Defense Judgment and Attorneys’ Fees Award in Multi-party, Multimillion Dollar Franchisee Claim
More than a dozen franchisees sought tens of millions from our clients, asserting contract and statutory claims as well as fraudulent and negligent misrepresentation. Our clients, a restaurant franchisor and some of its affiliates and owners, needed aggressive action and counsel that could handle this extremely complex matter, involving multiple phases and parties along with a variety of claims.
Scott oversaw all aspects of the pretrial litigation, handled several witnesses during the contentious trial, and argued a successful motion for judgment as a matter of law following plaintiffs’ presentation of their case. In a rare move, franchisee plaintiffs called a number of our clients’ former employees as witnesses on their behalf. The trial team saw past this obstacle, formulating a strategy to cast doubt on the witnesses’ testimony, ultimately positioning their statements to our clients’ benefit.
Not only did the court grant our motion and enter judgment in favor of our clients on all claims, we also ultimately obtained an award of attorneys’ fees for the franchisor after the court’s order was affirmed on appeal.
Extending Non-Competition Injunction to Third Parties
After we obtained injunctions enforcing post-term non-competition provisions against a franchisee and its owners, a terminated franchisee teamed up with its former manager to create two new competing businesses. Since the former manager was not a signatory to the original franchise agreement, her position was that she had no connection to the former franchisee and was free to pursue business endeavors.
This is not how we saw it. Not only were the businesses being operated out of defendants’ former franchised locations — they were using the prior franchisee’s forms.
We moved to extend the injunctions to all those acting in concert with the terminated franchisee to violate the injunction, including the former general manager. We presented evidence that the former manager and the competing businesses were merely acting as conduits through which defendants were continuing to engage in competing services, in violation of the injunctions. We proved that the new entities were using assets of the former franchisee and fell within the scope of people who may be enjoined from a competing business.
The Court accepted our evidence and extended the injunctions to the former manager and the two businesses.
Enforcing a Multiple Franchisee Settlement Agreement When There’s One Holdout
Franchisor client turned to us to defend them in a suit involving 154 franchisees. When the parties agreed to mediation, we negotiated with the plaintiffs’ designated steering committee. The franchisees devised a formula whereby if the steering committee reached a settlement agreement, the 154 plaintiffs would vote on ratifying the settlement. After a two-day mediation, a settlement was reached and the plaintiffs voted to ratify the settlement pursuant to their agreement.
Case closed? Not yet. Several franchisees refused to sign the formal settlement documents. So we filed a motion to enforce the settlement agreement, and the motion was granted.
Case closed? Not yet. While most holdout franchisees signed the formal settlement documents after our motion was granted, one franchisee refused and appealed. Why? The primary defense was that the arrangement crafted by the franchisees and their counsel violated ethics rules. We argued that even if there was an ethical issue, they made their own rules. The one holdout was a member of the very steering committee that negotiated the settlement. We also argued that, even if the franchisees’ agreement was inconsistent with the ethics rules, that interpretation should be applied only prospectively due to ambiguity at the time the arrangement was established.
The Supreme Court of New Jersey agreed with us, applying its ruling only prospectively, and enforced the settlement agreement as to the final franchisee.