Einbinder & Dunn, LLP, recently obtained an arbitration award on behalf of an area developer and franchisee of Island Ink-Jet located in New York City. The franchisee had acquired the right to obtain or develop 47 franchises. The arbitrator ruled it to be an earnings claim where the franchisor’s salesperson indicated that franchisees on average had revenues of over $200,000 per year.  Significantly, the arbitrator did not determine that the earnings claim was false but simply determined that the franchisor had violated New York law by providing such earnings information outside the UFOC. The award compensated the franchisee for her entire investment and attorney’s fees.

In a case in the Superior Court of New Jersey, E&D has gained judgment of behalf of a franchisee of a well-known aftermarket automobile repair franchise. The franchisee was provided with pre-sale earnings disclosures. The court ordered full restitution of all franchisee fees and the franchisee’s operating losses and attorneys’ fees for a total judgment of $630,000.

Michael Einbinder was named a Franchise Times Legal Eagle in April for the third consecutive year.

E&D successfully defended a national franchisor against a claim of encroachment based on the franchisor’s sales in the franchisee’s territory. The arbitrator adopted E&D’s interpretation of the franchise agreement as accurate: The agreement gave the franchisee the exclusive right to operate a retail business in the territory at issue, but not the exclusive right to all sales there. The arbitrator also held that the franchisee’s own breaches of the franchise agreement barred any recovery.

E&D recently effectuated the registration of several new franchise systems in New York. The firm is in the process of registering well-established food, pet care, and home services franchised companies nationally. After restructuring the franchise documents for one national franchisor, E&D registered the company in numerous individual states.

Einbinder & Dunn represented a franchisee in a very important case for franchisees, in which the Appellate Division, First Department of the Supreme Court of the State of New York in Emfore Corp. v. Blimpie Assoc., Ltd., (2007 NY Slip Op 10040), reversed the trial court’s order and allowed the plaintiff franchisee to proceed with its claims that the defendant franchisor had violated Sections 683 (disclosure requirements) and 687 (fraud) of the New York State Franchise Act by providing false and misleading earnings statements to the plaintiff. The appellate court ruled that under the Franchise Act there is no difference between contract clauses in the franchise agreement proper and separate questionnaires or other documents containing disclaimers or waivers that the franchisor requires the franchisee to sign, and therefore both are invalid under the Franchise Act.

Quiznos successfully defended a federal class action lawsuit against it brought by franchisees. Relying on the presence of “exhaustive disclosures” and specific merger/integration clauses in the franchise agreements, the United States District Court for the Eastern District of Wisconsin in Westerfield v. The Quiznos Franchise Company, LLC, CCH Bus. Franchise Guide ¶13,734 (E.D.WI Nov. 5, 2007) disallowed claims of fraudulent inducement and violation of the federal RICO statute premised on the alleged fraud. The court was not persuaded to ignore the merger/integration clauses on the basis that the franchise agreements were unconscionable and therefore unenforceable under Wisconsin law. Having dismissed the federal claims and the state claims “inextricably intertwined” with them, the court dismissed without prejudice the remaining state law claims for lack of jurisdiction.

In Radisson Hotels Int’l, Inc. v. Majestic Towers, Inc., 488 F.Supp.2d 953 (C.D.Cal. 2007), franchisor hotel chain demonstrated clearly that it was entitled to terminate the franchisee agreement at issue because of the franchisee’s repeated failure to pay royalties. The franchisee invoked the doctrine of PIP/Sealy to argue that, under California law, its failure to pay past due royalties, resulting in the franchisor’s termination of the parties’ agreement, could not be the proximate cause of the franchisor’s lost future profits, for which the franchisor had sued. The federal district court held that the franchisor had effectively worded the agreement to avoid the rule of PIP/Sealy, inasmuch as the agreement expressly made the franchisee “liable for [the franchisor]’s lost future profits resulting from [the franchisor]’s decision to terminate” based on the franchisee’s failure to pay overdue royalties. The court held that there was no rule preventing a party from indemnifying losses that might otherwise not be recoverable under a contract law theory.

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