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Franchise Law

David M. Duree has more than 40 years experience in handling Franchise cases. With offices in St. Louis, Mo. and O’Fallon, Ill., he also handles cases in numerous other states.

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Law updates about franchise agreements, franchise territory, franchise terminations, franchise encroachment, license agreements, franchise internet sales and other franchising issues. Franchise Attorney.

These materials are in reverse chronological order. New material is added at the top. Older material is inserted in the correct chronological spot. Overruled, modified and/or obsolete material is deleted, revised, consolidated and/or moved, when appropriate. Citations preceded by <>are linked to the complete court opinion. (NOTE: Some linked court sites are not always available). Franchisee Lawyer.

The FAA did not preempt a choice of law clause in franchise contracts. State, not Federal, law applied to the franchisees claims that the franchiser waived its right to compel arbitration. Waiver did not occur, however, when the franchiser used its real estate leasing company to file eviction suits against the franchisees, and the arbitration clauses were not void as illusory, or unconscionable, or against public policy, and were supported by consideration.<>Lela Bishop, et al. v. We Care Hair Development Corporation, et al. 316 Ill. App.3d 1182, 250 Ill.Dec. 394, 738 N.E.2d 610 (Ill. App. 9-29-2000)

A Franchisor was found liable for punitive damages for defrauding the landlord at one of its franchise sites. Attorneys fees were awarded the landlord under a clause in the lease, which entitled the prevailing party to recover its attorneys fees. The Franchisor appealed, contending the clause did not apply to claims for punitive damages because they were not relative to the claims under the lease. The Court of Appeals affirmed the award of attorneys fees and also awarded the landlord additional attorneys fees for defending the appeal, under the same lease clause. <>Jannotta v. Subway Sandwich Shops, Inc, et al., (Case No. 99-1975) (2000 WL 1222052) 225 F.3d 815 (7th Cir. 8-29-2000)

A pizza franchisor persuaded an existing California franchisee to open 4 new franchise pizza shops in North Dakota, representing, through its real estate manager, that existing nearby pizza shops licensed by the franchisor for operation in K-mart stores would not compete with the new franchise shops in free standing buildings. In the meantime the authority of the franchisor to sell franchises in North Dakota, under the North Dakota Franchise Act, had expired and the new franchises were thereby sold in violation of the act. Three of the new stores (the ones near existing pizza shops in K-mart stores) failed; the franchisor then terminated the 4 new agreements and sued the California franchisee, operating the franchises in North Dakota, in Michigan, the home state of the franchisor, pursuant to the forum selection clauses in the North Dakota franchise contracts. After a bench trial, the court granted the franchisee rescission and restitution for the violations of the North Dakota Franchise Act, after previously granting summary judgment to the franchisor on the franchisee’s fraud claims based on the representations that the K-mart pizza shops would not compete with the new free standing stores. Both sides appealed. The rescission and restitution rulings in favor of the franchisee were affirmed. The fraud claim summary judgment for the franchisor was reversed and remanded for a new trial. The Court of Appeals found that these statements could be found to be representations of economic fact and market conditions, and not mere opinion, by the trier of fact. <>Little Caesar Enterprises, Inc. v Oppco, LLC, 2000 WL 967907, ___ F.3d ___ (6th Cir. 7-14-2000)

The Western District of Missouri recently agreed with the dissent in<>Barker v. Golf U.S.A., Inc., 154 F. 3d 788 (8th Cir. 1998) and refused to dismiss a case based upon a forum selection clause in a franchise agreement. The case raised claims under the Missouri franchise act. The Court applied Missouri state law, holding that the Missouri Supreme Court would most likely apply the ruling of High Life Sales Co. v. Brown-Foreman Corp., 823 S.W. 2d 493 (Mo. banc 1992) to invalidate the forum selection agreement. Tri-state Foundation Repair & Waterproofing, Inc. v. Permacrete Systems, LTD., (No. 99-1132-CV-W-6) (2000 WL 245824) (W.D.Mo. 3-1-2000)

A Connecticut franchisee brought an action against the franchiser in Connecticut alleging breach of contract, unfair trade practices, violation of the Connecticut franchise act and the Connecticut Unfair Trade Practices Act. The franchise agreement contained a forum selection clause requiring all litigation in Pennsylvania, the home state of the franchiser. The franchiser moved to dismiss on the basis of the forum selection clause. The Connecticut Superior Court dismissed all claims except the Connecticut franchise law claims, finding that the anti-waiver section of the franchise law precluded enforcement of the forum selection clause, for those claims. Pepe v. GNC franchising, Inc., _____ A. 2d ______, 46 Conn. Supp. 296, 2000 WL 528383 (Conn. Super No. CV990424776S, 2-15-2000)

A franchiser could enforce its franchise contracts against its franchisees even though the contracts were executed in violation of New York franchise law, (General Business law, sections 680, 683) because the franchiser failed to register with the state before selling the franchises and failed to provide the franchisees with the required Uniform Franchise Offering Circulars. The franchisees had ceased performing the contracts, violated the covenants not to compete and signed similar contracts with a competing franchiser. The court rejected the reasoning of a New York federal court in a similar case. See King Computer v Beeper Plus (S.D.N.Y., 92 Civ 5494, unreported, Lexis 2707, 1993); <>TKO Fleet Enterprises, Inc v Elite Limousine Plus, Inc et al., (Item No. 97) 708 N.Y.S.2d 593 ,2000 WL 693973, (N.Y.Sup. 5-8-2000)

California Public Policy reflected in its franchise law precluded transfer of a California franchise dispute to the home state of the franchiser under a Forum Selection Clause in the Franchise Agreement. <>Jones v. GNC Franchising Inc., 211 F.3d 495 (9th Cir. 2000)

The Illinois Wine and Spirits Industry Fair Dealing Act of 1999, 815 ILCS 725/1 et. seq. makes it unlawful for a supplier of alcoholic beverages to cancel or substantionally alter any distribution arrangement, then existing, without good cause. A number of liquor suppliers decided to terminate existing distributorships before the Act became effective, to permit them to select new distributors without risking violation of the Act. The Illinois Liquor Control Commission issued orders directing the suppliers to resume or continue dealings with the distributors (once the Act became effective) under its authority to issue ex-parte interim orders to that effect. The suppliers brought suit in the federal court seeking an injunction against the liquor commission and the distributors who had been terminated, arguing that the Fair Dealing Act of 1999 was unconstitutional because it arguably violates the contract and commerce clauses of the constitution. The District Court issued a preliminary injunction against the commission barring enforcement of the Act until its constitutionality could be determined. The distributors, but not the commission, appealed. The Seventh Circuit dismissed the appeals, finding that only the liquor commission had standing to appeal the injunction against it. <>Kendall-Jackson Winery, LTD. v. Leonard L. Branson, Chairman of the Illinois Liquor Control Commission, et el.,(Case No. 00-1062) 212 F.3d 995 (7th Cir. 5-12-2000)

An African-American franchisee who was denied the opportunity to purchase additional franchises from the chain’s largest franchisee, who wished to sell, established a submissible claim for violation of his civil rights under 42 U.S.C. § 1981 (b), avoiding summary judgment. Section 1981 protects “the right to make and enforce contracts without regard to race” including the making, performance, modification and termination without cause, or with cause, of all contracts; and the enjoyment of all benefits, privileges, terms and conditions of the contractual relationship. Credo v. Zema Systems Corp., 944 F. Supp. 677 (N.D. Ill. 1996); Randle v. LaSalle Telecommunications, Inc., 876 F. 2d 563 (7th Cir. 1989); Friedel v. City of Madison, 832 F. 2d 965 (7th Cir. 1987); Yarbrough v. Tower Oldsmobile, Inc., 789 F. 2d 508 (7th Cir. 1986) Inc.;Home Repair , Inc. v. Paul W. Davis Systems,(unpublished), 2000 WL 126905 (No. 98 C 4074) (N.D.Ill., 2-1-2000)

A franchiser which provides nurses to healthcare facilities on a temporary basis entered into a franchise contract providing the franchisee with an exclusive territory. Florida law applied. The agreement provided that neither the franchiser, nor its parent or affiliated companies, would compete. Adia then acquired the franchiser, as a subsidiary, and also acquired another subsidiary which directly competed with the franchisee. A verdict of $2488,000 for the franchisee was set aside by the district court, which found that Adia neither induced nor otherwise caused an interference with the franchisee’s contract rights. Restatement (Second) of Torts, 766, and 766 comment h; 922 F.Supp. 558 (M.D.Fla. 1997). The 11th Circuit certified this unresolved question of Florida state law to the Florida Supreme Court; <>120 F.3d 1229 (11th Cir. 1997). The Florida Supreme court found that a claim for tortious interference with contract rights was established because Adia acquired the company that competed with the franchisee, with knowledge of franchise contract terms prohibiting the franchiser or its affiliates from competing; <>723 So.2d 182 (Fla.1998). The 11th Circuit then reversed the judgment for Adia and remanded to the district court to resolve its prior determination that the franchisees had used the wrong method of calculating damages by using a contract, instead of tort, theory. <>Gossard et al. v. Adia Services, Inc., 173 F.3d 825 (11th Cir. 1999)

A distributor of industrial automation equipment brought an action against the manufacturer for wrongful termination, in violation of the Illinois Franchise Disclosure Act, 815 ILCS 705/1 et seq. The claim was barred by the act’s one year statute of limitations, 815 ILCS 705/27. The one year began to run no later than the distributor’s consultation with his first attorney, who was apparently unaware of the act and did not believe the distributor had grounds to contest the termination. The action was filed immediately after the distributor contacted another attorney, but more one year after the written notice of termination. Brenkman v Belmont Marketing, Inc., 87 Ill.App.3d 1060, 43 Ill.Dec. 500, 410 N.E.2d 500 (Ill.App. 1980) distinguished; <>Pyramid Controls, Inc. v. Siemens Industrial Automation, Inc., (Case No. 98-3310) 172 F.3d 516 (7th Cir. 1999)

The contract between a michigan automobile dealership and an online service, which referred potential car buyers to the dealership, was not a franchise contract covered by the the Michigan Franchise Investment law, M.C.L. 445.1502(3). While the dealership paid a franchise fee, it did not offer goods or services under a marketing plan implemented by the online company, and it did not offer goods or services substantially associated with the online company’s service or trade marks. <>Jerome-Duncan,Inc. v. Auto-By-Tel., LLC, et al., 176 F.3d 904 (6th Cir. 1999)

Franchisor Franchisee Relations, State Franchise Law, State Franchise Acts, Franchise Royalty Law, Franchise Advertising Law, Franchise Advertising Agreements, Franchise Arbitration Agreements, No Compete Clauses, Franchise Restrictive Covenants, Restrictive Covenant Law.

A Rhode Island franchisee which filed suit against the franchiser in Rhode Island under Rhode Island franchise law, was required to arbitrate its claims under the Act in Chicago, pursuant to an arbitration clause in the franchise agreement. The Court held that the Federal Arbitration Act, 9 U.S.C. § 1 et seq., preempted any contrary provisions of the Rhode Island franchise Act. <>KKW Enterprises, Inc. v. Gloria Jean’s Gourmet Coffees Franchising Corp., 184 F. 3d 42 (1999).

A California franchisee was not required to arbitrate outside the state pursuant to choice of forum and law clauses and an arbitration clause in the franchise agreement, because of conflicts between the franchise agreement and the Uniform Franchise Offering circular, about whether the California Franchise Investment Law applied. <>Laxmi v. Golf U.S.A., 193 F. 3d 1095 (9th Cir. 1999).

The exclusive distributor of slot machines brought suit against the manufacturer pursuant to the New Jersey Franchise Practices Act, alleging that the manufacturer unlawfully terminated its franchise. The distributor/franchisee was granted a preliminary injunction against termination without cause on the grounds that the distributor was likely to prevail on the merits of the case and its claim that it was a franchisee under the Act. Atlantic City Coin & Slot Service Co. & MacSeelig v. IGT, 14 F.Supp.2d 644 (D.N.J. 1998); another case held that individual shareholders of a corporate franchisee were not entitled to protection under the New Jersey Franchise Act and that claims of the franchisees that the franchiser failed to meet its contractual obligation to provide training, guidance and support failed to state a claim under the New Jersey Act, N.J. Stat. § 56:10-1 et. seq., or that the franchiser had “constructively terminated” the agreement. Learning Express, Inc. v. Ray-Matt Enterprises, Inc., 74 F Supp. 2d 79 (D.Mass. 1999)

Franchisor Franchisee Relations, State Franchise Law, State Franchise Acts, Franchise Royalty Law, Franchise Advertising Law, Franchise Advertising Agreements, Franchise Arbitration Agreements, No Compete Clauses, Franchise Restrictive Covenants, Restrictive Covenant Law.

The arbitration clauses in franchise contracts were enforceable where the franchisees argued that the arrangement was unconscionable as permitting the franchisor to litigate its claims, while requiring the franchisees to arbitrate. The franchisees also argued that the arrangement in the lease, sublease cross-default clause, in combination with the Arbitration Clauses in the Franchise Agreements were void as against public policy. The Court disagreed. <>We Care Hair Development Corp. v. Eric Engen, et al., 180 F. 3d 838 (7th Cir. 1999)

A vendor of Point of Sales Systems to fast food (Subway) franchisees stated a cause of action against the franchiser, Doctor’s Associates, Inc., for an illegal tying arrangement, in violation of the Antitrust laws for the common law tort of tortious interference with a business expectancy and for violation of the Connecticut Unfair Trade Practices Act. Motion to Dismiss, for the most part, denied. Subsolutions, Inc. v. Doctor’s Associates, Inc., 62 F. Supp. 2d 616 (D. Conn. 1999)

An argentine citizen, who had been unsuccessful in his attempt to obtain a dry cleaning franchise, sued the franchiser for the return of the deposit. The District Court granted summary judgment for the plaintiff. The franchiser appealed. The judgment was reversed because the Federal Trade Commission (FTC) franchise rules do not apply extraterritorially. The $50,000.00 deposit had been paid for the possibility of opening dry cleaning franchises in Argentina. The prospective franchisee had been unable to raise the required capital during the 60 days provided, following which the franchiser retained the non-refundable deposit. The franchisee claimed violations of the Florida Deceptive and Unfair Trade Practices Act, Fla. Stat. §§ 501.201 to 501.211 and violations of the Federal Trade Commission Franchising Rules, 16 CFR § 436.1. The franchiser successfully defended on the grounds that the Florida Statute and the FTC Rules do not apply to a transaction which took place in Argentina. <>Nieman v. Dryclean U.S.A. Franchise Co., Inc., 178 F. 3d 1126 (11th Cir. 1999)

Shoneys’ franchise (license) contracts impose an obligation on the franchisee to maintain Shoneys’ previous high standards for food quality, operations, cleanliness and service, but do not impose the same obligation on the franchisor for its company owned stores and do not require the franchisor to enforce the same standards on the other franchisees in the system. Shoneys previously determined that it was in a mature market, decided to expand very slowly while reducing operations, and paid its $300,000,000 in capital and an additional $379,000,000 in borrowed funds to its shareholders as dividends. When sales subsequently declined nationwide for both franchise and company owned stores, Jim Morris’ six Kentucky and llinois franchise stores also became unprofitable. He closed all six stores but refused to sign Shoney’s termination agreements, which include releases of all claims against Shoney’s. Shoney’s sued for future royalties under the six 20-year franchise agreements. The Court held that the future royalties clauses were not unconscionable or unenforceable and that Shoney’s did not owe its franchisees a contractual duty to maintain the System’s previous high standards for food quality, operations, service and cleanliness. Summary Judgment was entered for the franchisor on all issues, while applying Tennessee law under a clause in the franchise contracts. Shoney’s, Inc. v. Jim Morris, 100 F.Supp.2d 769 (D.C.M.D. Tenn. 2-9-1999)

A distributor qualified as a franchisee under the Illinois Franchise Disclosure Act, 815 ILCS § 705/1 et seq. by paying an indirect franchise fee of more than $500.00 over a period of time, where its business was substantially associated with the franchiser’s trademark and the distributorship agreement gave the distributor the right to conduct its business under a marketing plan prescribed or suggested in substantial part by the manufacturer/franchiser. The Illinois Franchise Disclosure Act precludes termination without cause, by the franchiser. A choice of law clause in the distributorship/franchise contract is void to the extent that it attempts to preclude application of the Illinois Franchise Disclosure Act to a franchise operated in Illinois. <>To-Am Equipment Co. v. Mitsubishi Caterpillar Forklift America Inc.,(Case No. 97-1395) 152 F. 3d 658 (7th Cir. 1998)

A Missouri franchisee was required to arbitrate in Oklahoma under Oklahoma law notwithstanding his contention that the choice of law and choice of forum clauses in the franchise agreement were void under Missouri public policy, as evidenced by the Missouri Franchise Act. <>Barker v. Golf U.S.A., Inc., 154 F. 3d 788 (8th Cir. 1998).

Suppliers, manufacturers and franchisers may set price ceilings for the resale of their products by their dealers, distributors and franchisees without risking a “per se” ruling that they have violated the Antitrust Laws. The “per se” violation rule has been replaced with the “Rule of Reason” Standard, providing the trial and federal circuit appellate courts with far more discretion in determining if the Antitrust Laws have been violated by price ceilings. <>State Oil Co. v. Kahn, 522 U.S. 3 (1997); <>Addamax Corp. v. Open Software Foundation, Inc., 152 F. 3d 48 (1st Cir. 1998)

New York held that a franchise agreement created not only a franchise but also an employer-employee relationship between the franchiser and the franchisee as a result of the control the franchiser exercised over the franchisee, under the terms of the agreement. Claim of Glenroy M. Francis, 668 N.Y.S. 2d 55 (N.Y. 1998).

Equitable principles require that an eviction action filed against a franchisee, sublessee be stayed where the franchisor, affiliated with the eviction plaintiff, lessee, had obtained a Federal Injunction barring the franchisee, sublessee from raising otherwise available defenses to the eviction action. <>Subway Restaurants, Inc. et al. v. Riggs, 297 Ill. App. 3d 284, 696 N.E. 2d 733, 231 Ill. Dec. 437 (1998)

Choice of forum and choice of law clauses in New Jersey franchise agreements, requiring New Jersey franchisees to litigate claims under the New Jersey Franchise Act outside the state of New Jersey ,are void and unenforceable as against public policy. Instructional Systems, Inc. v. Computer Curriculum Corp., 614 A. 2d 124 (N.J. 1992); <>Kubis & Perszyk Associates, Inc. v. Sun Microsystems, Inc., 680 A. 2d 618 (N.J. 1996); another case held that a New Jersey franchisee was required to arbitrate its claims under the New Jersey Franchise Act in Connecticut. <>Doctor’s Associates, Inc. v. Hamilton, 150 F. 3d 157 (2nd Cir. 1998)

Franchise and distributor agreements have sometimes been held to contain implied covenants fair dealing, which preclude the franchiser/supplier from placing a second franchise or distributorship near an existing one. Generally, an implied covenant of fair dealing, under good faith law, may not defeat a specific, express, written term. The cases finding, and failing to find, implied covenants of fair dealing, under good faith law, vary widely. Scheck v. Burger King Corp., 756 F. Supp. 543 (S.D. Fla. 1991). But see <>Burger King v. Weaver, 169 F. 3d 1310 (11th Cir. 1999); Cook v. Little Caesar Enterprises, Inc., 972 F. Supp. 400 (E.D. Mich. 1997); Payne v. McDonald’s Corp., 957 F. Supp. 749 (D. Md. 1997); Clark v. America’s Favorite Chicken Co., 916 F. Supp. 586 (E.D. La. 1996); <>Camp Creek Hospitality Inns, Inc. v. Sheraton Franchise Corp., 139 F. 3d 1396 (11th Cir. 1998)

The loss of goodwill in the context of trademark law is the loss of goodwill for the trademark, not the loss of goodwill for a specific restaurant. As a result, a terminated “Roy Rogers” franchisee could not continue to use the trademark, after termination without cause, notwithstanding its contention that the owners of the trademark mismanaged the operation, resulting in a significant reduction in the number of operating franchisees and resulting loss of goodwill and damage to the trademark. The District Court found that the harm to the franchisee from granting the injunction, would outweigh the harm to the trademark owners from not granting it. The Court of Appeals reversed, finding the District abused its discretion. A preliminary injunction was entered by the Court of Appeals. <>Pappan Enterprises, Inc. v. Hardee’s Food Systems, Inc. et el., 143 F. 3d 800 (3rd Cir. 1998)

In Illinois, a franchise agreement which does not grant the franchisee an exclusive territory, but expressly provides that it is not exclusive, does not contain an implied covenant of fair dealing, under good faith law. The franchiser is not precluded from placing a new franchised restaurant near the franchisee’s location. The express terms of the franchise agreement preclude a contrary implied term. Joseph Nibeel, Jr. and J.C. Mac, Inc. v. McDonald’s Corp., (unreported), 1998 WL 547286, (No. 97 C 7203) (N.D. Ill. 8-27-98)

A judgment for legal malpractice by attorneys for failing to register a franchise business under the Connecticut Business Opportunity Investment Act, CGS § 36-503 et. seq. was reversed because the plaintiff franchiser failed to sufficiently prove damages and because the Connecticut Unfair Trade Practices Act, CGS § 42-110a et. seq. does not apply to claims of professional malpractice. Beverly Hills Concepts, Inc. v. Schatz & Schatz, Ribocoff & Kotkin, 717 A. 2d 724 (Conn. 1998)

A landlord was permitted to recover under fraud theories where a franchisor employed an assetless alter ego to enter into a lease with the landlord and a corresponding sublease with its franchisees. A submissible claim for punitive damages was also established. <>Jannotta v. Subway Sandwich Shops, Inc., et al.,(Case No. 96-1620) 125 F. 3d 503 (7th Cir. 1997)

A chapter 11 Bankruptcy debtor-Franchisee may assume or reject nonterminated franchise agreements. The debtor-franchisee is not required to cure nonmonetary breaches (the failure to operate for 7 consecutive days) prior to assumption. 11 U.S.C. 365(b)(2)(D). In Re Claremont Acquisition Corporation, 186 B.R. 977 (C.D. Cal. 9-7-1995). When the Bankruptcy petition is filed after notice of termination by the franchisor but before the cure period provided in the franchise agreement, the franchisee may cure monetary breaches at any time before assumption is required, under 11 U.S.C. 365, and is not limited by the contract limits on the time to cure, Moody v. Amoco Oil Co. 734 F.2d 1200 (Case No. 83-2457) (7th Cir. 1984), or the 60 day limit in 11 U.S.C. 108(b). The Bankruptcy Court, however, does have equitable power to extend the time for cure and assumption beyond that permitted in 11 U.S.C. 365. <>In Re Ludlow Hospital Society, Inc v. Secretary of Health and human Services, 124 F.3d 22 (1st Cir. 8-13-1997)

Franchisees’ claims for damages of less than $75,000.00 apiece in state court did not deprive the Federal Court of Subject Matter Diversity Jurisdiction in federal actions by the franchisor to compel arbitration where the franchisor alleged in Federal Court that the amount in dispute was more than $75,000.00 for each franchisee. <>The Barbers, Hairstyling for Men & Women, Inc. v. Bishop, et al., (Case No. 97-2360) 132 F. 3d 1203 (7th Cir. 1997)

A franchiser violated the franchise agreement’s implied covenant of fair dealing, under good faith law, by placing competing franchise stores within 1.4 miles of the store operated by the plaintiff-franchisee. <>Vylene Enterprises, Inc. v. Naugles, Inc., 90 F. 3d 1472 (9th Cir. 1996).

A franchiser may be held liable for violations of the Illinois Dramshop Act committed on the premises of its franchisee. The Act imposes liability upon any person owning, renting, leasing or permitting premises to be used for the sale of alcohol. Jackson v. Moreno, 278 Ill. App. 3d 503, 215 Ill. Dec. 277, 663 N.E. 2d 27 (Ill. App. 1996).

A future royalties clause requiring a franchisee to pay royalties in the future, after it ceases operation, until the end of the term of the franchise agreement, is void and unenforceable as unreasonable, unconscionable and oppressive. <>Postal Instant Press, Inc. v. Sealy, 43 Cal. App. 4th 1704, 51 Cal. Rptr. 2d 365 (Cal. App. 1996).

A Michigan Franchise Statute, M.C.L.A. § 445.1527 (f), precludes enforcement of a pre-dispute franchise agreement clause requiring arbitration or litigation outside the state of Michigan for Michigan franchises. This does not preclude the franchisee from entering into a post-dispute agreement to arbitrate or litigate outside the state of Michigan. Hambell v. Alphagraphics Franchising, Inc., 779 F. Supp. 910 (E.D. Mich. 1991). The contrary conclusion was reached, however, by the U.S. District Court in Arizona. Alphagraphics Franchising Inc. v. Whaler Graphics, Inc., 840 F. Supp. 708 (D. Ariz. 1993); See also <>Webb v. Investacorp, Inc., 89 F. 3d 252 (5th Cir. 1996)

A hotel franchisee recovered from the franchiser for fraud and violation of the Minnesota Franchise Act. The jury was properly instructed to disregard to “anti-fraud” disclaimer in the franchise agreement for allegations of fraud which were not expressly disclaimed in the agreement. Under Minnesota law, the fraud damages were calculated under the minority “out-of-pocket loss” rule instead of the more expansive “benefit-of-the-bargain” rule. The previous appeal reversed the District Court’s summary judgment for the defendant. Commercial Property Investments, Inc. v. Quality Inns International, Inc., 938 F. 2d 870 (8th Cir. 1991); Commercial Property Investments, Inc. v. Quality Inns International, Inc., 61 F. 3d 639 (8th Cir. 1995).

A choice of law clause in a sales representative contract was void as against public policy under the Illinois Sales Representatives Act, 820 ILCS § 120/0.01 et seq., because the protection of the Sales Representatives Act constitutes a fundamental public policy in Illinois. Maher & Associates, Inc. v. Quality Cabinets, 267 Ill. App. 3d 69, 203 Ill. Dec. 850, 640 N.E. 2d 1000 (Ill. App. 1994).

It was not unconstitutional, as a violation of the commerce clause of the United States Constitution, to apply the New Jersey franchise statute to a New Jersey franchisee whose office was located in New Jersey but whose territory included New York and New Jersey. The New Jersey statute was held to apply to New York activities as well as New Jersey activities. <>Instructional Systems, Inc. v. Computer Curriculum Corp., 35 F. 3d 813 (3rd Cir. 1994).

An arbitration clause which requires arbitration of claims under the Federal Petroleum Marketing Practices Act, 15 U.S.C. § 2801-2806, is not enforceable where the arbitration clause eliminates some of the rights and protections provided to the franchisee under the statute, then requires arbitration. The arbitration clause was severable from the balance of the contract and was held void and unenforceable. <>Graham Oil Co. v. Arco Products Co., 43 F. 3d 1244 (9th Cir. 1994)

A franchiser was held to have sufficient nexus with the state of South Carolina, merely by licensing the use of its trademark within the state, to be subjected to state income taxes for the royalty income earned within the state. Geoffrey, Inc. v. South Carolina Tax Commission, 437 S.E. 2d 13 (S. C. 1993).

The Illinois Consumer Fraud Act requires reasonable reliance by the plaintiff on the alleged misstatements of fact. Where a franchise agreement specifically stated that the plaintiff-franchisee had not relied on, or received any guaranties about revenues or profits or prospects for success and that the franchisee had conducted an independent investigation, the franchisee could not claim reasonable reliance on any alleged oral misrepresentations. 815 ILCS § 501/1; Elipas Enterprises, Inc. v. Robert Silerstein, 243 Ill. App. 3d 230, 183 Ill. Dec. 752, 612 N.E. 2d 9 (Ill. App. 1993)

A choice of forum clause in a Missouri franchise agreement, requiring a Missouri franchisee to litigate outside the state, is void and unenforceable as against the public policy of Missouri. High Life Sales Co. v. Brown-Forman Corp., 823 S.W. 2d 493 (Mo. banc 1992).

A franchiser which failed to register with the Illinois Attorney General, as required by the Illinois Franchise Disclosure Act, could not enforce an arbitration clause requiring an Illinois franchisee to arbitrate outside the state; 815 ILCS § 705/1 et seq. Barter Exchange, Inc. of Chicago v. Barter Exchange, Inc., 238 Ill. App. 3d 187, 179 Ill. Dec. 354, 606 N.E. 2d 186 (Ill. App. 1992)

Even though the franchisee would suffer a loss of goodwill, which it developed locally, the Court enforced the restrictive covenant not to compete, following termination without cause, under the franchise agreement. Novus Franchising, Inc. v. Taylor, 795 F. Supp. 122 (M.D.Pa. 1992)

A franchiser waived its right to compel arbitration by filing eviction lawsuits against its franchisee, sublessee to resolve related disputes. The eviction lawsuits were filed by the alter ego or agent leasing company of the franchisor. Yates v. Doctor’s Associates, Inc., 193 Ill. App. 3d 431, 549 N.E. 2d 1010, 140 Ill. Dec. 359 (1990)

The choice of law clause in an Indiana franchise contract was held unenforceable, as against public policy, because it conflicted with the Indiana Franchise Disclosure Law. Wright-Moore Corp. v. Rico Corp., 908 F. 2d 128, 136 (7th Cir. 1990).

Franchisees were held in contempt for violating an injunction issued for violating the franchiser’s trademark rights by continuing to use the trademark after termination without cause, by the franchiser. Howard Johnson Co., Inc. v. Khimami, 892 F. 2d 1512 (11th Cir. 1990)

The Pillsbury Company purchased the Hagen-Dazs franchise operation. The franchisees brought suit against the Pillsbury Company and others claiming fraud and breach of the implied contractual duty of fair dealing, under good faith law. The court granted summary judgment for the defendants, finding that the purchaser of the franchise chain could not be held liable for the alleged fraud of the franchiser, that the franchiser’s officers could not be held liable for the alleged fraudulent conduct of the franchiser’s agents, that express disclaimers in the Uniform Franchise Offering Circular made the franchisees reliance on the franchiser’s alleged misrepresentations unreasonable and that even if the franchiser greatly increased sales of prepacked ice cream (bypassing the franchisees) to supermarkets and convenience stores, such increased sales did not establish breach of the implied duty of fair dealing, under good faith law. Massachusetts law applied under a choice of law clause. Rosenberg v. The Pillsbury Co., et el., 718 F. Supp. 1146 (S.D.N.Y. 1989)

Where the franchiser regularly inspected the premises of a franchisee for safety violations, an issue of fact for the jury was established as to whether the franchisee was the agent of the franchiser, thereby subjecting the franchiser to liability for an injury claim advanced by a paying guest of the franchisee. Greil v. TraveLodge Int’l. Inc., 186 Ill. App. 3d 1061, 133 Ill. Dec. 850, 541 N.E. 2d 1288, 2 A.L.R. 5th 1064 (Ill. App. 1989).

Only the parties to a Franchise Contract, containing an arbitration clause, may compel arbitration or be compelled to arbitrate. Officers and directors of a corporate party may not be compelled to arbitrate and may not compel arbitration. Vukusich v. Comprehensive Accounting Corp., 150 Ill App. 3d 634, 501 N.E. 2d 1332, 103 Ill. Dec. 794 (1986)

A franchiser which promised to lease a building from the plaintiff for use as a McDonald’s Restaurant, was liable to the plaintiff under the Doctrine of Promissory Estoppel where the plaintiff relied upon the promise to purchase the building. The franchiser’s agent had apparent authority to make the promise on behalf of McDonald’s. Mahoney v. Delaware McDonald Corp., 770 F. 2d 123 (8th Cir. 1985)

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