux of Court’s Decision (Not including any subsequent appeals): Domino’s Franchise Agreement Supports Employee’s Antitrust Conspiracy Claim. The Court rejected Domino’s motion to dismiss concluding that a ‘no-hire’ provision in Domino’s franchise agreements supported the allegation that the franchisor had formed and participated in an antitrust conspiracy. In so concluding, the Court ruled that Blanton, the plaintiff employee of a Domino’s franchisee, had adequately pled that Domino’s used the franchise agreements to orchestrate a conspiracy among their franchisees to not compete for labor; Blanton says that the no-hire provision is evidence of that conspiracy and violates the Sherman Antitrust Act because it unreasonably restrains competition for Domino’s franchise employees and depresses employee wages, lessens employee benefits, and stifles employee mobility Name of Court: United States District Court for the Eastern District of Michigan, Southern Division Short Case Name: Blanton v. Domino’s Crux of Dispute: Blanton says Defendants violated the Sherman Antitrust Act by orchestrating an employee no-hire agreement among their nationwide network of franchisees. Under the no-hire provision at issue—included in every Domino’s franchise agreement from at least January 2013 to April 2018—Domino’s franchisees agreed not to solicit or hire current employees of other Domino’s franchisees and affiliated entities. Blanton worked for a Domino’s franchise in Port Orange, Florida, from January 2017 until April or May of that year; he says he quit because his hours were repeatedly cut back. The Domino’s franchise that Blanton worked for is one of many in […]

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Auto Franchise Dealer Termination Claim Permitted to Proceed By: Jeffrey M. Goldstein Judicial Update — Nissan N. Am., Inc. v. Tillman, No. 2018-CC-00462-SCT, 2019 Miss. LEXIS 220 (June 6, 2019) In a recent case, the Supreme Court of Mississippi ruled that in an auto franchise dealer termination dispute between an automobile dealer and an automobile manufacturer the dealership had timely filed a complaint under the Mississippi Dealership Act after the auto franchisee received the auto manufacturer’s letter providing notice that the dealership was being terminated. The MDA has two provisions applicable to the dispute: first, the MDA statute requires an auto manufacturer seeking to terminate a dealer agreement to provide a notice of termination to is vehicle dealer at least sixty days before the effective date of the termination; and, second, another statutory provision provides a dealer an opportunity to challenge a notice of termination by filing a verified complaint with the Mississippi Motor Vehicle Commission “within the sixty-day notice period.” In this case, because the parties’ franchise agreement required ninety days’ notice before a termination, the franchisor Nissan served the 90-day notice on November 23, 2016. In turn, the franchisee car dealership filed its complaint on February 17, 2017; although the dealership’s filing was within the 90 days period it was not within the initial 60 days period following service of the notice. The Motor Vehicles Board, in dismissing the franchisee’s complaint as untimely, framed the issue as: “does the statutory language ‘within the sixty-day notice period’ refer to the […]

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Many esoteric legal doctrines have evolved historically to blunt the impact of fraud accusations and claims, especially in franchise cases. These include the requirements that the false representation be of a material fact that a reasonable person would reply upon, and that the defendant know that his representation is false. Further, fraud usually cannot be based on a promise or failure to meet a promise (versus a fact) unless the promisor never intended to perform. In a recent case, the court applied all of these principles to reject a franchisee’s fraud allegations reasoning that the franchisee’s allegations were merely “a business deal gone bad.” Kiddie Acad. Domestic Franchising, LLC v. Wonder World Learning, LLC, Civil Action No. ELH-17-3420, 2019 U.S. Dist. LEXIS 56126, at *44-46 (D. Md. Mar. 31, 2019). In this regard, the Court summarized some of the franchisee’s rejected fraud claims: For example, counterclaimants contend that on May 9, 2011, during the couple’s visit to Kiddie Academy in Maryland, Commarota allegedly told the defendants that “‘his team’ would guide them through the entire construction process.” ECF 25, ¶ 24. As Kiddie Academy’s VP of Construction, Commarota held himself out as knowledgeable in construction and certainly knowledgeable in Kiddie’s construction process. The Amended Counterclaim alleges that Commarota’s statements were false because he knew that Kiddie “did not typically guide franchisees through the entire construction process” and, allegedly, Kiddie never intended to guide defendants. Id. ¶ 24. In addition, counterclaimants assert that Helwig and Wise falsely assured “Kiddie’s support,” and […]

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Covenants against competition or covenants not-to-compete are included in almost every franchise agreement. Disputes regarding the validity and enforceability of relevant post-term covenants usually arise when distribution, dealership or franchise agreements come to an end, either through a termination or expiration. Although courts are quick to recognize that restrictions on trade are spiritually disfavored under the US legal and economic systems, many of these same courts do not hesitate to grant a franchisor’s request to enforce one of these covenants when a franchisee decides to compete with its former franchisor at the end of the franchise term. From a litigation point of view, the franchisee’s motivation for his post-termination conduct can play a significant role in whether a court views the post-term covenant to have been violated. In a recent case, Handel’s Homemade Ice Cream & Yogurt v. Moonlight 101, Inc., United States Court of Appeals, 2019 WL 1466968 (6th Cir. April 1, 2019), the franchisee did himself no favors in this regard. In Handel’s, the Defendant, a Handel’s ice-cream franchisee, was on the verge of purchasing a second Handel’s franchise in addition to the one it had originally purchased and had been operating. During negotiations with the franchisor, the franchisee allegedly “informed Handel’s that he did not think he should have to pay a separate franchise fee for the new location, did not wish to sign another franchise agreement, and refused to provide a final lease of the proposed Gaslamp Location to Handel’s.” Consequently, Handel’s did not approve the […]

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