Licensees, Dealers and Franchisees Should Exercise Caution in Protecting Themselves from Trade Secrets
Feb 11, 2025 - Judge’s Distribution and Franchise Rulings from the Front Lines by Jeffrey M. Goldstein |In a recent case decided by the Court of Chancery of Delaware, California Safe Soil, LLC (“CSS”) filed a lawsuit against KDC Agribusiness, LLC (“KDC”) and its officers—Hal, Matthew, Justin, and Barry Kamine (“Individual Defendants”)—alleging trade secret misappropriation, tortious interference with a contract, conspiracy, unjust enrichment, and fraud. The claims revolved around CSS’s innovative process for recycling food waste into a nutrient-rich byproduct, which could be used to create environmentally friendly fertilizers and animal feed. CSS sought to protect this process as a trade secret. The law of trade secrets including trade secret misappropriation frequently is an issue in disputes regarding franchise, dealer agreements and license agreements in general. On December 11, 2015, CSS entered into a License Agreement with KDC, granting KDC a nonexclusive license to use the CSS Process under specific terms. The agreement required milestone payments tied to facility development and running royalties on product sales. KDC was also provided the option for exclusivity if certain financial obligations were met. KDC sought to leverage the CSS Process to construct a large-scale facility in Pennsylvania, aiming to expand production. However, disagreements arose when KDC stopped making the required payments under the agreement, resulting in CSS terminating the license. Despite this, KDC continued to utilize the CSS Process without authorization and did not pay royalties, prompting CSS to initiate legal action. Legal Issues The central legal issue before the court was whether the CSS process qualified as a trade secret under both federal and Delaware law and, if so, […]
Jury Waiver Stands Despite Franchisee’s Allegations of Fraud
Jun 7, 2024 - Judge’s Distribution and Franchise Rulings from the Front Lines by Jeffrey M. Goldstein |In the intricate legal dispute involving Pizza Hut LLC v. Pandya, 79 F.4th 535 (5th Cir. 2023), the United States Court of Appeals for the Fifth Circuit delved deeply into the nuances of contractual obligations and the right to a jury trial as enshrined in the Seventh Amendment. Pandya, a major franchisee of Pizza Hut, operated 43 restaurants in Pennsylvania and one in Connecticut. However, due to Pandya’s failure to fulfill contractual obligations, Pizza Hut terminated Pandya’s franchise agreements. To manage the transition and find new buyers, Pizza Hut and Pandya entered into two post-termination agreements, the latter of which, the Transfer Agreement, led to the litigation in question. The Transfer Agreement allowed Pandya to continue operating certain restaurants under strict conditions while actively seeking a buyer. The agreement’s terms were meticulously discussed over several weeks, with Pandya agreeing to various operational conditions in exchange for Pizza Hut’s assistance in finding a buyer and a potential financial benefit from the sale. A critical aspect of the Transfer Agreement was the last paragraph, a clause explicitly waiving the right to a jury trial in any litigation arising from the agreement. When disputes arose again, leading Pizza Hut to terminate the agreement and sue Pandya for breach of contract, Pandya counterclaimed, alleging Pizza Hut breached the Transfer Agreement and brought additional tort claims including fraud, breach of fiduciary duty, and tortious interference. Pandya demanded a jury trial, and Pizza Hut moved to strike this demand, citing the waiver clause in the Transfer Agreement. The […]
Dealer Wins on Claim That Franchise Transfer Was Denied Due to Subjective and Unreasonable Standards
Jun 7, 2024 - Judge’s Distribution and Franchise Rulings from the Front Lines by Jeffrey M. Goldstein |In BMW of N. Am., LLC v. MacLean, the Court of Appeals of Ohio addressed the standard for good cause in determining whether a franchisor should deny a franchise transfer. BMW of N.Am., LLC v. MacLean, 2021-Ohio-2388 (Ohio Ct. App. July 13, 2021). Kirtlund Frye wanted to transfer his BMW dealership to the dealership’s general manager, Colin MacLean (Plaintiff). However, BMW denied the transfer. In response, MacLean and Frye filed a protest with the Ohio Motor Vehicle Dealer’s Board, which evaluated the protest under the statutory requirement that a franchisor shall not deny a franchise transfer if the Board determined that good cause did not exist for such denial. The Board determined that BMW had not met its burden of persuasion in showing good cause and that the transfer should be approved. BMW subsequently appealed to the common pleas court, which affirmed the Board’s decision, noting that the decision fulfilled statutory requirements and was supported by evidence that was reliable (“it can be depended on to state what is true”), probative (“it has the tendency to establish the truth of relevant facts”), and substantial (“it has importance and value”), which in turn statutorily empowered the common pleas court to affirm. BMW then appealed to the Court of Appeals of Ohio and presented two assignments of error: (1) the common pleas court erred as a matter of law by concluding that BMW did not have good cause to deny the transfer and (2) the common pleas court abused its discretion when it found […]
No-Hire Agreements Found to Restrain Competition Between Franchisees
Jun 7, 2024 - Judge’s Distribution and Franchise Rulings from the Front Lines by Jeffrey M. Goldstein |In the case of Arrington v. Burger King Worldwide, Inc., 47 F.4th 1247 (11th Cir. 2022), the US Court of Appeals for the Eleventh Circuit addressed the issue of whether a franchisor and independent franchisees took concerted action in violation of Section 1 of the Sherman Antitrust Act. As one of the largest fast-food restaurant chains, the Burger King Corporation (“BKC”) (Defendant) did not own most of the restaurants. Rather, more than 99% of BKC restaurants were independently owned franchise restaurants. To obtain a BKC franchise, a potential franchisee must sign a standard franchise agreement, containing a “No-Hire Agreement” that led to the litigation in dispute. The No-Hire Agreement bound the franchisees not to attempt to hire any current employees of other BKC franchisees for six months after the employee left the first BKC restaurant. The Plaintiff, an employee of BKC, alleged that the No-Hire Agreement violated the Sherman Antitrust Act by restricting competition to depress wages and employment opportunities, and filed a lawsuit against BKC in the US District Court for the Southern District of Florida. The plaintiff argued that such agreements among independent franchisees and BKC amounted to a conspiracy. However, the district court dismissed the decision on the grounds that BKC and its franchisees constituted a single economic entity, incapable of colluding under the Sherman Act. The Plaintiff appealed. The US Court of Appeals for the Eleventh Circuit held in Arrington v. Burger King Worldwide, Inc., 47 F.4th 1247 (11th Cir. 2022), that the Plaintiff plausibly alleged that BKC and […]
Breach of Contract Claim Fails Motion for Summary Judgement, Must Provide Facts Proving Opportunity to Cure
Jun 6, 2024 - Judge’s Distribution and Franchise Rulings from the Front Lines by Jeffrey M. Goldstein |A federal district court in Arkansas recently granted partial summary judgement in a case that involved a contract dispute between the national warehouse club chain Sam’s West, Inc. (“Sam’s Club”) and Mint Solar, LLC (“Mint”), a Utah-based provider of home security systems and solar power equipment. Mint Solar, LLC v. Sam’s West, Inc., 2021 WL 1723095 (W.D. Ark. Apr. 30, 2021). The dispute concerned whether Mint had fulfilled the terms of the contract, which allowed Mint to operate in Sam’s Club stores. Sam’s Club and Mint entered into a contract in September 2017 for Mint to sell its products in Sam’s Club locations. According to the agreement, Mint would offer its products in 216 locations. By May 2018, Mint was selling in 64 locations. In June 2018, Sam’s Club removed Mint from its stores, without providing a 30-day written notice and an opportunity to cure as required by the notice-and-cure contract provision. In August 2018, Sam’s Club sent Mint a letter as a written confirmation of the termination of the agreement, which was based on Sam’s Club’s determination that Mint was in material breach of the agreement and was unable to cure its breaches. Mint filed a claim for breach of contract in 2019, arguing that Sam’s Club violated the termination clause by failing to give the requisite 30-day notice. Sam’s Club counterclaimed for breach of contract, alleging three counts: (1) Mint was insolvent as of April 2018 and thus, was in breach of the agreement; (2) Mint failed to meet […]
Dealer’s Claims Against Manufacturer’s Attempt to Modify Agreement Survives Motion to Dismiss
Jun 6, 2024 - Judge’s Distribution and Franchise Rulings from the Front Lines by Jeffrey M. Goldstein |A federal judge for the District of Minnesota recently dismissed General Motors’ (“GM”) motion to dismiss for failure to state a claim regarding an alleged unlawful modification to a dealer’s agreement. The dispute involves the major car manufacturer and an auto dealer, Shakopee Chevrolet (“Shakopee”), located to the west of the Twin Cities area.Shakopee Chevrolet Inc. v. Gen. Motors LLC, 2021 WL 1785229 (D. Minn. May 5, 2021). Shakopee served as a GM dealer pursuant to a sales and service agreement, which must be renewed every five years, per GM’s customary practice. The agreement included a satisfactory performance provision that required the dealer to maintain a baseline of sales, determined using an index known as the Retail Sales Index (“RSI”). A dealer’s RSI was calculated based on the dealership’s area of primary responsibility (“APR”), a geographic area listed in the agreement. Per the 2010 agreement, Shakopee had an APR of seven census tracts. The 2015 agreement retained the same APR and allowed GM sole discretion to make modifications “consistent with dealer network planning objectives.” In 2016, GM proposed a change via a notice, which would expand Shakopee’s APR to a thirteen-census tract area. Shakopee objected, arguing that the change violated Minnesota Statutes, and requested to resolve the dispute through the mechanism provided in the agreement. GM allegedly refused to participate in the process. In September 2020, when the 2015 agreement was set to expire, GM provided Shakopee with a contract for execution, which included the additional six tracts proposed in the […]
Car Dealer Wins on Bad Faith Claims Against Manufacturer’s Attempt to Terminate
Jun 6, 2024 - Judge’s Distribution and Franchise Rulings from the Front Lines by Jeffrey M. Goldstein |A federal district court in Hawai’i recently found that the defendant, BYD Motors, Inc. (“BYD”), a California-based electric vehicle manufacturer, acted in bad faith in terminating its contract with the plaintiff, Soderholm Sales and Leasing, Inc (“Soderholm”), a licensed motor vehicle dealer conducting businesses in Hawai’i and the Pacific Islands. Soderholm Sales and Leasing, Inc. v. BYD Motors, Inc., 2022 WL 16847543 (9th Cir. Nov. 10, 2022). The dispute arose over a motor vehicle licensing and distributorship agreement the parties entered into in December 2016. The agreement granted Soderholm a non-exclusive right to purchase BYD’s electric buses and to operate as a BYD-authorized sales and service organization at preapproved locations. Soderholm was responsible for promoting, advertising, and selling BYD vehicles. If Soderholm failed to fulfill its end of the bargain, BYD was contractually authorized to terminate by noticing Soderholm at least 30 days before the date of termination. Soon after, Soderholm purchased several fleets of BYD automobiles and displayed and promoted them to its customers. Soderholm also showcased the vehicles at various auto shows in Hawai’i. At this time, the parties understood that it would take anywhere from three to five years for Soderholm to establish a customer base for BYD vehicles, due to customers’ relative unfamiliarity with electric cars and the lack of infrastructure needed to maintain the vehicles. In September 2018, BYD suddenly provided Soderholm with a written notice of its intent to terminate, citing dissatisfaction with Soderholm’s performance, particularly Soderholm’s “commercially unreasonable” margins on BYD buses and bullish […]
Discovery Issues and Unclear Agreements Leads to Ruling Against UK Plaintiff
Jun 6, 2024 - Judge’s Distribution and Franchise Rulings from the Front Lines by Jeffrey M. Goldstein |In the intricate world of international business, where contractual agreements bind corporations across continents, the dissolution of such agreements often leads to complex legal battles that test the bonds of commerce and trust. This was precisely the scenario that unfolded between Plaintiff Slush Puppie Ltd. (“SPL”), a United Kingdom-based entity, and Defendant the ICEE Company (“ICEE”), an American corporation, whose once fruitful partnership deteriorated into a legal confrontation in the Southern District of Ohio. Slush Puppie Ltd. v. ICEE Co., 2024 WL 1556770 (S.D. Ohio Apr. 10, 2024). Plaintiff SPL brought suit against Defendant ICEE, alleging wrongful termination of their contractual agreements based on a disputed 2000 trademark license that SPL claimed superseded earlier agreements. In the legal dispute between SPL and ICEE, SPL operated as both a manufacturer and a distributor, similar to roles often held in franchising relationships. Although not formally a franchisee, SPL’s agreements for exclusive manufacturing and distribution rights closely mirror the obligations and operational dynamics typically seen in franchise and dealership setups. This dual role allowed SPL to produce and distribute Slush Puppie products exclusively in designated European territories, adhering to strict brand standards and reporting requirements akin to those expected of franchisees and dealers in similar industries. The origins of their partnership trace back to the entrepreneurial spirit of Will Radcliff (“Mr. Radcliff”), the founder of the Slush Puppie brand. Mr. Radcliff’s innovation and leadership propelled a simple slushy concept into a global phenomenon. In the mid-1990s, as part of a strategic expansion into Europe, […]
Franchisee Fails to Show Unconscionability of Arbitration Clause
Jun 6, 2024 - Judge’s Distribution and Franchise Rulings from the Front Lines by Jeffrey M. Goldstein |In the intricate world of franchising agreements, disputes often arise over the interpretation and execution of contractual obligations. This is exemplified by the case between Plaintiff Ashwant Singh (“Singh”), owner of Clean Future Technologies, LLC (“Clean Future”), and Defendant Batteries Plus, LLC (“Batteries Plus”), a prominent franchisor of retail stores specializing in batteries and related products. Singh v. Batteries Plus, LLC, 2024 WL 2132525 (E.D. Cal. May 10, 2024). Singh filed a lawsuit against Batteries Plus, claiming that the company had misrepresented the costs of operating a franchise, provided inflated revenue projections, allowed another franchisee to infringe on his territory, and failed to provide the promised support, creating a hostile work environment. Central to this case was the arbitration clause within the Franchise Agreement (“FA”) and whether it was enforceable. The Court’s decision ultimately hinged on nuanced interpretations of contract law and unconscionability doctrines. Singh entered into a FA with Batteries Plus, a Wisconsin-based franchisor that operates over 600 retail stores under the “Batteries Plus” trademark. These stores sell batteries, light bulbs, and related items, and offer device repair services. Singh received the company’s 2021 Franchise Disclosure Document (“FDD”) on January 31, 2022, which included crucial information about purchasing a franchise and a summary of the FA and its provisions. The FDD explicitly advised prospective franchisees to consult an advisor and thoroughly review the document. Notably, it contained a clause requiring all disputes to be resolved through mediation and arbitration in Wisconsin. Singh, however, claimed he was not adequately informed about […]
Inventor Fails to Prove Distributor Failed to Sufficiently Market Products
Jun 6, 2024 - Judge’s Distribution and Franchise Rulings from the Front Lines by Jeffrey M. Goldstein |In the complex and often competitive field of medical device innovation, disputes over contractual obligations can escalate into significant legal battles. This is exemplified by the case between Plaintiff Dr. Thomas A. Russell (“Dr. Russell”), an esteemed orthopedic trauma surgeon and prolific inventor, and Defendant Zimmer Inc. (“Zimmer”), a prominent global manufacturer and distributor of medical devices. Russell v. Zimmer, Inc., 82 F.4th 564 (7th Cir. 2023). Dr. Russell brought suit against Zimmer, alleging that Zimmer failed to use “Commercially Reasonable Efforts” as contracted, in the marketing and sales of innovative orthopedic products developed by Dr. Russell and his team, leading to insufficient earnout payments and contractual breaches. This case, which reached the United States Court of Appeals for the Seventh Circuit, revolved around nuanced interpretations of contractual terms specifically concerning the efforts required to commercialize a series of innovative orthopedic products. In the case of Russell v. Zimmer, Inc., the relationship between the parties can be likened to that of a distributor and a manufacturer in a franchising context. Dr. Russell and his team, through CelgenTek Innovations Corporation, entered into an exclusive distribution agreement with Zimmer, under which Zimmer acted as the distributor, leveraging its extensive network to market and sell the innovative orthopedic products developed by Dr. Russell’s team. This exclusive arrangement required Zimmer to employ “Commercially Reasonable Efforts” in promoting and distributing the products, similar to the expectations in a franchising partnership where the franchisor provides the brand and the franchisee markets it locally. Dr. Russell, together with other […]
