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Tuesday
Jun262018

Franchise 101: Supreme Tax Implications; and Class NOT in Session

Franchise & Distribution Law Practice Group

Best Lawyers 2018 BadgeSouthern California Tier 3 Best Lawyers in Franchise Law 2018 bkurtz@lewitthackman.com
dgurnick@lewitthackman.com
tgrinblat@lewitthackman.com
swolf@lewitthackman.com
msoroky@lewitthackman.com
kwallman@lewitthackman.com
tvernon@lewitthackman.com

 

 

June 2018

 

Rising Stars in Franchise/Dealership Law

Congratulations to Samuel C. Wolf and Matthew J. Soroky, both designated Rising Stars for 2018 in franchise and dealership law, by Super Lawyers Magazine. Sam and Matt were first nominated by peers of the bar, evaluated by a third party research team, and then reviewed by a panel of highly credentialed panel of outside attorneys. As few as 2.5% of the original nominees are then named Rising Stars.

Webinar: Ready to Franchise? Here’s What You Need to Know

Franchising is one, key way to expand a business, but it's not the only way. Those looking to grow their business and expand their brand through franchising should consider their options carefully. In this webinar, Tal Grinblat, Certified Specialist in Franchise Law (State Bar of California Board of Legal Specialization) and Katherine L. Wallman, an 11 year veteran in both corporate and franchise law, will discuss:

  1. Five Elements of a Successful Franchise System
  2. Steps to Begin Franchising
  3. State Registration Requirements
  4. Franchise Relationship Laws
  5. And much more…

Attorneys and Accountants attending this webinar may be eligible for CLE or CPE continuing education credit. Please add ESQ or CPA after your last name in the registration form if seeking credit. Click RSVP to register for this event.

FRANCHISOR 101:
Supreme Tax Implications

Online Goods Services Tax

On June 21 the U.S. Supreme Court reversed prior case law and let states tax online retailers that do not have physical presence in the state. The ruling also has significant implications for franchise systems that sell products and franchise their brands in multiple states.

Online retailers Wayfair, Overstock.com, and Newegg do not have a physical presence in South Dakota. They challenged a South Dakota law that requires out-of-state retailers to collect and pay sales tax “as if they had a physical presence in the state.” The Court’s precedent held that whether an out-of-state seller had to collect and pay taxes on sales to the state’s consumers depended on whether the Seller had a physical presence in the state. The Court upheld state taxes if they: 1) apply to an activity with a substantial nexus with the taxing state, 2) are fairly apportioned, 3) do not discriminate against interstate commerce, and 4) are fairly related to the services the state provides.

The new decision ruled that physical presence is not necessary. Now the “closely related” requirement applies. The Court acknowledged that requiring physical presence amounted to a judicially created tax shelter. It let businesses operate without physical presence in as many states as feasible to avoid taxes. The Court ruled this was unconstitutionally arbitrary as it treated identical economic actors differently.

Next, the Court said that in today’s economy, virtual presences should be subject to the same sales tax for the same items. Finally, the Court explained that the physical presence requirement was a burden on states’ ability to collect taxes and fund public functions and it put an unfair tax burden on consumers who bought goods in their state. The Court ruled that it was a mistake to give online retailers an arbitrary advantage over competitors that must collect sales tax from consumers. The Court ruled that the South Dakota law did require a substantial nexus before making out-of-state retailers liable for collecting and paying state sales tax.

This decision could lead to states taxing franchisors on royalties from out-of-state franchisees, for the use of marks and intellectual property. This could be a significant financial burden for franchise systems. Franchisors should consult their franchise and tax attorneys on the potential implications of this decision and assess what modifications to their business model and franchise agreements may reduce the impact of the decision. Franchisors might also rethink their e-commerce platforms with regard to granting or withholding rights to franchisees to sell goods out-of-state.

Read: South Dakota vs. WayFair, Inc., et al.

FRANCHISEE 101:
Class Not in Session

Class Action Arbitration Clauses

In May, the U.S. Supreme Court held that mandatory arbitration agreements containing class action or collective action waivers must be enforced as written.

The challenge to enforceability was that the National Labor Relations Act (“NLRA”) says employees can seek relief on a class basis. The Court examined three appeals involving workers whose employment agreements required all disputes to be arbitrated. The agreements required individualized arbitrations and barred employees from pursuing claims as a class or collective action.

The Court ruled that the NLRA does not override another law, the Federal Arbitration Act (“FAA”). The FAA requires courts to enforce agreements to arbitrate. The Court said the FAA treats arbitration agreements as valid, irrevocable, and enforceable. The Court directed lower courts to respect and enforce the parties’ chosen arbitration procedures and “rigorously to enforce arbitration agreements according to their terms.”

The employees invoked a clause of the FAA that lets courts refuse to enforce arbitration agreements. They claimed the NLRA decreed that the employees’ waivers of class and collective action was illegal.

The Court rejected this argument. The Court interpreted the FAA clause narrowly, stating that it “offers no refuge” for defenses that apply only to arbitration. The Court noted that the aggrieved employees did not claim they were forced to sign the arbitration agreements by fraud or duress or other unconscionability, so there was nothing to render the contracts unenforceable. Instead, the employees objected that their agreements required them to waive rights to class or collective actions.

The Court’s ruling said that lower courts may not let a contract defense “reshape traditional individualized arbitration by mandating classwide arbitration procedures without the parties’ consent.” According to the decision, the FAA required the court “to enforce, not override, the terms of the arbitration agreements before us.”

The Epic Systems case provides support for franchisors whose franchise agreement arbitration provisions prohibit class or collective actions by franchisees. Such provisions may be invalidated only “by an act of fraud or duress or in some other unconscionable way.” Franchisees should pay attention to any arbitration clause in their franchise agreement that bars class actions. Where such a clause is presented to a potential franchisee, it may be worth trying to negotiate the right to pursue class action proceedings against the franchisor.

Read: Epic Systems Corporation v. Lewis

This communication published by Lewitt Hackman is intended as general information and may not be relied upon as legal advice, which can only be given by a lawyer based upon all the relevant facts and circumstances of a particular situation. Copyright Lewitt Hackman 2018. All Rights Reserved.

Wednesday
May302018

Franchise 101: Pain at the Pump; and Pizza Franchisor Gets Burned

Franchise 101 News

Best Lawyers 2018 BadgeSouthern California Tier 3 Best Lawyers in Franchise Law 2018 bkurtz@lewitthackman.com
dgurnick@lewitthackman.com
tgrinblat@lewitthackman.com
swolf@lewitthackman.com
msoroky@lewitthackman.com
kwallman@lewitthackman.com
tvernon@lewitthackman.com



 

 

May 2018

  

International Franchise Association’s Legal Symposium

Barry Kurtz, Tal Grinblat and David Gurnick attended the 51st Annual IFA Legal Symposium this month. The symposium addresses current laws, regulations and business challenges impacting franchise systems throughout the world.

We are Growing!

Taylor M. Vernon joined our Franchise & Distribution Practice Group as an Associate. Taylor earned his JD at the UCLA School of Law in 2011 and a B.A. in History from the University of Texas at Austin. Taylor's practice focuses primarily on franchise, distribution, licensing and corporate transactions. With seven attorneys, we now have one of the largest franchise & distribution practice groups in the western United States.

FRANCHISOR 101:
Pain at the Pump

Pumped Up Franchisor

In Curry v. Equilon Enterprises LLC, a California court ruled, and the Court of Appeal affirmed, that a class-action wage and hour lawsuit against Shell Oil could not go forward because the service station manager bringing the suit was not an employee of Shell. The manager was employed by the company that contracted with Shell to operate the station.

Franchise Distribution Attorneys

Shell granted leases and operating agreements giving operators a rental interest in service station convenience stores and carwashes. Operators kept all profits from the convenience stores and carwashes. Shell paid the operators to run the station fuel facilities.

ARS had a contract with Shell to operate multiple stations. The plaintiff managed two locations. She was hired by an ARS employee, trained by ARS employees, reported to ARS employees, and supervised ARS employees. ARS designated the plaintiff as an exempt employee and set her salary.

The plaintiff brought a class-action suit against ARS and Shell, claiming she and other managers were misclassified as exempt employees, were denied overtime pay and were denied meal and rest breaks. The plaintiff also claimed that ARS and Shell were joint employers.

Definition of Employer

The appellate court noted three alternative definitions of what it means to employ someone:

  • To exercise control over wages, hours or working conditions;

  • To suffer or permit to work;

  • To engage.

The court said the first definition did not apply because Shell did not control the plaintiff's wages, hours or working conditions. ARS was responsible for training the plaintiff. ARS alone determined that she would be exempt from overtime requirements, where and when she would work, and her compensation and health benefits. And ARS controlled what the plaintiff did on a daily basis. The second definition did not apply because Shell had no authority to hire or fire the plaintiff.

As to the third definition, the court said "to engage" referred to the multifactor test used to determine if a worker is an employee or independent contractor. Under this test as well, the plaintiff was not employed by Shell. She was engaged in a distinct occupation. She was not supervised by Shell. Shell did not require a particular skill set for individuals hired by ARS. And Shell did not control her length of employment or compensation.

Read: Curry v. Equilon Enterprises LLC

Soon after this case was decided, the California Supreme Court, in Dynamex Operations West, Inc. v. Superior Court of Los Angeles, announced a new three-part test for determining if an individual is an employee or independent contractor for claims under California's Wage Orders. To show that a worker is an independent contractor, a business must establish each of three factors: (A) the worker is free from control and direction of the hiring entity in performing the work, under the contract for the work and in fact; (B) the work is outside the usual course of the hiring entity's business; and (C) the worker is customarily engaged in an independently established trade, occupation, or business. Failure to establish any one of these factors means a worker will be classified as an employee.

The Supreme Court's decision will impact how many industries do business, and many businesses will need to re-examine their use of independent contractors, and their current agreements, to determine if re-classification is needed.

FRANCHISEE 101:
Pizza Franchisor Gets Burnt

Pizza Oven

A recent case from Indiana demonstrates consequences to a franchisor that deviates from the contractually agreed audit method. In Noble Roman's Inc. v. Hattenhauer Distributing Co., an Indiana federal court granted a pizza franchisee (Hattenhauer) summary judgment on its franchisor's underreporting claim.

In 2014, Noble Roman's audited non-traditional franchisees who paid royalties based on reported sales. These audits included two of Hattenhauer's locations. The audits relied on a review of Hattenhauer's purchases from its distributor and estimates of Hattenhauer's rate of waste, product mix, and pricing to estimate gross sales. Noble Roman's did not review Hattenhauer's books and records or verify the information in the distributor reports.

Based on the audits, Noble Roman's concluded that Hattenhauer's locations underpaid royalties. Without giving prior notice, Noble Roman's tried to electronically withdraw funds from Hattenhauer's bank account to cover the unpaid royalties. Hattenhauer's bank rejected the attempted transfers. Noble Roman's then made more attempts to withdraw the money, without providing Hattenhauer notice.

Noble Roman's sued Hattenhauer, claiming it breached the Franchise Agreements by underreporting sales and failing to pay proper royalties. Noble Roman's argued its audits were authorized under the Franchise Agreements. Hattenhauer counterclaimed, alleging that Noble Roman's breached the Franchise Agreements by improper calculation of gross sales and unauthorized attempts to withdraw money. Hattenhauer argued that, pursuant to the Franchise Agreements, it was required to pay royalties on actual gross sales, not on sales that Noble Roman's believed it should have achieved.

The court rejected Noble Roman's argument, noting that royalties Noble Roman's sought to collect were not properly calculated and therefore were not owed-and that nothing in the Franchise Agreements gave Noble Roman's the right to collect unpaid royalties calculated based on an audit, by means of electronic withdrawals without Hattenhauer's consent.

Franchisors should pay particular attention to the contractual rights they can enforce against franchisees and not exceed those rights in the process of collection efforts.

Read: Noble Roman's Inc. v. Hattenhauer Distributing Co.

This communication published by Lewitt Hackman is intended as general information and may not be relied upon as legal advice, which can only be given by a lawyer based upon all the relevant facts and circumstances of a particular situation. Copyright Lewitt Hackman 2018. All Rights Reserved.
Thursday
Apr262018

Franchise 101: Future Royalties & Beyond; and a Sweet Non-Compete

Franchise 101 News

Best Lawyers 2018 BadgeSouthern California Tier 3 Best Lawyers in Franchise Law 2018 bkurtz@lewitthackman.com
dgurnick@lewitthackman.com
tgrinblat@lewitthackman.com
swolf@lewitthackman.com
msoroky@lewitthackman.com
kwallman@lewitthackman.com



 

April 2018

 

Tal Grinblat in Franchise Times

Congratulations to Tal Grinblat named a Legal Eagle by the Franchise Times for the fifth, consecutive year. In addition to this designation, Tal is also a State Bar of California Certified Specialist in Franchise & Distribution Law, and a member of the Executive Committee of the Business Law Section of the California Lawyers Association.

Read: 2018 Franchise Legal Eagles

Franchise Distribution Attorneys

FRANCHISOR 101:
Future Royalties and Beyond

A Florida federal court refused to dismiss a franchisor's claim for past due royalties and lost future profits.

The case concerned an Interim Healthcare staffing franchise in Arizona. The franchisor issued a default notice based on the franchisee's failure to pay agreed royalties. After the franchisee failed to cure the default, the franchisor terminated the franchise agreement and sued for almost $400,000 in past due royalties and more than $1,400,000 in lost future royalties.

The franchisee moved to dismiss the claim for future royalties, arguing that future amounts were speculative and that the franchisor's act of terminating the agreement-rather than the franchisee's breach - caused any alleged future royalty damages.

The court rejected this argument, noting that although Florida courts are "hesitant" to award future royalties, the franchisor properly pled its claim by alleging breach of the franchise agreement, lost profits as a proximate result of the breach, that losses were contemplated by the parties based on the agreement's ten-year term, and that the claimed losses were not speculative as they were based on average weekly fees and number of weeks remaining on the agreement. The court noted that future profits can be recovered in Florida by demonstrating the loss with "reasonable certainty by competent proof" and that the franchisor would be held to that standard at trial.

Lost future royalties may be difficult to recover, but a properly detailed pleading can get the claim to trial rather than being dismissed early in the case. Franchisors should work closely with franchise litigation attorneys to strengthen the pleading of such claims.

Interim Healthcare Inc. v. Health Care@home, LLC, S.D. Fla.

FRANCHISEE 101:
A Sweet Non-Compete

A Florida federal court held that the non-compete provision in a chocolate shop franchise agreement was enforceable against an ex-franchisee operating a competing chocolate store at the former franchised location.

The franchisee was terminated for refusing to install the new point of sale system, which was required by the franchise agreement. After termination, the former franchisee continued to operate in the same location.

The franchisor sued to enforce the non-compete provision in the franchise agreement. The non-compete prohibited the former franchisee from operating a competing business within 25 miles of its former location or other franchised locations for two years.

The former franchisee argued that the non-compete provision was unenforceable under Florida law, claiming the franchisor failed to prove a legitimate business interest justifying the provision. The court was not persuaded. It found the franchisor had legitimate business interests in protecting its goodwill in the region surrounding the location and in protecting its ability to sell new franchises. The court concluded that the franchisor's interest in re-entering the market and efforts to bolster the goodwill associated with the franchisor's brand in the area of the franchisee's former location were legitimate business interests for enforcing the non-compete provision.

A franchisee leaving a franchise system should evaluate its legal rights before deciding to operate a competing business. A non-compete provision may or may not be enforceable in the state where the franchisee plans to operate. Knowing the enforceability of non-compete provisions in the franchisee's jurisdiction before operating a competing business can save time, money and headache.

Peterbrooke Franchising of America, LLC v. Miami Chocolates, LLC, S.D. Fla.

Thursday
Mar292018

Franchise 101: Liability as Certain as Death & Taxes; and To First Refuse, or Not to Refuse

Franchise 101 News

Best Lawyers 2018 BadgeSouthern California Tier 3 Best Lawyers in Franchise Law 2018 bkurtz@lewitthackman.com
dgurnick@lewitthackman.com
tgrinblat@lewitthackman.com
swolf@lewitthackman.com
msoroky@lewitthackman.com
kwallman@lewitthackman.com



 

March 2018

 

 

Franchise Distribution Attorneys

FRANCHISOR 101:
Liability as Certain as Death & Taxes

Structuring a franchise to reduce risk of joint employment and vicarious liability means limiting a franchisor's control over franchisees. This is a challenge in a professional services franchise, where the brand is intertwined with the franchisee's personnel and the end product.

A California federal court held that a franchisee's former customer sufficiently alleged claims that tax preparation franchisor Jackson Hewitt exercised sufficient control over processing of tax returns to be vicariously liable for fraudulent conduct of a franchisee's rogue employee. The franchisor must also face claims of making fraudulent statements about accuracy of its tax preparation services.

The customer claimed the franchisee manipulated his tax returns to get a larger refund, and kept part of the refund as fees, without the customer's knowledge. In a prior ruling, the Court found the franchisor's controls were typical of a franchise relationship, and that control over certain aspects of a franchisee's operations was insufficient to create vicarious liability. This time, the customer alleged that Jackson Hewitt controlled the instrumentality of the harm by hiring and training tax preparers, and reviewing, approving and submitting tax returns to the IRS through the franchisor's proprietary and mandatory computer system. The Court was persuaded by allegations that the franchisor's "Code of Conduct" referred to the reader as an "employee" of Jackson Hewitt (not of the specific franchisee), mandated background checks and training programs to prevent preparation of fraudulent returns, and set parameters for termination of franchisee employees for failure to comply with system requirements.

Jackson Hewitt was also alleged to have made fraudulent ads touting 100% accurate returns, comparison to mom and pop tax preparers, and the "Preparer's Pledge" to handle a customer's tax return like their own. The Court said the purpose of the ads was to engender trust in potential customers, so they would hire Jackson Hewitt and its franchisees to prepare their taxes.

A professional services franchisor should be cautious in preparing training materials and manuals to delineate no more supervision than needed over franchisee personnel, to protect the franchisor's brand and intellectual property while trying to reduce the risk of vicarious liability for acts of a franchisee's employees.

Read: Lomeli v. Jackson Hewitt, Inc.

 

FRANCHISEE 101:
To First Refuse, or Not to Refuse

A franchisee looking to transfer assets of a franchised business may be subject to the franchisor's right of first refusal, the franchisor's option to purchase the business, or both, depending on the language of a franchise or dealer agreement.

In a federal court in Pennsylvania, a franchisee of seven car dealerships prevailed against Audi of America, the franchisor of one of the dealerships. Audi claimed the franchisee breached Audi's dealership agreement and violated state dealer law when, subject to the franchisor's right of first refusal, the franchisee did not provide pricing and other terms to transfer an Audi dealership.

The dealership agreement and Pennsylvania dealer law granted Audi a right of first refusal if the franchisee attempted to sell its majority ownership interest in the Audi dealership. The franchisee found a buyer and entered into an asset purchase agreement which packaged all seven dealerships as an "auto multiplex" for $17 million. The agreement did not separately price the Audi dealership. Believing the franchisee was acting in bad faith in valuing the Audi dealership at $8 million, Audi sued to block the transaction. A court granted a preliminary injunction.

After Audi filed the lawsuit, the franchisee and buyer signed two addenda to the purchase agreement, seeking to remove the Audi dealership from the sale. The franchisee contended that Audi's right of first refusal ended because it was no longer selling the Audi dealership. The trial court sided with the franchisee, finding there was no breach of the dealership agreement because the second addendum removed the Audi dealership, and the terms of the dealership agreement permitted the franchisee to withdraw the proposed sale after Audi elected its purchase right.

The Court also rejected Audi's claim that the first refusal right ripened into an irrevocable option to buy the dealership. It was only a general right of first refusal, which Audi failed to exercise before the franchisee withdrew the Audi dealership.

While Audi claimed it was unable to exercise its right due lack of a good faith price breakdown, the dealer was free to withdraw the asset from the sale. Accordingly, the franchisor received the full benefit of its right of first refusal, and was not entitled to further rights after failing to accept the right of first refusal prior to the withdrawal.

Read: Audi of America, Inc. v. Bronsberg & Hughes Pontiac, Inc.

This communication published by Lewitt Hackman is intended as general information and may not be relied upon as legal advice, which can only be given by a lawyer based upon all the relevant facts and circumstances of a particular situation. Copyright Lewitt Hackman 2018. All Rights Reserved.

Wednesday
Feb282018

Franchise 101: Finger Lickin' Restrictions; and Til Expiration Do Us Part

 

Franchise 101 News

Southern California Tier 3 Best Lawyers in Franchise Law 2018bkurtz@lewitthackman.com
dgurnick@lewitthackman.com
tgrinblat@lewitthackman.com
swolf@lewitthackman.com
msoroky@lewitthackman.com
kwallman@lewitthackman.com



 

FEBRUARY 2018

 

Franchise Distribution Attorneys

IFA 2018 Convention

Barry Kurtz, Tal Grinblat and Matthew J. Soroky all attended the 2018 International Franchise Association's annual convention in Phoenix earlier this month. The convention is geared to further expanding the franchise industry through educational and networking opportunities for legal and business professionals.

David Gurnick inValley Lawyer

David Gurnick reviewed "Legal Ethics and Social Media: A Practitioner's Handbook" for the San Fernando Valley Bar Association's Valley Lawyer Magazine. The tome addresses "the clash between the lawyer's quest for professionalism and the public's freedom of speech..." among other issues lawyers face when using social platforms. Read the review here: Legal Ethics and Social Media: A Practitioner’s Handbook

 

FRANCHISOR 101:
Finger Lickin’ Restrictions

Chicken Franchisee MarketingFranchise agreements give franchisors nearly absolute, unfettered discretion to control advertising of their brands. Franchisors need not regard prior course of dealings with franchisees. An Illinois federal court dismissed a franchisee's claim that KFC (known to many by its former name, Kentucky Fried Chicken) should not force the franchisee to stop advertising halal chicken at his franchised KFC locations simply because KFC in the past permitted, and assisted, in accommodating the franchisee's religious practice. The court found KFC's franchise agreement gave it express power to change advertising policies.

After opening his first franchise in 2002, the franchisee's local marketing campaign emphasized that his restaurant's chicken was halal-processed according to Islamic law. The strategy was so lucrative, the franchisee opened five more KFCs near mosques and Muslim communities.

For 14 years, KFC allowed the franchisee to market halal chicken. KFC allegedly helped the franchisee identify halal-certified processors and distributors. But then KFC revoked consent due to a new policy against franchisees making religious dietary claims. KFC became concerned about varying religious standards and compliance difficulties.

The plaintiff alleged that KFC's prohibition on advertising dietary claims contradicted KFC's earlier representations. But the court's decision rested on the franchise agreements. The court observed that "failure, forbearance, neglect or delay of any kind or extent on the part of KFC" in enforcing and exercising its rights would not "affect or diminish KFC's right to strictly enforce" the agreements. Given the franchisor's unambiguous contractual right to control franchisee advertising, and the agreements' integration clauses, the court would not consider evidence of KFC's previous actions. The court also dismissed the franchisee's promissory estoppel claim because Kentucky law, which governed, does not allow such claims when the parties have a contract.

The court dismissed KFC's counterclaim for attorney fees because the franchise agreement allowed KFC to recover attorney fees only for suits it initiated and won, rather than suits started by the franchisee. The court interpreted the attorney fee clause narrowly, and concluded that KFC did not start the action; rather the franchisee did in filing his original complaint.

When drafting fee shifting provisions in franchise agreements, franchisors should give serious thought to what kinds of disputes are likely to arise for which attorney fee recovery would be a benefit or hazard, before using boilerplate attorney fee clauses (whether narrow or broad). Specific wording of these provisions can impact their application in a dispute.

Lokhandwala v. KFC Corporation, 2018 WL 509959 (N.D.Ill., 2018)

FRANCHISEE 101:
Til Expiration Do Us Part

 Non-Signatory Operators Must Honor Franchise Agreements
Though an individual owner and operator of a formerly franchised Church's Chicken restaurant in Texas was not a signer of the franchise agreement, a district court ruled the individual was subject to the agreement's post-termination provisions. The ruling was based on assumption and equitable estoppel. The operator was enjoined from further use of the franchisor's trademarks or any confusingly similar marks; from breaching the agreement's non-competition provisions; and from taking actions violating the agreement's post-expiration obligations. The court found the franchisor was likely to succeed on the merits for breach of the franchise agreement and trademark infringement against the restaurant operator.

Shortly after a third-party franchisee entered into the franchise agreement, the franchisee sold the restaurant to the operator without notice to the franchisor. The operator performed under the agreement for the entire ten-year term as if he was an authorized franchisee. When the agreement expired, the operator re-branded the restaurant as a competing quick-service restaurant specializing in the sale of fried chicken using a logo, marks and other décor similar to those used at the former Church's Chicken restaurant. The franchisor demanded that the operator cease and desist and upon the operator's refusal, the franchisor filed suit.

Assumption and equitable estoppel applied to prevent the operator from having it both ways. After ten years of performing and enjoying the benefits of the agreement, he could not repudiate the post-expiration obligations in the same agreement. The court enjoined the operator's infringement and unlawful competition based on finding the operator's continued operation was causing the franchisor irreparable injury.

Non-signatory operators who operate under and benefit from a franchise agreement for a long period should understand they cannot avoid post-term obligations simply because they did not sign the agreement. The non-signatory faces risk of being subject to the same injunction order as would an ordinary franchisee who signed the contract with the franchisor.

Cajun Global LLC v. Swati Enterprises, Inc., N.D. Ga., 16,118

This communication published by Lewitt Hackman is intended as general information and may not be relied upon as legal advice, which can only be given by a lawyer based upon all the relevant facts and circumstances of a particular situation. Copyright Lewitt Hackman 2018. All Rights Reserved.

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