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TAX FRANCHISOR COULD BE HELD LIABLE FOR ALLEGED SEXUAL HARASSMENT BY FRANCHISEE

Rebecca Myers, Plaintiff, v. Garfield & Johnson Enterprises, Inc. and Jackson Hewitt (January 14, 2010)

  

An employee of a Jackson Hewitt franchisee tax preparation business prevailed against Jackson Hewitt's motion to dismiss the employee's sexual harassment claim against Jackson Hewitt and the franchisee. The court found that Jackson Hewitt exercised sufficient control over the franchisee's employees to be a "joint employer" of the plaintiff for purposes of her alleged sexual harassment claim. The suit arose when one of the franchisee's employees wrote in a performance evaluation that the employee "should experience what Nicole Brown Simpson did." The plaintiff employee had included allegations suggesting that (1) the franchisor had the authority to promulgate work rules, (2) she was covered by the franchisor's sexual harassment and other workplace policies, (3) Jackson Hewitt had the authority to require the franchisee's managers to submit to training, (4) Jackson Hewitt's Code of Conduct required that franchisees terminate their employees in certain circumstances, (5) Jackson Hewitt participated in the daily supervision of the franchisee's employees by reviewing all tax returns prior to filing, by assisting employees with problems with tax returns and the computer system, by requiring that she undergo specific training.

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FITNESS CENTER FRANCHISEE NOT REQUIRED TO COMPLY WITH POST-TERM COVENANT-NOT-TO-COMPETE

Anytime Fitness Inc. v. Family Fitness of Royal, LLC (January 8, 2010)

A fitness center franchisor, Anytime Fitness Inc., would not be irreparably harmed by the denial of its motion for a temporary restraining order enforcing the terms of the noncompete covenant in its four franchise agreements with a franchisee that prohibited the franchisee from owning or operating any competing fitness center during the terms of the agreements. Anytime Fitness first argued that it would suffer irreparable harm due to unfair competition from the former franchisee. According to Anytime Fitness, the franchisee's other three franchise agreements would have provided him ongoing access to Anytime Fitness's proprietary information. Anytime Fitness argued that the franchisee "will be able to take advantage of information regarding its upcoming promotions and sales strategies ... to draw customers to [the franchisee's planned independent fitness center] and usurp new customers." The court disagreed, however, finding the that alleged harm "is speculative rather than certain and imminent." Further, the court found that because the franchisee owned the Anytime Fitness franchise nearest to the independent fitness center that the franchisee planned to operate, "if he [the franchisee] uses the proprietary information, he will primarily compete with his own business. Therefore, Anytime Fitness has not established irreparable harm through unfair competition."

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ICE CREAM FRANCHISEE'S CLAIMS AGAINST FRANCHISOR BARRED BY ONE-YEAR CONTRACTUAL STATUTE OF LIMITATIONS PERIOD IN FRANCHISE AGREEMENT


Scott Krumholz v. AJA, LLC and Emack & Bolio
(January 13, 2010)

All of the claims brought by the Emack & Bolio's ice cream franchisees against a franchisor were time-barred by the one-year contractual limitations clause in the parties' franchise agreement. The franchisees filed their complaint against the franchisor on December 24, 2007. The franchisees alleged that the franchisor had fraudulently induced them to invest significant financial resources in their franchise. The alleged misrepresentations occurred during a meeting between the parties on December 14, 2002. The franchise opened for business in May, 2003, and by the end of 2004 it was clear to the franchisees that the costs of construction, equipment, and inventory were significantly higher than the amounts quoted to them by the franchisor and that their earnings had fallen far short of the franchisor's projections. In light of those facts, it could not be reasonably contended that, at least by December 2006, after closing the store due to $800,000 in losses, the franchisee did not have notice of the alleged cause of the harm-the franchisor's alleged gross misrepresentations.
 

NEW OWNER OF FRANCHISE PERMITTED TO SELL FRANCHISES USING THE HOTEL'S TRADEMARK

Guesthouse International, LLC v. Shoney's North America Corp.  (March 14, 2010)

This case involved a licensing agreement for Shoney's service marks. One of the defendants was the owner of the service marks, which are used at both restaurants and motels. This original owner of the service marks sold the motel business along with the service marks, but it retained the restaurant business. After using the service marks for many years, the owner of the motel business decided to convert its motels from the service mark brand to another brand. Eventually, the owner of the motel business sold its motels to the plaintiff, and it included in the sale its rights under the service mark license agreement. Soon after that, the owner of the service marks sold its restaurant business and its service marks to the other defendant.  When the plaintiff motel business attempted to franchise new motels using the service mark name, the defendant new owner of the service marks objected and terminated the license agreement. The trial court concluded, inter alia, that the service mark license agreement assigned to the plaintiff was invalid for lack of consideration. On appeal, however, the court of appeals held that the license agreement was supported by consideration, that no valid basis existed on which to terminate the license agreement.

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Thanks for your interest in our Newsletter, and we look forward to answering any questions you might have either on the cases discussed in this issue of Franchise Trends, or on general trends in franchise law.
 
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Jeff Goldstein

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