Defense of System-wide Franchise Claims and Class Actions

Franchisors and manufacturers recognize there are certain cases in which the stakes to the respective parties are higher than normal. Sometimes, it is purely the amount of money at stake in multi-party cases that leaves the franchisor or supplier unable or unwilling to lose. In other situations, it is that the issues involved in the case are so fundamental to the manner in which the franchisor chooses to operate the system that an adverse ruling would destroy its way of doing business.

Whether the basis for class actions or other cases brought by groups of franchisees, dealers, or consumers involves antitrust, challenges to franchisor system supply policies and programs, misuse of advertising funds, or other fundamental issues, these often qualify as “bet-the-business” litigation. When a loss by a franchisor would dramatically undermine it financially or in its control of the system, the franchise itself indeed is at risk. The same holds true in distribution systems when cases are brought by groups of dealers or wholesale distributors. Although many issues that arise in the franchise and distribution contexts are common ones, multi-plaintiff cases and especially class actions are unique and, when they occur, these cases rattle the financial security, integrity, reputation, and foundation of any franchise or distribution system. It is those issues that, if not confronted and handled properly, threaten an entire system’s survival.

Experience

Representative Matters

  • Spal, et al. v. Verlo Mattress Factory Stores, LLC (AAA Arbitration, Madison, WI, 2007) (Defended franchisor against challenges to product supply and franchising practices; group of franchisees’ attempt to consolidate actions in arbitration was denied pursuant to contract prohibition against class actions and consolidated cases; individual franchisee’s motion for injunction to prevent non-renewal later denied.)
     
  • Richard Wilcox, et al v. Pirtek USA, LLC, Bus. Fran. Guide ¶ 13,368 (AAA Arbitration, Orlando, FL 2006) (Franchisor defeated claims by 13 franchisees who alleged breach of their franchise agreements by failing to charge reasonable prices for products sold by the franchisees; in response to the arbitration demand, franchisor asserted counterclaims against six of the franchisees, contending that they owed past-due fees and seeking injunctions to enforce the applicable non-compete provisions of the franchise agreements; arbitration panel denied franchisees' claims in their entirety, enforced the applicable non-compete provisions of the franchise agreements, awarded franchisor its costs and attorneys' fees.)
     
  • Brock v. Baskin-Robbins, USA Co., 155 Fed. Appx. 792 (E.D. Tex. 2004 and 5th Cir.) (Franchisor prevailed against claims by over 40 franchisees operating in several states alleging that client improperly non-renewed their franchise agreements, withheld material information, made promises that induced them to enter into franchise agreements, and misappropriated advertising fund monies; franchisees sought rescission and damages, and sought to be certified as a class; court denied class certification and granted summary judgment for franchisor on virtually all claims and parties; remainder of the parties received a bench trial, after which franchisor prevailed on all counts; Fifth Circuit upheld the trial court’s rulings.)
     
  • Manoochehr Fallah Moghaddam v. Dunkin’ Donuts Incorporated, 322 F. Supp. 2d 44 (D. Mass. 2004) (Class certification denied and summary judgment granted on claims that franchisor had retained for itself advertising monies that it had collected in its investigations of franchisees’ underreporting of sales, that such monies belonged to the franchisees, and that the franchisor’s actions were in breach of the franchise agreement.)
     
  • Zahava Group, Inc. v. Togo’s Eateries, Inc. (Superior Court, San Diego County, California 2003) (Class certification defeated twice and summary judgment granted in claims by group of more than 20 franchisees alleging that franchisor had improperly retained rebates from suppliers in violation of the UFOCs and franchise agreements, and had offered prices for products to east coast franchisees at discounts, to the detriment of west coast franchisees; franchisees had brought tying, group boycott, price fixing, conversion, unfair business practices, breach of contract, and RICO claims.)
     
  • Collins, et al. v. International Dairy Queen, Inc. and American Dairy Queen Corp., 2 F. Supp. 2d 1473, 54 F. Supp. 2d 1351, 59 F. Supp. 2d 1305 (N.D. Ga. 1994-2000) (Defended restaurant franchisor against class-action tying, monopolization, franchise contract, and fiduciary duty claims relating to supply and advertising issues; represented the franchisor in subsequent follow-on arbitrations 2003-2008, ultimately achieving a complete victory.)

We also have significant class action experience on behalf of manufacturers in the product distribution context, including:

  • In re Vitamins Antitrust Litigation (Minn.) (Represented defendant in multiple class actions brought in state and federal court alleging international price-fixing conspiracy.)
     
  • In re Clozaril Antitrust Litigation (N.D. Ill; S.D.N.Y.; J.P.M.L.; FTC) (Represented defendant in unreasonable restraint and monopolization claims brought by two nationwide classes, attorneys general of 34 states, and separate action by Federal Trade Commission.)
     
  • In re Drug Pricing Litigation (Minn.)  (Represented defendant in three class actions brought in state court against antitrust challenges to pricing practices in the pharmaceuticals industry.)