What types of cases are typically brought by franchisees against franchisors?
Washington D.C. litigator Eric Yaffe discusses the kinds of cases that are often brought by franchisees against franchisors.
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Franchisees bring a number of different kinds of cases against franchisors, and we’ve certainly seen a variety of them over the years. One kind of claim that is often brought is called encroachment, that is, the franchisee believes that the franchisor has put a location too close to them of another franchisee or of a corporate location, potentially, and that is somehow cannibalizing or reducing their sales, so obviously the franchisee isn’t pleased with that and they’ll bring an action against the franchisor. In other instances, we’ve seen a variety of misrepresentation claims, franchisees believing that the franchisor has misrepresented the amount of money that the franchisee would receive, potentially the kinds of products that it could offer to the general consuming public, and the like. So we see a lot of misrepresentation claims.
We also see a variety of technical claims brought for alleged violations of the franchise disclosure laws, not providing the cooling off period that is necessary before the franchisee signs the franchise agreement, potentially the franchisee paying moneys to the franchisor too early, and the franchisee wants to get out of the relationship and they’ll bring a variety of those kinds of technical claims. We’ll also see things like advertising claims being made, that there’s been the misuse of the advertising fund that a franchisor will often keep in trust for the franchisee. Somehow that has been misused, or possibly the franchisor has misappropriated rebates that it might be getting from vendors in connection with relationships with outside vendors such as beverage companies.
So there really are quite a variety of claims that we see franchisees bringing against franchisors.