Dunkin' Gets Conflicting Rulings on Similar Facts. In the Wall Street Journal today (subscription required), the Franchising section reports on Dunkin's mixed decisions regarding its termination of franchisees for tax evasion. See blog entry dated October 16, 2003 for our discussion of this same set of cases and its possible implications with respect to a class action lawsuit transferred from Florida to Massachusetts. In the Dunkin' Donuts v. Martinez case in Florida, Dunkin' successfully argued that a franchisee's criminal activity was a material breach of the franchise agreement and a reasonable basis for termination, even without prosecution by the Internal Revenue Service. The court agreed, finding that a franchisee did not have to be convicted of a crime to establish a material breach. Dunkin' must only demonstrate that the franchisee failed to comply with all laws. In Massachusetts, however, the federal jury sided with the terminated franchisees. In Dunkin' Donuts v. H&Z Donuts, Dunkin' claimed that the franchisees concealed over $1 million in gross sales and, although the franchisees were not pursued by the government, Dunkin' terminated the franchisees for failure to comply with all laws, as provided under the franchise agreement. Apparently finding merit in the franchisees' argument that Dunkin' does not have the authority to enforce the Internal Revenue Code, the jury returned a verdict for the franchisees. Dunkin' is appealing the verdict.
Posted by franchiselawblog at January 27, 2004 11:02 AM