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NEW ORLEANS – Last week a district judge dismissed, for a second time, a lawsuit brought by Planet Beach against its former attorneys, Lane Fisher and Jeffrey Zucker of Fisher & Zucker.
The franchisor claims legal malpractice, violations of Pennsylvania’s professional code and breach of contract. The judge again stated that whatever the merits of the arguments might be, Louisiana federal court lacked jurisdiction over the Pennsylvania counsel and law firm.
The litigation is of interest to the franchise community on several levels. First, it focuses on lawyers investing in clients’ businesses. Second, the lawsuit addresses whether there is a conflict of interest in lawyers representing two similar brands. And lastly, it highlights the issue of whether attorneys, former or current, have a legal obligation to inform clients that they are investing and/or representing a competitor.
The American Bar Association Forum on Franchising chairman, Joseph Fittante, addressed this issue in an interview with Blue MauMau's editor Don Sniegowski. Chair Fittante was asked, “If I were a franchisee or franchisor and my lawyer had shares in a competitor's company so that he grew richer when my competitor became richer, I'd be concerned. What is your opinion about that?"
Fittante answered first that there could be ethical rules that apply to this type of activity, depending on the state bar. He said it isn’t unheard of. It’s a practice that’s been going on for some time. But he added that it was something he wouldn’t do. The ABA Forum chair declared, “I wouldn’t invest in a client because I need to be independent and if I invest in a client, where's my independence?”
Lane Fisher and Jeffrey Zucker of Fisher & Zucker vehemently denied the allegations of the lawsuit filed by Allen & Gooch in Lafayette filed in April. They argued that they had no conflict of interest in representing two tanning salon enterprises. They said they had no obligation to inform Planet Beach of their decision to do so. Zucker explained, “Planet Beach is asking . . . that the court issue an order that we cannot represent any competitor. That would be like asking some other law firm to only represent one car dealership or one restaurant chain.”
From the start, Fisher and Zucker asserted that the Louisiana court did not have personal jurisdiction over them as Pennsylvania residents. They contend that during the six-year period they served as the franchisor’s outside counsel, they did not have sufficient contacts in their state to determine jurisdiction. But the franchisor argued that Fisher and Zucker’s presence in the state was clear. They not only traveled to Louisiana to represent the company, they also regularly required mail, phone calls, emails and faxes to Louisiana, as well as billing and payments.
The prominent franchise attorneys represented Planet Beach from 2002 to 2007 or 2008 and collected approximately $500,000 in fees and costs. The dispute began when Planet Beach CEO Stephen P. Smith was attending a franchise exhibition show in 2007, and “surprisingly bumped into attorney Lane Fisher.” When Smith asked him why he was attending the sales event, Fisher explained that he and partner Jeffrey Zucker had acquired an ownership interest in Sunset Tan (five percent under FZ Investments LLC) and were representing the competing business.
Subsequent to that chance meeting, Smith said he contacted the attorneys on numerous occasions in an effort to determine whether there was an irreconcilable conflict of interest in their representing both tanning salons. The CEO also took issue with his attorneys not disclosing their duel representation. He reminded them that they had been privy to every aspect of Planet Beach’s confidential business.
Fisher and Zucker repeatedly explained through telephone calls and emails that no conflict existed. They felt they did not owe Planet Beach a fiduciary duty to disclosure ownership interest and representation of Sunset Tan, according to the lawsuit. They also alleged that competitor Sunset Tans was not a new company when they became counsel. It had a system in place before FisherZucker set up their franchise program.
Sunset Tan's website states it began to franchise in 2008. It was planning to open 500 locations nationwide in a five-year period. An advertisement touts: “Los Angeles is one of the first stops on its way to becoming America’s No. 1 tanning franchise.”
When Planet Beach terminated Fisher & Zucker as its legal counsel, another dispute erupted over legal fees owed for work previously rendered. When Planet Beach asked for a conference call to discuss the matter, Zucker responded by email stating: “There’s nothing to discuss. I just need to know when the invoice will be paid.” Getting no response, Zucker again replied, “Lane and I do not run Sunset Tan. We are not directors or officers. We merely own a minority interest in the company.” He said Smith had provided no facts that support Planet Beach’s “illusory theories.” Zucker continued, “As a result, your statements are slanderous as a matter of law, constitute trade disparagement, and are actionable.”
Planet Beach sought the disgorgement of all fees paid to Fisher & Zucker, roughly a half million dollars, punitive damages, a permanent injunction against the attorneys from performing any future legal services for Sunset Tan, and divestment of their ownership interest in the competing business.
The judge’s November 21, 2011 order rules against Planet Beach, stating that Louisiana court continues to lack personal jurisdiction over Fisher & Zucker. He asserted that the new complaint filed by Planet Beach after his first ruling, still does not explain how the attorneys’ conducting business in Louisiana is related to the franchisor’s claims. After the court ruled to dismiss the lawsuit, a court judgment was filed in favor of Fisher & Zucker attorneys.
Phone calls to Jonathan Andry and Michelle Purchner of Andry Law Firm, representing Planet Beach, were not returned, as was a call to Planet Beach Corp.
Lane Fisher and Jeffrey Zucker did not respond to requests for an interview.
Franchise Focus: Roman Lubynsky, Sunset Tan (Franchise Times)
|Planet BeachFinalOrderMottoDismiss.pdf||34.12 KB|
|Planet Beach Expert Report.pdf||691.57 KB|
|Planet Beach Complaint.pdf||1.18 MB|
|Plane tBeach Order.pdf||25.33 KB|
|Planet Beach FisherZucker Motion to Dismiss.pdf||922.36 KB|