Franchising & Distribution Law Blog

In a case pending in the Northern District of Illinois, a court granted a motion to dismiss Petroleum Marketing Practices Act (PMPA) claims brought pertaining to two unbranded motor fuel stations. The court, however, refused to dismiss claims on the question of the validity of termination pursuant to the PMPA as to a third station. All three stations were supplied motor fuel by Lehigh Gas Wholesale, LP pursuant to supply agreements executed with each of the locations. One station sold Marathon-branded fuel and it was undisputed that the PMPA applied to that supply agreement. The two other stations were supplied unbranded motor fuel and did not have authorization to sell under any third-parties’ trademark.

A Georgia federal court recently found that a person who did not sign a franchise agreement was nevertheless bound by it. That was good news for a franchisor caught between two parties who claimed no responsibility for violating the franchise agreement by opening a competing business in the same franchise location. 

Unlike some states’ franchise laws, the Missouri Franchise Act gives limited protection to franchisees. However, it does provide that if a franchisor fails to give 90 days’ notice of cancellation or termination, the franchisee may be awarded “damages sustained, to include loss of goodwill, costs of suit, and any equitable relief that the court deems proper.” A recent case provided much-needed clarification on how damages are measured if a franchisor fails to give a proper notice of termination.

While state and national efforts are underway to clarify the issue of joint employment, plaintiffs continue to allege the theory against franchisors in hopes of getting past a motion to dismiss. The lesson in one such recent case was that franchisors that give product discounts to their franchisees’ employees may find their generosity backfires if they are sued for being a joint employer in certain states. A federal district court in Michigan recently found that food service managers working at Marriott franchises had alleged enough facts to survive a motion to dismiss a lawsuit claiming that the franchisor, Marriott International, Inc., exercises control over them and is their joint employer. Among the allegations that the court cited in denying Marriott’s motion to dismiss was that Marriott treated plaintiffs like Marriott employees by giving them discount room rates at Marriott hotels worldwide, which the court said could be viewed as the ability to affect compensation and benefits similar to an employment relationship.

A recent federal appeals court decision overturning a $6.5 million jury verdict for a franchisee on a state franchise law discrimination claim demonstrates once again the difficulty that franchisees face in such challenges, even when the court finds that the franchisor treated some franchisees differently than others in some instances and could not explain why.

In a closely watched case with far-reaching implications, the California Supreme Court determined that Domino’s Pizza, the franchisor, should not be held liable for the alleged sexual harassment by an employee of one of its franchisees. The lengthy, well-reasoned decision gave great weight to the contemporary realities of the franchise business model and the unique nature of franchising. Noting how franchising has become such an important and thriving part of our economy, the Court followed the modern, enlightened view and rejected the reasoning of the old line of cases that found a franchisor vicariously liable for acts of its franchisees based on the degree of control they exercised over their franchisees.

Recently, the United States District Court for the Southern District of Indiana denied franchisor Steak n Shake’s motions to compel the non-binding arbitration of three consolidated lawsuits filed by three franchisees. The decision highlights the importance of a franchisor carefully monitoring and updating its dispute resolution policies in the context of the legal risks facing its system.

In Wells v. Holiday Companies, Inc., No. A12–1476, 2013 WL 777384 (Minn. Ct. App. 2013), the Minnesota Court of Appeals reversed an order granting a motion to dismiss a class action lawsuit alleging that car wash receipts constitute gift cards that cannot expire under state law.

A recent decision in California highlights that retailers’ practice of collecting zip codes continues to be challenged. California’s Second District Court of Appeals affirmed summary judgment in a case brought as a class action against Chevron and other motor fuel retailers alleging violation of California’s Song-Beverly Credit Card Act for the collection of customers’ zip codes in conjunction with credit card transactions at gasoline stations.

Last month, the Fourth Circuit affirmed a ruling that North Carolina’s Ethanol Blending Statute is not preempted by the Petroleum Marketing Practices Act (“PMPA”) or federal renewable fuel program. The case was remanded for findings on whether the statute is preempted by the Lanham Act.