- Front Page
- Biz Tools
The impact of the economic downturn can be seen in the turmoil that some franchise systems are facing. Lawsuits to enjoin post-termination covenants and use of the marks are in the upswing, as are disputes involving transfers.
Dunkin’ Donuts and Baskin-Robbins (affiliated sweet-treat stores) filed 4 complaints in the past few weeks against franchisees operating one or both of the franchise systems. It seems America might not really be running on Dunkin’ after all.
In Dunkin’ Donuts v. Shiv Enterprises, Inc. and Dunkin’ Donuts v. Panzar Boston Post, LLC., Dunkin’ Donuts and Baskin-Robbins Franchising terminated both Defendant’s Dunkin’ Donuts/Baskin-Robbins franchises after each failed to pay their respective royalties and other fees due. Despite the termination, both Defendants continued to operate their locations as Dunkin’ Donuts/Baskin-Robbins’ stores. Dunkin’ sued both Defendants in federal court in New York for breach of contract, under the Lanham Act for trademark infringement, unfair competition, and trade dress infringement, and for breach of personal guarantee. Dunkin’ seeks declaratory and injunctive relief, actual and punitive damages, and costs.
In similar case, Baskin-Robbins Franchising, LLC v. Allerton Delights, Inc., involves a franchisee who only operated Baskin-Robbins franchises. Baskin-Robbins terminated after this franchisee failed to pay royalties, advertising and other fees, and repeatedly failed to cure the defaults. The franchisee continued to operate the locations as Baskin-Robbins franchises. As a result, Baskin-Robbins sued for breach of contract and under the Lanham Act for trademark infringement, unfair competition, and trade dress infringement, seeking declaratory and injunctive relief, actual and punitive damages, and costs.
In the most recently filed action (Dunkin’ Donuts v. Tozanli Donuts, Inc.) the franchisor claims that a bad economy is not much of an excuse for the franchisee’s defaults. Tozanli violated its franchise agreements for its Dunkin’ Donuts/Baskin-Robbins locations by failing to pay its employees overtime wage rates, avoiding the payment of federal and state payroll taxes, failing to accurately report sales, failing to pay all fees due under the Agreement, failing to keep accurate books, and employing individuals not authorized to work in the United States. As a result, Dunkin’ terminated the Agreements, but Tozanli continued to operate the locations as Dunkin’ Donuts/Baskin-Robbins franchises. Dunkin’ sued for breach of contract and under the Lanham Act for trademark infringement, unfair competition, and trade dress infringement, seeking declaratory and injunctive relief, actual and punitive damages, and costs.
Hotels are continuing to experience economic hardship, resulting in more franchise agreement breaches, terminations, and suits.
In Wyndham Hotels and Resorts, LLC v. Rhonda & Son’s, Inc., Rhonda & Son’s failed to make certain conversions on the hotel location, to file monthly franchise reports, and to pay fees due in violation of the Franchise Agreement. Wyndham terminated the Agreement and Rhonda & Son’s continued to operate the location as a Wyndham Hotel. Wyndham sued for breach of contract, under the Lanham Act for trademark infringement and unfair competition, and for breach of personal guarantee, seeking declaratory and injunctive relief, damages, and costs.
Country Inns & Suites by Carlson, Inc. v. Parkinson, Inc. involves another hotel licensee affected by the financial tides. Country Inns & Suites terminated Parkinson’s hotel License Agreement after failure to pay fees due under the Agreement. Parkinson continued to operate the hotel as a Country Inns & Suites location. Country Inns sued for breach of contract, under the Lanham Act for trademark infringement, unfair competition, and trade dress infringement, seeking declaratory and injunctive relief, damages, and costs.
Not-so-squeaky-clean behavior in the cleaning service community.
In JCommSolutions, Inc. v. Vintage Cleaning Corp., JComm filed suit against another franchisee and their franchisor, ServiceMaster, for ServiceMaster’s preferential treatment of Vintage Cleaning. JComm alleged that Vintage Cleaning continually advertised within JComm’s territory, thus, taking its business. For this, JComm sued Vintage for tortious interference with business expectancy, common law unfair competition, violation of Maryland’s Anti-Trust Act, and violation of the Lanham Act for unfair competition, seeking declaratory and injunctive relief, restitution, punitive damages, and costs. JComm also alleged that ServiceMaster’s inaction on Vintage Cleaning’s territory intrusion showed preferential treatment for an older and more profitable franchisee. As a result, JComm sued ServiceMaster for violation of the Maryland Anti-Trust Act, fraudulent inducement, and breach of contract, seeking declaratory relief to be released from its franchise agreement, injunctive relief, restitution, and costs.
The Cleaning Authority, Inc. v. Smith involves a franchisee’s simultaneous operation of a Cleaning Authority franchise and a competing cleaning business. After discovering Smith operated the Commercial Green Clean Corp. from the same location and under the same phone number as her Cleaning Authority franchise, Cleaning Authority terminated her franchise agreement and sued for breach of contract, conversion of goodwill, tortious interference with business relations, tortious interference of contract, violation of Maryland Uniform Trade Secrets Act, civil conspiracy, and aiding and abetting, seeking declaratory and injunctive relief, damages, and costs.
In these hard times, some franchisees are choosing abandonment over withholding fee payments.
In Kahala Corp. v. William B. Holtzman et al., defendants unilaterally closed their respective Blimpie Subs and Salads locations in violation of their franchise agreements. Kahala filed an action for breach of contract, seeking actual damages and costs.
In Precision Franchising, LLC v. Siciliano, Precision Franchising (owned by Precision Tune Auto Care, Inc.) sued the operators of two Precision Tune Auto Care locations for breach of contract after they prematurely closed and abandoned the locations in violation of their Agreements. Precision seeks actual damages and costs.
Across the board, franchisors seem reluctant to authorize the assignment or transfer of franchises.
Hot Stuff Foods, LLC v. Cody Ventures, LLC., involves a Hot Stuff franchisee’s unilateral sale of all 15 of her franchise locations without the prior consent of Hot Stuff Foods. This breach led Hot Stuff Foods to terminate all 15 Franchise Agreements and to file suit for breach of contract and unjust enrichment, seeking declaratory relief, damages, and costs.
In Old Stage, Inc. v. Southside Oil, LLC, Old Stage sold one of its Southside-licensed gas stations to another company. During the negotiations, Southside refused to agree to any assignment unless Old Stage and the new owner would enter into new contracts which were more onerous than the terms of the original contract. When Old Stage refused to enter into new contracts, Southside began cutting off the supply of motor fuel to the location and eventually terminated the agreement. Old Stage sued Southside for violation of the Petroleum Marketing Practices Act, breach of contract, and breach of the implied covenant of good faith and fair dealing, seeking injunctive relief, actual and punitive damages, and costs.
With these trends coming to light, one has to wonder if the following two cases are warning flags of further litigation in the tax and eye care industries.
In JTH Tax, Inc. d/b/a Liberty Tax Service v. First Financial, Defendant breached its franchise agreement by filing an action against plaintiff in a state court other than the one specified for litigation in the agreement, conspiring with another former franchisee to operate a competing tax service in the franchise location, and by failing to pay fees due. As a result, Liberty Tax sued for breach of contract, seeking actual damages, injunctive relief, and costs.
In Luxottica Retail North America, Inc. v. Cas-Man, Inc., Luxottica (owner of Pearle Vision) terminated Cas-Man’s two Pearle Vision franchises for failure to pay royalty, advertising, and merchandise fees in violation of the franchise agreements. Cas-Man continuesd to operate both locations as Pearle Vision stores. Luxottica sued for breach of contract, under the Lanham Act for trademark infringement and false designations of origin, under common law for trademark infringement and unfair competition, breach of guaranty, and unjust enrichment, seeking injunctive relief, damages, and costs.