San Fernando Valley Los Angeles Attorneys
Navigation Two
Phone Number

Entries in FDD (7)

Friday
Sep282018

Franchise 101: Thrust Into Antitrust; and a Rocky Road to FDD Disclosure

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

 

 

September 2018

 

FRANCHISOR 101:
Thrust Into Antitrust

Jimmy John’s will face antitrust claims, after an Illinois federal judge declined to dismiss allegations in a class action.

Plaintiffs claim the chain’s franchise agreement harmed competition by preventing franchisee employees from seeking employment at other locations. The complaint alleges employees suffered reduced wages, hours, employment benefits, professional growth and illegal working conditions due to the alleged restraint of trade among franchisees, which the complaint asserts was “orchestrated by Jimmy John’s itself.” The suit comes in the midst of an inquiry by several state attorneys general questioning “no-hire agreements” at several quick service restaurant chains.

Jimmy John’s franchise agreement says franchisees may not “solicit or initiate recruitment” of anyone currently or in the prior 12 months employed by Jimmy John’s or a franchisee, and that violation is a default and grounds for termination of the franchise agreement. The employees also signed non-compete agreements, agreeing not to work for any deli-style restaurant near a Jimmy John’s franchise for at least two years after ending their employment.

Jimmy John’s argued the hiring agreement was a lawful “vertical” restraint, as it was only between Jimmy John’s and franchisees. But the court disagreed, stating the agreements were horizontal in nature because the agreement’s structure let franchisees enforce the no-hire agreements against each other.

Challenges to “no-poaching” clauses in franchise agreements are becoming more frequent. In the past year, franchisee employees filed similar antitrust actions against several large international franchisors. Potential liability from these claims could be substantial due to the large numbers of employees in each class, and potential recovery of treble damages and attorneys’ fees. Franchisors, especially large systems, should review the franchise agreement to address no-poaching provisions.

Read more: Butler v. Jimmy John’s Franchise, LLC, S.D. Ill., ¶16,241

FRANCHISEE 101:
Rocky Road to FDD Disclosure

An ice cream parlor franchisor in Ohio, Handel Enterprises, Inc., must defend claims that it violated the California Franchise Investment Law (CFIL) for failing to disclose its amended franchise disclosure document (FDD) to a franchisee, who signed a franchise agreement that was part of an outdated FDD, and paid the franchisor an initial franchise fee at that time.

In a meeting in October 2015, Handel’s provided the potential franchisee with its FDD that was registered in California with an effective date of April 13, 2015. In December 2015, the franchisee paid Handel’s a $5,000 deposit toward the initial franchise fee. On January 21, 2016, the parties entered into a franchise agreement granting a franchise for Encinitas, California. Ten days earlier, Handel’s applied to the California Department of Business Oversight (DBO) to amend the same FDD that was previously disclosed to the franchisee in October 2015. That same October 2015 FDD was disclosed to the franchisee again on January 21st. The franchisee alleged that Handel’s amended FDD was approved on January 19, 2016 – the same day that the franchisee wired Handel’s the balance of the franchise fee for the Encinitas location – and two days before signing the franchise agreement. The amended FDD was not shown to the franchisee prior to signing the agreement.

The franchisee alleged that the franchisor broke the law by continuing to offer and sell franchises while its application for amendment was pending, and failed to comply with an exemption for pending applications. The CFIL says a franchisor must promptly notify the DBO by applying to amend the registration of any material changes in the disclosure.

Handel’s argued that changes in the amended FDD were not material because the DBO accepted Handel’s amendment. The trial court rejected this argument, finding that the CFIL puts the duty on the franchisor, not the DBO, to determine if new information is material. Because Handel’s received a deposit in December 2015, and applied for an amendment on January 11, 2016, it was required to comply with the exemption if it wanted the offer to continue while the amendment application was pending.

The court also found that the franchisee plausibly pled a violation of the CFIL by Handel’s failure to provide a copy of the amended FDD and failing to delay signing of the franchise agreement or payment of consideration 14 days after receipt of an effective FDD. Handel’s disclosure obligations, the court found, were not satisfied by disclosure of the FDD in October 2015 because Handel’s applied for amendment on January 11, 2016, acknowledging there were material changes.

A franchisor that amends its FDD while offers are pending, should make sure the DBO’s registration is effective as to the particular agreement to be signed. Failure to stay in regular contact with the DBO while an amendment is pending could result in serious consequences to franchisors if a franchisee signs an outdated franchise agreement.

For details, click: Handel’s Enterprises, Inc. v. Schulenburg, No. 4:18CV508, 2018 WL 3077756 (N.D. Ohio June 22, 2018)

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
Jul272016

Franchisor 101: DBO re Outdated FDDs & Unregistered Franchises; and Domino's Delivered NY Wage Theft Claims 

Franchise 101 News

bkurtz@lewitthackman.com
dgurnick@lewitthackman.com
tgrinblat@lewitthackman.com
swolf@lewitthackman.com
gwintner@lewitthackman.com

 

July 2016

 

Franchise Lawyers

David Gurnick in The Franchise Lawyer

 

”Franchise systems can build anti-terrorism measures into their systems, in ways that make business sense and align with their legal and moral principles..."

Click to read: Franchise Systems’ Roles in Combatting Terrorism 

 

FRANCHISOR 101:
Outdated FDDs and Unregistered Franchises

The California Department of Business Oversight ("DBO") recently issued three Orders against franchisors for violating California's franchise laws.

 No Good Deed

 

#1: Senior's Choice provides companion care services to seniors. In 2013 Senior's Choice renewed their franchise registration and disclosed the initial franchise fee was $45,000. Then they provided a prospective franchisee an older Franchise Disclosure Document, stating an initial fee of $25,000 not $45,000.

The DBO found Senior’s Choice violated the law by:   

  • not providing the current FDD;

  • selling a franchise on terms that differ from the registered offer (by lowering the initial fee from $45,000 to $25,000); and

  • violating a prior Desist and Refrain order from 2007 for unlawfully selling franchises without registration.

The DBO ordered Senior Choice directors, officers and managers to attend training on franchise law compliance, pay a penalty of $7,500 and not further violate the Franchise Investment Law.

This case shows that the government objects even when franchisors act to benefit franchisees (by lowering fees) or accidentally provide the wrong FDD.

 

Brewer’s Remorse

 

#2: In the Great Khan case, the DBO found Great Khan and its principals sold unregistered franchises and issued an order prohibiting further violations. Great Khan obtained a franchise registration in 2001 but failed to renew the registration in 2002.

After expiration of the registration, Great Kahn sold five franchises to California residents. Each franchisee paid an initial fee of at least $25,000. Great Khan and its principals were ordered to Desist and Refrain from further offers or sales until their franchises were registered or exempt from the registration requirements.

#3: In a third case the DBO found World Coffee Kiosk (WCK) offered and sold franchises without registration. WCK sold a business in which the operator sold approved coffee drinks, food products and merchandise in an assigned territory from kiosks at malls. Additionally, the operator was required to use approved signage and advertising and operate under WCK's plan, manual, policies, standards and procedures. WCK could require an operator to relocate.

Operators paid an initial franchise fee of at least $25,000. The DBO found this was a franchise that was not registered or exempt. WCK was ordered to Desist and Refrain from further offers or sale of franchises until they registered or satisfied an exemption.

The Great Khan and World Coffee Kiosk cases show that failing to renew a registration or not registering at all can have serious consequences and penalties.

 

Domino’s Delivered NY Wage Theft Claims

 

In May, 2016, the New York Attorney General (AG) brought a claim against Domino's Pizza for labor code violations at three franchised locations.

The AG alleged failure to pay delivery workers the legal minimum wage and overtime, and failure to fully reimburse workers for delivery expenses - totaling over $567,000 in back wages and underpayments to workers, liquidated damages and interest.

The NY AG alleged Domino's is liable as a joint employer because it exercised a high level of control over employee conditions at franchised stores and had a significant role in causing wage violations; and that Domino's role was significant in hiring, firing, discipline, wage payments, and in oversight and supervision of work.

The franchisor allegedly caused many of the wage violations by encouraging franchisees to use a "Payroll Report" function in the software system Domino's specified for franchisees (called "PULSE"). The AG claimed Domino's knew, but failed to disclose, that PULSE's "Payroll Report" systematically under-calculated gross wages owed to workers.

The Domino's case shows that franchisors should be careful in exercising control over a franchisee's operations concerning hiring, firing and employee relations, and should carefully evaluate whether to assist with payroll software. These controls can lead to claims by the government and franchisees that the franchisor exercises control and is therefore liable for claims at franchised locations.

 

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 2016. All Rights Reserved.

Tuesday
Oct272015

Catch-all Disclaimers No Substitute for Untrained Salespeople; and "Two Wrongs Don't Make a Right"

Franchise 101 News

bkurtz@lewitthackman.com
dgurnick@lewitthackman.com
tgrinblat@lewitthackman.com
gwintner@lewitthackman.com
swolf@lewitthackman.com

October 2015

 

38th Annual Forum on Franchising

Barry Kurtz, David Gurnick, Tal Grinblat, Gabe Wintner and Sam Wolf all attended the American Bar Association's 38th Annual Forum on Franchising in New Orleans. The three day event provides an opportunity for attorneys from around the world to discuss industry-wide legal concerns. David Gurnick spoke on the potential legal risks and opportunities of using intellectual property created by others.

 

Franchise Lawyers*Certified Specialist in Franchise & Distribution Law, per the State Bar of California Board of Legal Specialization

FRANCHISOR 101:
Catch-all Disclaimers No Substitute for Untrained Salespeople

 

 

How strong are "non-reliance disclaimers" or "integration" or "merger" provisions in franchise agreements at protecting a franchisor when it really matters? Only so much, a New York court recently decided.

For protection, franchisors often include "non-reliance disclaimers" in franchise agreements. By signing, the franchisee states they did not rely on any promise or representation which, though not in the printed Franchise Disclosure Document (FDD), was communicated in some way by the franchisor's staff. "Rather," the franchisee says, "I understand that only what is actually printed in the FDD is true."

To cover the other side of the issue and try to prevent any possibility of being bound by such promises, franchisors include an "integration" or "merger" clause in the franchise agreement. By signing, the franchisee agrees that only the terms printed in the agreement and its attachments - and nothing communicated outside of those documents - will actually bind the parties.

Two franchisees claimed they were induced to join the Engel & Voelkers real estate brokerage franchise by fraudulent statements made orally by E & V's representatives. E & V tried to have the claims dismissed based on non-reliance, integration and merger clauses in the franchise agreements. But the court refused to dismiss the claims and held that the anti-fraud provision in the New York Franchise Sales Act (NYFSA) prevented dismissal of claims just because such clauses were in the agreements.

The franchisees also claimed damage by not receiving FDDs before their first meetings with E & V's representatives. E & V moved to dismiss these claims as well, arguing that the franchisees could not suffer damage from failure to receive the disclosure at that early point because, ultimately, they received FDDs and were fully informed before they signed franchise agreements. Again the court disagreed, reasoning that the very existence of the NYFSA requirement implies that some harm could come to a franchisee just by beginning to speak with company representatives before having an FDD in hand.

Franchisors cannot depend fully on non-reliance provisions, merger clauses, or a "better late than never" approach to disclosure. A preferable approach is to have salespeople and company representatives trained in the rules and apply disciplined sales procedures.

To read the full opinion, click: EV Scarsdale Corp. v. Engel & Voelkers North East LLC, N.Y. Sup. Ct., para. 15,561

 

FRANCHISEE 101:
"Two Wrongs Don't Make a Right"

At one time or another, many people have occasion to be renters who feel mistreated by a landlord. This may be due to delays in repairs, responses, or just turning on the heat. A typical reaction is the temptation to retaliate by withholding rent. However, someone who watches court TV (or knows someone who does) knows that no matter how much one is in the right, failing to send the rent check is a wrong approach and often makes things worse.

In Dunkin' Donuts Franchising LLC v. Claudia III, LLC, a Pennsylvania court proved this when owners of a Dunkin' Donuts franchise did not complete a required renovation of their franchise location, and then stopped paying fees altogether. Due to their defaults, the franchisor terminated the franchise. But the owners continued operating as a Dunkin' Donuts store, claiming the original default - failure to complete renovation on time - was at least partly the franchisor's fault, because the franchisee owners had submitted a remodel plan that Dunkin' Donuts took an unusually long time to approve.

Nevertheless, the court found for the franchisor, issuing an injunction against the franchisee, prohibiting the owners from ever operating a store that used or infringed upon Dunkin's trademarks. The court noted that even if the franchisee could win its claim that the franchisor was at fault, that would not prevent the franchisor from terminating the franchise. The court held that a franchisee's remedy for wrongful termination is a claim for money damages, not continued unauthorized use of the franchisor's trademarks. The court noted that the franchisee never disputed its default nor questioned Dunkin's ownership of the trademarks, and therefore decided there was no choice but to rule against the franchisee.

Franchisees may have valid claims against their franchisor. But, to continue operating the franchise, a franchisee must stay in compliance with the franchise agreement - even if the franchisor does not. Failure to maintain this contractual moral high ground will give a franchisor the right to terminate.

To read the full opinion, click here: Dunkin' Donuts Franchising LLC v. Claudia III, LLC, DC Pa., para. 15,584

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 2015. All Rights Reserved.

 

Thursday
Jun252015

Disclosure Violations and Running the Risks of Rescission; & Pay Now or Pay Later: Liquidated Damages

Franchise 101 News

bkurtz@lewitthackman.com
dgurnick@lewitthackman.com
tgrinblat@lewitthackman.com
gwintner@lewitthackman.com
swolf@lewitthackman.com

June 2015

 

Bryan H. Clements Named Rising Star

Congratulations to Bryan H. Clements, named one of Southern California's Rising Stars for 2015 by Super Lawyers Magazine. To be recognized, Bryan underwent Super Lawyers' rigorous selection process quantified by peer evaluations and professional achievements. Less than 2.5 percent of nominated attorneys are finally selected to the Rising Stars list. 

Franchise Lawyers*Certified Specialist in Franchise & Distribution Law, per the State Bar of California Board of Legal Specialization

Tal Grinblat & Franchise Law Committee

The California Bar's Franchise Law Committee chaired by Tal Grinblat recently submitted proposed legislative changes to state law. One would make it easier for franchisors to negotiate terms of the franchise agreement with prospective franchisees. Another would permit franchisors to present at trade shows without formal registration, to gauge interest in a franchise concept before investing resources in developing a franchise program. If the Business Law Section's Executive Committee approves, the proposals will be submitted to the Bar for introduction in California's legislature.

David Gurnick Presents to ABA

David Gurnick, Certified Specialist in Franchise and Distribution Law, business litigation attorney and author, was invited by the American Bar Association to co-present a seminar for members attending the 38th Annual Forum on Franchising in New Orleans. The seminar topic, entitled Finders Keepers Losers Weepers: Opportunities, Risks and Considerations in Using Intellectual Property Created by Others, takes place in October.

FRANCHISOR 101:
Disclosure Violations & Running the Risks of Rescission

 

Despite a district court's recent decision in Braatz, LLC v. Red Mango FC, LLC, franchisors are well advised to comply with applicable disclosure requirements to a "T" to ensure new franchisees will not have an ongoing right to rescind their franchise agreements.

Braatz was disclosed with Red Mango's franchise disclosure document (FDD) on November 4, 2011. On December 28, 2011, Braatz received an execution version of the franchise agreement and a franchise compliance questionnaire from Red Mango. On January 5, 2012, Braatz paid Red Mango an initial franchise fee and entered into a franchise agreement with Red Mango for a Red Mango yogurt store.

After cashing Braatz's check for the initial fee and countersigning the franchise agreement, Red Mango re-sent a blank closing questionnaire to Braatz asking Braatz to change two answers it had previously provided and resubmit the questionnaire. Braatz completed and signed the replacement questionnaire and returned it to Red Mango before January 16, 2012. Braatz closed the store on March 2, 2014, filed for bankruptcy soon thereafter, and filed a claim against Red Mango for violation of the Wisconsin Fair Dealership Law (WFDL) on December 23, 2014. Braatz sought to rescind the franchise agreement since Red Mango had not provided Braatz 14 days to review the replacement questionnaire before accepting Braatz's initial franchisee fee payment.

The WFDL provides "No franchise [...] may be sold in [Wisconsin] unless a copy of an offering circular is provided to the prospective franchisee at least 14 days prior to [its] execution of any binding franchise agreement or other agreement with the franchisor or at least 14 days prior to the payment of any consideration...." If the franchisor materially violates this provision, the franchisor shall be liable to the franchisee and the franchisee may bring an action for rescission.

The court ruled that even if Red Mango was required to provide Braatz an additional 14 days to review, complete and resubmit the questionnaire, the alleged violation was not material. Since Braatz promptly completed and resubmitted the questionnaire, the court opined, the violation did not affect Braatz's decision to enter the franchise. Also, the representations Red Mango had asked Braatz to change in the questionnaire conflicted with representations Braatz had made in the franchise agreement. In the court's opinion, asking Braatz to align its representations did not present any new requirements for franchise ownership, and thus, was not enough to amount to a material violation of the WFDL's disclosure requirements. Accordingly, the court granted Red Mango's motion to dismiss Braatz's claim.

Had this case been heard by a different court, or had the court been asked to apply the franchise disclosure laws of a different state, the result could have been different. So, keeping in mind that an ounce of prevention is worth a pound of cure, franchisors are best advised to provide franchisees no less than 14 full days to review all documents before accepting any signed documents or monies for a new franchise.

See: Braatz, LLC v. Red Mango FC, LLC.

 

FRANCHISEE 101:
Pay Now or Pay Later – Liquidated Damages & Future Royalties

 

Super 8 Worldwide, Inc. v. Anu, Inc. serves as a reminder to franchisees that, in general, courts will hold franchisees and their guarantors liable to their franchisors for losses suffered when franchisees abandon their franchises before their franchise agreements have expired.

Super 8 sued its former franchisee and the franchisee's guarantors for breach of contract alleging the franchisee unilaterally terminated the franchise when it stopped operating the facility without Super 8's prior consent. Applying New Jersey law, the court granted Super 8's motion for summary judgement against the franchisee's guarantors and awarded Super 8 liquidated damages, lost royalties and attorney's fees (the court had earlier granted Super 8's Motion for Default Judgment against the franchisee and awarded Super 8 $317,591.65 in liquidated damages and recurring fees).

The result in this case would likely have been the same had it been tried in California. California generally follows the rule that a non-breaching franchisor "... is entitled to recover damages, including lost future profits, which are proximately caused by the franchisee's specific breach." Postal Instant Press, Inc. v. Sealy, 43 Cal.App.4th 1704. Therefore, if a California franchisee's actions, such as abandonment of the franchise, are the cause of the franchisor's failure to realize future profits, the franchisor may recover its lost profits from the franchisee. Interestingly, though, a district court interpreting California law in Radisson Hotels Intern., v. Majestic Towers, Inc. went a step further. It ruled, based on a specific provision in the franchise agreement, that Radisson's franchisee was liable to Radisson for lost future profits, even though Radisson had terminated the franchisee for its failure to pay past due royalties.

Most states, though, including Washington and New York, follow the general rule that "a [franchisor] is entitled to recover lost profits [future royalties] if the [franchisor] demonstrates that (1) the [franchisee's] breach caused [the franchisor's loss of future royalties]; (2) the loss may be proved with reasonable certainty; and (3) the particular [lost future royalties] were within the contemplation of the parties to the contact at the time it was made." ATC Healthcare Services, Inc. v Personnel Solutions, Inc., 2006 WL 3758618; see also Ashland Mgt, Inc. v. Janien, 82 N.Y.2d 395 (1993); and see Tiegs v. Watts 135 Wash.2d 1. Following this rule, a franchisor would not be able to collect lost future royalties if it terminates its franchisee for failing to pay past due royalties, but could for acts by the franchisee, such as abandonment, which proximately cause the franchisor's damages.

Many franchise agreements provide a provision calculating the damages the franchisor will be entitled to receive if the franchisee abandons or otherwise terminates the franchise before its expiration date (i.e. 2 years' royalties based on the past 12 months). As the Super 8 case demonstrates, these provisions are typically enforceable, even against the franchisee's guarantors

Click: Super 8 Worldwide, Inc. v. Anu, 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 2015. All Rights Reserved.

 

 

 

Monday
Feb232015

DBO Automatic Effectiveness Date Extension; and Quasi-Franchise Business Models

Franchise 101

bkurtz@lewitthackman.com
dgurnick@lewitthackman.com
tgrinblat@lewitthackman.com
gwintner@lewitthackman.com
swolf@lewitthackman.com

February 2015

 

Franchise Times Legal Eagles 2015

Tal Grinblat, Certified Specialist in Franchise and Distribution Law and Chair of the Franchise Law Committee of the Business Law Section of the State Bar of California, has once again been selected as one of the best attorneys in franchising by the Franchise Times. The full list of honorees will be published in the magazine's April edition.

IFA 2015

Barry Kurtz, David Gurnick and Tal Grinblat attended the International Franchise Association's annual convention, held in Las Vegas. The event provided an opportunity to participate in roundtable discussions and learn about the latest business and operational challenges franchisors and franchisees face in today's ever-evolving market.

E-Filing Gaining Momentum

As of January 1, 2015, the Department of Business Oversight (DBO) is authorized to accept multiple types of electronic filings under several laws it administers. The Commissioner may now prescribe circumstances under which the DBO accepts electronic records or electronic signatures. This progression suggests that California may be inching closer toward a universal electronic filing system.

 

FRANCHISOR 101: California Increases Time for Automatic Effectiveness from 15 to 30 Business Days


Automatic Franchise Effectiveness Date 

A new California law has given the California Department of Business Oversight, the State's regulator of franchises, more time to review franchise registration and renewal applications, with the result that franchisors, their accountants and their attorneys must work harder and faster to update their franchise disclosure documents, prepare their year-end audited financial statements and submit their applications to renew and maintain their franchise registrations.

The law amends the automatic effectiveness statutes in the Corporations Code (Sections 31116 and 31121) to increase, from 15 to 30 business days, the length of time that the Commissioner of Business Oversight has to review franchise applications and franchise renewals under the Franchise Investment Law. The revised statute provides that registration of an offer of franchises automatically becomes effective at 12 o'clock noon, California time, on the 30th business day after the filing of a complete application for registration.

A complete application is defined as one that includes the appropriate filing fee, Uniform Franchise Disclosure Document, and all additional exhibits, including audited financial statements for the franchisor's prior fiscal year, in conformity with regulations of the Commissioner.

Because most franchisors operate under a January to December fiscal year, franchisors and their accountants should keep the timing requirements of the new law in mind since they will have to file their complete applications early in March to take advantage of the automatic effectiveness statute.

 

FRANCHISEE 101: Is It a Franchise?


Accidental and Quasi-Franchises

Franchise 101 Lawyers*Certified Specialist in Franchise & Distribution Law, per the State Bar of California Board of Legal Specialization

For decades, non-franchise businesses have tried using a quasi-franchise business model (i.e., any business format license) to distinguish themselves from franchisors to avoid onerous franchise investment laws. A recent federal decision from California serves as an important reminder that it doesn't pay to skirt franchise registration requirements when a business arrangement meets the threshold requirements of a franchise.

In Chicago Male Medical Clinic v. Ultimate Management, Inc., a federal district court in Los Angeles ruled that a consulting agreement between a Chicago medical clinic and a management company amounted to the sale of a franchise under Illinois law.

The parties stipulated to the following facts: the clinic and the franchisor entered into a consulting agreement, giving the franchisee: 

  1. the right to use the National Male Medical Clinic trademark;

  2. a suggested marketing plan;

  3. access to the franchisor's expertise and knowledge in advertising and marketing certain medical services; and

  4. call center services.

Pursuant to the agreement, the franchisee paid an initial fee of $300,000, over $56,000 in royalties, and call center fees of over $45,000. The franchisee filed suit, alleging fraud for failure to follow disclosure requirements under the Illinois Franchise Disclosure Act ("IFDA").

Finding that the management company violated the IFDA by failing to register with the Illinois Attorney General's Office and failing to deliver a disclosure document, the court entered judgment in favor of the medical clinic, awarding the return of the initial $300,000 investment, and over $56,000 in royalties paid, plus costs and attorney fees.

Franchise laws are written in broad terms and are designed to protect franchisees. So licensors in business arrangements that fit the criteria of a franchise can wind up paying heavily on the back end if they dodge the franchise registration process.

Click: Chicago Male Medical Clinic, LLC v. Ultimate Management, Inc. et al., DC Cal. for further information.
 
 

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 2015. All Rights Reserved.

LEWITT HACKMAN | 16633 Ventura Boulevard, Eleventh Floor, Encino, California 91436-1865 | 818.990.2120