Like it or not, litigation comes to virtually all franchise systems. Take a moment to see how savvy you are on franchise litigation issues based on real-world cases.
1. A California hotel franchisee has repeatedly breached the franchise agreement and receives numerous cure notices. A final cure notice is sent out and the franchisee does not cure. The franchisor files suit, but then learns that it sent its final cure notice to the wrong address. Is the franchisor:
2. A franchisor advises its franchisees to make several changes to improve security at their locations, but does not follow up on the suggested changes. After the employee of a franchisee is assaulted, she sues the franchisor. Does she have a viable claim?
3. In 1999, a sub shop franchisor required its franchisees to purchase their supplies from a just-formed affiliated company. The affiliate was not mentioned in Item 8 of the disclosure document. Several Michigan franchisees brought suit under the Michigan Franchise Investment Law. Which franchisees had viable claims against the franchisor?
4. A California franchisee convinces the franchisor to knock $2,500 off the $20,000 franchise fee. The franchisor agrees but takes no further action after the transaction. Is the franchisor:
5. Suppose a franchisor starts off with five approved suppliers, but then decides to make itself the sole supplier to franchisees. Do the franchisees have tying claims?
6. A hotel franchisor is acquired by a larger hotel company. Soon after, the acquiring company's frequent guest reward program is adopted as a system-wide standard for all of the acquired franchisor's franchisees. The franchise agreement does not mention a frequent guest reward program. Was this lawful?
7. One hamburger chain ran a very successful promotional game that was rigged by a promoter. When a franchisee for a rival chain sues the competing chain for false advertising, can he collect damages?
8. A popular seafood restaurant in Oregon had been founded more than 50 years ago and had expanded to more than 6 locations, all in Oregon. Its website sold its famous chowder on a nationwide basis. Can it stop a newer Mexican franchise system in Atlanta from using its name?
9. The officers of a franchisor exchange instant messages calling a difficult franchisee a "jerk." Must these instant messages be produced in a subsequent lawsuit filed by the franchisee?
10. You learn that every time someone types your name into a search engine, the person is prompted to consider your biggest competitor. When you sue the search engine, do you:
1-3 right, you are an unlucky guesser, considering two questions had no wrong answer;
4-6 right makes you a franchise pro;
7-10 right makes you a franchise expert.
Jonathan Solish is a certified franchise specialist and a partner in Bryan Cave's Santa Monica, Calif., office. Bryan Cave's franchise group has five California Board Certified franchise specialists. Solish has been a trial lawyer for 35 years and handles cases all over the country on behalf of franchisors. He has published scores of articles, several chapters, and a book on franchise legal issues, including a chapter on franchise trials written with Michael Dady to be published later this year by the ABA. He will be speaking on litigation issues in franchising at the ABA Annual Legal Symposium in San Diego in October.
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