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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.

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