If you are dissatisfied with your franchise purchase, you are not alone. While some franchisees are able to find success, many franchises fail—and a significant percentage do so within the first two years of ownership. In this scenario, what options do you have available? Can you rescind your franchise agreement? New York franchise attorney Jeffrey M. Goldstein explains.

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Entrepreneur.com recently released its 2024 Top New & Emerging Franchises Ranking. As the online publication explains, this is its list of the “top companies that have been franchising for five years or less.” If you are thinking about buying a franchise, should you consider an “emerging” brand? National franchise attorney Jeffrey M. Goldstein shares his thoughts.

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Little Caesar Enterprises, Inc. v. S&S Pizza Enterprises, Inc., 2024 U.S. Dist. LEXIS 89645 (E.D. Mich. May 17, 2024) Prior ruling challenged by the Franchisee Defendants: In the original Judgment, the Court: granted Plaintiffs’ request for declaratory relief that S & S committed material breaches of the franchise agreements between the parties, giving Plaintiffs good cause to terminate the agreements; ordered Defendants and anyone acting in active concert or participation with them to immediately and fully comply with the post-termination obligations in the franchise agreements; entered Judgment in favor of Plaintiffs and against Defendants S & S, Claeys, and Matthews, jointly and severally, in the amount of $128,818.56, plus interest, representing the liquidated damages due under the franchise agreements. After the ruling against them, the Franchisee Defendants challenged the initial ruling arguing the following: Defendants, through counsel, now seek to alter or amend the judgment pursuant to Federal Rule of Civil Procedure 59(e) or request relief from judgment pursuant to Federal Rule of Civil Procedure 60(b)(1) or (2). (ECF No. 37.) In support of their motion, Defendants assert that Claeys and Matthews discovered previously misplaced documents during the past several weeks suggesting that Matthews was released and discharged from any obligation as a personal guarantor. Defendants attach these three documents to their motion: two franchise agreements and a document terminating a franchise located in Troy, Michigan. (ECF Nos. 37-2, 37-3, and 37-4.) They attach no evidence, however, supporting their assertion that these documents were only recently discovered. Defendants further state […]

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LeTip World Franchise LLC v. Long Island Soc. Media Grp. LLC, 2024 U.S. Dist. LEXIS 53489 (D.Ariz., March 26, 2024), involved a legal dispute where LeTip World Franchise LLC (LeTip) accused Long Island Social Media Group LLC and others (LISMG) of violating terms of a franchise agreement. The agreement allowed LISMG to operate a LeTip business and use its trademarks in a designated area of Suffolk County, New York, subject to certain operational standards, advertising approvals, and restrictions on the use of LeTip Marks. Key points from the summary include: Alleged Contract Breaches:The defendants are accused of operational failures, improper use of intellectual property, violating advertising approvals, and running a competing business post-termination, contradicting the non-compete clause. Preliminary Injunction:LeTip’s motion for a preliminary injunction was granted, restraining the defendants from conducting competing business activities in Suffolk County, in order to prevent loss of business and damage to goodwill pending the trial’s outcome. Legal Considerations:The summary highlights the court’s consideration of legal standards for a preliminary injunction, with emphasis on the four elements like the likelihood of success, irreparable harm, balance of hardships, and public interest. Defendants’ Counterarguments:The defendants contended that LeTip first breached the agreement by transferring members out of their chapter and that they had permission to modify the LeTip logo. The court, however, found these arguments unconvincing due to inadequate evidence or misinterpretation of permissions involved. Enforceability of Contractual Provisions:The court examined the reasonability and enforceability of post-termination restrictive covenants related to time and geographic limitations, ultimately siding […]

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When you buy a franchise, you are paying for three main things: (i) the right to rely on the franchisor’s experience and expertise, (ii) the right to use the franchisor’s system, and (iii) the right to use the franchisor’s trademark. So, what if the franchisor’s trademark isn’t registered? While unregistered trademarks still have value, their value is limited—and this is a factor that is worth considering during the franchise buying process. National franchise lawyer Jeffrey M. Goldstein explains.

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In the intricate legal dispute involving Pizza Hut LLC v. Pandya, 79 F.4th 535 (5th Cir. 2023), the United States Court of Appeals for the Fifth Circuit delved deeply into the nuances of contractual obligations and the right to a jury trial as enshrined in the Seventh Amendment. Pandya, a major franchisee of Pizza Hut, operated 43 restaurants in Pennsylvania and one in Connecticut. However, due to Pandya’s failure to fulfill contractual obligations, Pizza Hut terminated Pandya’s franchise agreements. To manage the transition and find new buyers, Pizza Hut and Pandya entered into two post-termination agreements, the latter of which, the Transfer Agreement, led to the litigation in question. The Transfer Agreement allowed Pandya to continue operating certain restaurants under strict conditions while actively seeking a buyer. The agreement’s terms were meticulously discussed over several weeks, with Pandya agreeing to various operational conditions in exchange for Pizza Hut’s assistance in finding a buyer and a potential financial benefit from the sale. A critical aspect of the Transfer Agreement was the last paragraph, a clause explicitly waiving the right to a jury trial in any litigation arising from the agreement. When disputes arose again, leading Pizza Hut to terminate the agreement and sue Pandya for breach of contract, Pandya counterclaimed, alleging Pizza Hut breached the Transfer Agreement and brought additional tort claims including fraud, breach of fiduciary duty, and tortious interference. Pandya demanded a jury trial, and Pizza Hut moved to strike this demand, citing the waiver clause in the Transfer Agreement. The […]

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In BMW of N. Am., LLC v. MacLean, the Court of Appeals of Ohio addressed the standard for good cause in determining whether a franchisor should deny a franchise transfer. BMW of N.Am., LLC v. MacLean, 2021-Ohio-2388 (Ohio Ct. App. July 13, 2021). Kirtlund Frye wanted to transfer his BMW dealership to the dealership’s general manager, Colin MacLean (Plaintiff). However, BMW denied the transfer. In response, MacLean and Frye filed a protest with the Ohio Motor Vehicle Dealer’s Board, which evaluated the protest under the statutory requirement that a franchisor shall not deny a franchise transfer if the Board determined that good cause did not exist for such denial. The Board determined that BMW had not met its burden of persuasion in showing good cause and that the transfer should be approved. BMW subsequently appealed to the common pleas court, which affirmed the Board’s decision, noting that the decision fulfilled statutory requirements and was supported by evidence that was reliable (“it can be depended on to state what is true”), probative (“it has the tendency to establish the truth of relevant facts”), and substantial (“it has importance and value”), which in turn statutorily empowered the common pleas court to affirm. BMW then appealed to the Court of Appeals of Ohio and presented two assignments of error: (1) the common pleas court erred as a matter of law by concluding that BMW did not have good cause to deny the transfer and (2) the common pleas court abused its discretion when it found […]

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In the case of Arrington v. Burger King Worldwide, Inc., 47 F.4th 1247 (11th Cir. 2022), the US Court of Appeals for the Eleventh Circuit addressed the issue of whether a franchisor and independent franchisees took concerted action in violation of Section 1 of the Sherman Antitrust Act. As one of the largest fast-food restaurant chains, the Burger King Corporation (“BKC”) (Defendant) did not own most of the restaurants. Rather, more than 99% of BKC restaurants were independently owned franchise restaurants. To obtain a BKC franchise, a potential franchisee must sign a standard franchise agreement, containing a “No-Hire Agreement” that led to the litigation in dispute. The No-Hire Agreement bound the franchisees not to attempt to hire any current employees of other BKC franchisees for six months after the employee left the first BKC restaurant. The Plaintiff, an employee of BKC, alleged that the No-Hire Agreement violated the Sherman Antitrust Act by restricting competition to depress wages and employment opportunities, and filed a lawsuit against BKC in the US District Court for the Southern District of Florida. The plaintiff argued that such agreements among independent franchisees and BKC amounted to a conspiracy. However, the district court dismissed the decision on the grounds that BKC and its franchisees constituted a single economic entity, incapable of colluding under the Sherman Act. The Plaintiff appealed. The US Court of Appeals for the Eleventh Circuit held in Arrington v. Burger King Worldwide, Inc., 47 F.4th 1247 (11th Cir. 2022), that the Plaintiff plausibly alleged that BKC and […]

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A federal district court in Arkansas recently granted partial summary judgement in a case that involved a contract dispute between the national warehouse club chain Sam’s West, Inc. (“Sam’s Club”) and Mint Solar, LLC (“Mint”), a Utah-based provider of home security systems and solar power equipment. Mint Solar, LLC v. Sam’s West, Inc., 2021 WL 1723095 (W.D. Ark. Apr. 30, 2021). The dispute concerned whether Mint had fulfilled the terms of the contract, which allowed Mint to operate in Sam’s Club stores. Sam’s Club and Mint entered into a contract in September 2017 for Mint to sell its products in Sam’s Club locations. According to the agreement, Mint would offer its products in 216 locations. By May 2018, Mint was selling in 64 locations. In June 2018, Sam’s Club removed Mint from its stores, without providing a 30-day written notice and an opportunity to cure as required by the notice-and-cure contract provision. In August 2018, Sam’s Club sent Mint a letter as a written confirmation of the termination of the agreement, which was based on Sam’s Club’s determination that Mint was in material breach of the agreement and was unable to cure its breaches. Mint filed a claim for breach of contract in 2019, arguing that Sam’s Club violated the termination clause by failing to give the requisite 30-day notice. Sam’s Club counterclaimed for breach of contract, alleging three counts: (1) Mint was insolvent as of April 2018 and thus, was in breach of the agreement; (2) Mint failed to meet […]

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A federal judge for the District of Minnesota recently dismissed General Motors’ (“GM”) motion to dismiss for failure to state a claim regarding an alleged unlawful modification to a dealer’s agreement. The dispute involves the major car manufacturer and an auto dealer, Shakopee Chevrolet (“Shakopee”), located to the west of the Twin Cities area.Shakopee Chevrolet Inc. v. Gen. Motors LLC, 2021 WL 1785229 (D. Minn. May 5, 2021). Shakopee served as a GM dealer pursuant to a sales and service agreement, which must be renewed every five years, per GM’s customary practice. The agreement included a satisfactory performance provision that required the dealer to maintain a baseline of sales, determined using an index known as the Retail Sales Index (“RSI”). A dealer’s RSI was calculated based on the dealership’s area of primary responsibility (“APR”), a geographic area listed in the agreement. Per the 2010 agreement, Shakopee had an APR of seven census tracts. The 2015 agreement retained the same APR and allowed GM sole discretion to make modifications “consistent with dealer network planning objectives.” In 2016, GM proposed a change via a notice, which would expand Shakopee’s APR to a thirteen-census tract area. Shakopee objected, arguing that the change violated Minnesota Statutes, and requested to resolve the dispute through the mechanism provided in the agreement. GM allegedly refused to participate in the process. In September 2020, when the 2015 agreement was set to expire, GM provided Shakopee with a contract for execution, which included the additional six tracts proposed in the […]

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