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Entries in forum selection clause (3)

Tuesday
Aug182015

Franchisor Awarded Lost Future Profits; & Franchisee Keeps Case in Home Court 

Franchise 101 News

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

August 2015

 

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

Valley's Most Trusted Advisors

Barry Kurtz was recently recognized as one of the San Fernando Valley's Most Trusted Advisors by the San Fernando Valley Business Journal. This is the second time he has been named for this award.

 

New Team Member

Gabriel A. Wintner is the newest associate to join our Franchise & Distribution Practice Group. A graduate of Northwestern University School of Law in Chicago, Gabe previously served as head of the legal department for Mathnasium – an international franchisor with over 500 units at the time.

Learn more about: Gabriel A. Wintner

 

David Gurnick Article in Valley Lawyer

"There are distinct differences between parody, satire and lampoon. Intellectual property attorneys should be able to recognize these differences and understand the respective case law to best protect their clients' trademarks and copyrights -- or to best argue their clients' fair use of other people's work..."

Read more: Fun With Trademarks and Copyrights: Parody, Satire and Lampoon

 

FRANCHISOR 101:
Florida Franchisor Awarded Lost Future Profits

 

An arbitration panel in Florida found that a disaster recovery and remediation business franchisee breached his agreement with John Woods, his franchisor, by terminating the agreement 13 years before expiration of the 20-year term. The arbitrators awarded John Woods damages for the future profits it would have earned had the franchisee remained in operation because:

(1) the lost future profits were within the reasonable contemplation of the parties at the time of contracting and

(2) they were proven with reasonable certainty.

The arbitrators found that lost future profits were within the contemplation of the franchisee when signing the franchise agreement even if the potential payment of these damages was not disclosed in the FDD. Rejecting the franchisee's expert testimony, the panel found that future damages were not a fee or one of the franchisee's duties upon termination that were required to be disclosed in the franchisor's FDD. The panel also found that Florida law did not require an explicit reference in the parties' contract to reserve the franchisor's right to lost future profits.

The arbitrators further found that the franchisor proved its damages with reasonable certainty by calculating as past damages the lost profits the franchisor had incurred from the date of termination through the date of the hearing, and for future profits, by analyzing the franchisee's past revenues and assuming the franchisee would generate similar revenues in the future with a modest increase in the first few years. In all, the arbitrators awarded the franchisor past due fees as well as lost future profits in the amount of $908,903 for the remaining 13 years of the term of the franchise agreement.

The arbitrators' ruling demonstrates a danger for franchisees unilaterally terminating a franchise agreement when the agreement does not provide such a right. The ruling also provides franchisors significant ammunition for recovering future damages against a franchisee who fails to perform pursuant to the agreement.

 

FRANCHISEE 101:
Franchisee Keeps Case in Home Court Despite Forum Selection Clause

Rob & Bud's Pizza ("R&B") is a Papa Murphy's franchisee and owns and operates multiple Papa Murphy's Take 'n' Bake Pizza restaurants in Arkansas, Missouri and Kansas. In April 2014, R&B and other Papa Murphy's franchisees sued Papa Murphy's in its home state of Washington alleging that Papa Murphy's induced them to purchase franchises through fraudulent and deceptive misrepresentations and omissions.

While the Washington litigation was ongoing, R&B initiated another lawsuit in Arkansas state court alleging Papa Murphy's was unlawfully attempting to terminate R&B's franchise agreements in retaliation for R&B's refusal to agree to Papa Murphy's settlement demands in the Washington litigation. Papa Murphy's then removed the Arkansas state court case to Federal district court and filed a Motion to Transfer Venue to Washington.

R & B's franchise agreements all contained mandatory forum selection clauses that required all litigation to occur in Washington. However, the Arkansas Procedural Fairness for Restaurant Franchisees Act ("APFRFA") states that:

a party to a restaurant franchise may commence a civil action ... in Arkansas if either party to the restaurant franchise is a resident of Arkansas, [and] [n]either a franchisee nor a franchisor shall be deprived of the application and benefits of this subchapter by a provision of a franchise purporting to designate the law of another jurisdiction as governing or interpreting the franchise, or to designate a venue outside of Arkansas for the resolution of disputes.

The Arkansas court reasoned, under Arkansas public policy, that the Washington forum selection clauses should not be enforceable unless:

(1) neither R&B nor Papa Murphy's were residents of Arkansas; or

(2) R&B and Papa Murphy's were not parties to a restaurant franchise within the meaning of the APFRFA.

The Court found that R&B was indeed a resident of Arkansas due to its operation of Papa Murphy's restaurants in Arkansas and that, despite the Washington forum selection language in the franchise agreements, Arkansas public policy strongly weighed against enforcement of the forum selection clauses, and accordingly denied Papa Murphy's motion to transfer the case to Washington. The Court also found that convenience to the parties weighed in favor of denying a transfer of venue to Washington because the events took place in Arkansas, most of R&B's restaurants were in Arkansas, and R&B's principal who was central to the facts of this case, lived closer to Arkansas than Washington.

This case demonstrates the importance of researching a state's public policy when bringing cases against a franchisor. Franchisees may be able to benefit from the courts in their home state despite language in the franchise agreement to the contrary.

Read the entire decision: Rob & Bud's Pizza, LLC v. Papa Murphy's Int'l, LLC

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
Apr302015

3rd Circuit Affirms Brewer Victory; Forum Selection Clause Trumps MN Franchise Act 

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

April 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, was featured as one of the best attorneys in franchising by the Franchise Times. The full list of honorees was published in the magazine's April edition.

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

Barry Kurtz & Bryan H. Clements' Article in Business Law News, a publication of the State Bar of California

"Many states now regulate the relationship between those who brew or import beer and those who receive, warehouse and distribute to retailers by way of special relationship statutes..."

Read: Traditional Franchise and Beer Distribution Relationships: A Legal Comparison

FRANCHISOR 101:
Time for a Tall One? 3rd Circuit Affirms MillerCoors' Victory in Dispute


Brewer Distributor Litigation 

A U.S Court of Appeals ruled in favor of MillerCoors finding the brewer did not violate its distribution agreement with a beer distributor or Pennsylvania's alcohol beverage laws when it (i) assigned distribution rights for its new craft beer brands to the distributor's competitors and (ii) conditioned the award of future brands on the distributor establishing a new entity devoted to MillerCoors products.

The distributor had exclusivity for specified MillerCoors' products in the Pittsburgh area. The Agreement gave MillerCoors the right to add new products to the exclusive distribution list and gave the distributor the right to sell other brewers' beer brands without MillerCoors' consent. The distributor exercised that right by selling Anheuser-Busch products for many years.

In 2012 and 2013, MillerCoors began marketing three new craft and specialty beers, Batch 19, Third Shift, and Redd's Apple Ale, and awarded distribution rights for these new brands to the distributor's competitors, prompting a lawsuit. The distributor claimed it was denied distribution rights to the new brands because it also sold Anheuser-Busch products; and claimed MillerCoors said it would have to create a new entity dedicated exclusively to MillerCoors to be considered for rights to distribute new MillerCoors products. The distributor sought a judgment saying MillerCoors could not make it a condition to getting other MillerCoors products, that the distributor not sell other brewers' products.

The Third Circuit affirmed a trial court decision that rejected the distributor's claim. The Third Circuit ruled that MillerCoors did not violate its contract or state law by having a selection process and exercising its contractual right to choose another distributor for its new brands. Though state beer distribution laws give protection to beer distributors, brewers can retain significant control over their brands through well-drafted contractual provisions.

See: Frank B. Fuhrer Wholesale Co. v. MillerCoors LLC.

 

FRANCHISEE 101:
Forum Selection Clause Valid Despite MN Franchise Act

A federal court in New Jersey upheld a franchise agreement's forum selection clause in favor of hotel franchisor Ramada Worldwide Inc. and denied a Minnesota hotel franchisee's motion to dismiss the complaint, or alternatively, transfer the case to Minnesota.

SB Hotel Management Inc. terminated its franchise agreement with Ramada for a hotel in Wisconsin. The franchise agreement had a clause saying any litigation would be in New Jersey. Ramada brought an action against SB in New Jersey federal court for breach of contract.

Ramada complained for outstanding fees and damages due to SB's early termination of the franchise agreement. SB argued that an addendum to the franchise agreement, which said that pursuant to the Minnesota Franchise Act nothing in the agreement could require SB to conduct litigation outside Minnesota, created a valid forum selection clause that required any litigation to be in Minnesota.

The Court rejected SB's interpretation. The Court found the agreement's forum selection provisions prohibited Ramada from requiring SB to waive its right to file suit in its home courts in Minnesota.

However, the court ruled, the Minnesota law and its regulations did not prevent a franchisor, like Ramada, from filing suit outside Minnesota, which is what Ramada did. The court also ruled the franchise agreement's forum selection clause was valid and that SB failed to show its witnesses would be unavailable or that litigation of the case in New Jersey would be so inconvenient as to deny SB its day in court.

The same facts could yield a different result in a different state, applying a different state's franchise laws. The case shows the importance of franchisees understanding forum selection clauses in their franchise agreements before signing or taking actions that might result in litigation.

 

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.

 

Wednesday
Mar252015

Forum Selection & Automatic Termination Clauses

Franchise 101

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

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

March 2015

 

Barry Kurtz & Bryan H. Clements' Article in Business Law News, a publication of the State Bar of California

 

"The fact that states generally require brewers to provide distributors with exclusive territories in which no competitors may distribute the brewer's beer demonstrates the degree to which beer distributors enjoy greater territorial protections than do franchisees..."

Click to read: Traditional Franchise and Beer Distribution Relationships: A Legal Comparison

 

Samuel C. Wolf Article in Valley Lawyer, a publication of the San Fernando Valley Bar Association

 

"Franchise lawsuits and most business litigation are usually economic in nature, and application of the economic loss rule will often narrow the scope of the claims and damages available as a remedy..."

Read: Using the Economic Loss Rule to Your Client's Benefit

 

FRANCHISOR 101:
Forum Selection Clause Held Enforceable

 

Sushi Restaurant FranchiseA federal court in Sacramento recently upheld a franchisor's forum selection clause and transferred an action brought by an area representative to the federal district court in the Western District of Texas.

HDYR operated a sushi restaurant in Austin, and sought to franchise the concept under the name How Do You Roll? HDYR entered into an area representative service agreement with the plaintiffs under which the plaintiffs were to solicit franchisees to purchase How Do You Roll? restaurants in Northern California.

The agreement contained a forum selection clause providing for exclusive venue for disputes in the state or federal district courts in Texas.

In the Ninth Circuit, a forum selection clause is generally considered unenforceable only if it was the result of fraud, undue influence, or overwhelming bargaining power; if the selected forum was so inconvenient that forcing the plaintiffs to litigate there would essentially deny them their day in court; or if enforcement would contravene a strong public policy in the forum where the suit was brought.  

The court found that the plaintiffs presented no evidence that would void the forum selection clause. The court was not persuaded by the area representative's argument premised on the California Franchise Relations Act's (CFRA's) strong public policy against enforcing out-of-state forum selection clauses in franchise agreements, because the area representative agreement was not a franchise agreement. The court found that the area representative was retained to recruit franchisees, but was not a franchisee itself and was not the type of party that the CFRA was designed to protect.

The HDYR ruling is encouraging for franchisors since it illustrates the value of including well-conceived and well-drafted forum selection clauses in area representative agreements.

See: Estep v. Yuen Yung.

 

FRANCHISEE 101:
Nice Try Mr. Franchisee

In Fantastic Sam's Salons, Corp. v. Moassesfar, a federal court in Los Angeles denied a motion by former franchisees to dismiss Fantastic Sam's claims for breach of contract and trademark infringement based on the contractual limitations period in the parties' franchise agreements.

Hair Salon Franchise

The franchisees were required to pay a weekly franchise fee so long as the franchisee used the franchisor's system or marks, whether authorized or not. The franchise agreement stated the agreements terminated automatically, without notice from the franchisor, if the franchisees' bank failed or refused to honor any authorized bank draft for the payment of any weekly fees for two consecutive weeks.

The franchisees' checks to the franchisor were dishonored, first in January 2011 and again in February 2012. However, the franchisees continued to operate both locations as Fantastic Sam's salons until October 2014, when a stipulation to terminate the franchise agreements was entered into in the franchisor's termination action filed in August 2014.

The Moassesfars argued that the agreement had automatically terminated when two consecutive payments were missed, thus barring the franchisor's claims. The court rejected this theory, noting that the automatic termination clause without notice was contrary to California law and that the requirement of notice and an opportunity to cure prior to termination was intended to protect franchisees against arbitrary terminations.

See: Fantastic Sam's Salon Corp. v. Moassesfar.

 

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.

 

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