The Supreme Court of Wisconsin held that Arby's, Inc. is not liable for a shooting death involving a franchisee's employee. Plaintiffs sued the franchisor for negligent supervision of an employee after an Arby's franchisee's employee left work without permission and shot his ex-girlfriend, her fiance and himself. The employee was a prison inmate who worked at the Arby's restaurant in Madison, Wisconsin through a work release program. The court held that Arby's could only be held responsible for the employee if Arby's exercised control over the daily operations of the restaurant. Finding that Arby's did not have the required level of control, the court affirmed the trial court's dismissal of the case against the franchisor.
The Wall Street Journal (subscription required) reports that the Ground Round Franchisee Council, which comprises owners of 73 Ground Round Restaurants, has submitted a bid of $4.85 million cash to the bankruptcy court in Boston to buy the chain's franchise rights. The bid, which competes with US Restaurant Properties Inc.'s bid of $6.5 million, includes a waiver of $40 million in claims against the franchisor.
The Sacramento Bee reports that the Bikram yoga battle rages on as the famous yogi, Bikram Choudhury, faces a large contingent of yoga center owners who have now banded together to fight Choudhury's claim that he owns a copyright in Bikram yoga. After receiving cease and desist letters from Choudhury, some yoga instructors formed a collective and filed a declaratory judgment lawsuit to establish that Choudhury did not own a copyright or trademark rights in Bikram yoga or in yoga positions. See blog entry dated February 10, 2004.
Taking its name a little too far, a women's fitness club franchise company has been ordered to cease its illegal sales in the State of California. The California Department of Corporations has announced that the company, Why Weight Women's Total Fitness, Inc., has sold a number of franchises in California before its registration was approved. To make matters worse, the company's registration was rejected by the Department because one of its principals did not disclose a felony conviction for mail fraud or a $16.5 million judgment entered against him in connection with a different mail scheme. Another principal failed to disclose a 1997 bankruptcy.
Besides gobs of spiritual enlightenment, the Dalai Lama appears to have some pull with KFC. According to this article from Reuters, the Dalai Lama may have succeeded in Tibet where Pamela Anderson and Paul McCartney failed in America. KFC was looking to expand its presence into Tibet. After an appeal from the Dalai Lama, Tibet's spiritual leader and a long-time vegetarian, KFC scratched its plans for Tibetan expansion. A KFC spokesperson said that the decision was based on financial feasibility and KFC claims that it never received the Dalai Lama's letter. KFC now operates units in 230 cities in all regions of China, except Tibet.
In the last year, PETA has worked with celebrities like Anderson and McCartney in a letter-writing campaign accusing KFC of certain inhumane treatment of chickens. On its website, PETA now includes an alleged copy of the letter sent from the Dalai Lama to KFC. The Dalai Lama quote of the day is available here.
In an initial offering that divested Cendant Corporation of its ownership interest, Jackson Hewitt yesterday sold 37.5 million shares of stock for $637.5 million. The shares sold for $17, a bit less than the $18-20 the company predicted in its SEC filing. Jackson Hewitt will not receive the proceeds of the offering because the shares were sold by Cendant. Jackson Hewitt is the country's second largest tax preparation service with over 4,900 franchised and company-owned locations. The shares will trade on the New York Stock Exchange under the symbol "JTX."
How do competing brands co-exist under one corporate umbrella? In real estate and other industries, Cendant Corporation has demonstrated a peaceful and profitable co-existence of distinct brands. This article in Real Estate News claims that the Cendant approach marks a franchising trend for success. Cendant owns Century 21, ERA, Coldwell Banker and Sotheby's International Realty, as well as a number of brands in the hotel and travel industries.
A Southwest grill franchise system named for one of the Three Stooges that uses Seinfeld and movie references in its menu is spreading across 15 states. Martin Sprock started Moe's in December 2000 and has already grown the system to 135 locations, with only one unit owned by the franchisor. Moe's sells hand-rolled burritos, tacos and fajitas and currently plans to open 1,000 units in 45 states by 2008. Sprock's company, Raving Brands, also owns Planet Smoothie, Mama Fu's Noodle House and PJ's Coffee. Moe's was recently named by Nation's Restaurant News "Hot Concept of the Year."
Al Lapin Jr. founded the International House of Pancakes with his brother Jerry in 1958 with one restaurant in Los Angeles, California. He expanded the chain through franchising and his holdings were estimated at $40 million in 1970. Just three years later, according to this Newsday.com article, Lapin was forced to sell his interest in the company for $50,000 when a number of economic factors threatened to ruin the chain. While Lapin tried other concepts, he never again experienced the level of success of IHOP and he ultimately filed for bankruptcy protection in 1989. Lapin died yesterday in Los Angeles.
For a look at IHOP's history, click here.
7-Eleven, the convenience store franchisor, has named Gary Rose as its new COO. After 36 years with the company, Rose will execute the company's strategy at the store level and planning the company's development in North America.
In other executive news, Century 21 named Thomas Kunz as its new CEO. Mr. Kunz was most recently the president of one of Century 21's franchisees in Southern California. He has also worked for Century 21 for more than 20 years.
In the June 17 hearing on Steak 'n Shake's motion for preliminary injunction to prevent Burger King's rollout of its new Angus Steakburger, Burger King introduced some unlikely witnesses. As this article from the STLtoday.com reports, Michael Robertson, the owner of Burger House, a mom and pop burger shop in California, testified that he's sold Steakburgers at Burger House since 1998 -- without any interference from Steak 'n Shake. Robertson's idea for selling the "Steakburger" originally came from visiting other burger places in Sedalia (unrelated to Steak 'n Shake) that used the name for their burgers. Burger King also offered evidence that Walmart sells "BBQ Steakburger Party Packs" and another company owns the website "steakburger.com." Another witness, a linguist from Duke University, testified that he found references to "Steakburger" in advertisements going back decades. According to the testimony, Steak 'n Shake is now trying to be "more diligent" in protecting its marks. The issue now appears to be whether the term Steakburger is entitled to protection or whether it's a generic term. After hearing the testimony, Judge Perry said she would rule on the injunction promptly. See earlier blog entry dated June 2, 2004.
On June 4, a South Florida grand jury indicted the owners of what the government calls "a telemarketing business." The defendants face 20 counts of criminal contempt for violating a consent order with the Department of Justice. In 2000, the defendants, John and Terri Salley, agreed that they would not violate the FTC Rule or misrepresent facts to franchisees. A copy of the consent order is available here. According to the government, after entering into the order, the Salleys continued to sell coffee franchises through Worldwide Coffee, Salley's Coffee and other brands. They also violated the FTC Rule by failing to provide certain disclosures required by the FTC and by failing to disclose felony convictions and bankruptcies. The court ordered Jeffrey Salley to be detained pending the pre-trial hearing and ordered Terri Salley to post a bond of $100,000. A copy of the DOJ's press release is available here.
In AdAge.com, this article explores McDonald's marketing strategy, as discussed by Larry Light, the Chief Marketing Officer. The new technique seeks to drive McDonald's slogan and branding into four cultural languages, according to Light -- sports, music, fashion and entertainment. The "I'm lovin' it" campaign has coincided with McDonald's financial upswing in the last year, although analysts question whether that trend should be attributed to the campaign, the economy or the recent menu shift.
Chinadaily.com reports that the long-awaited franchise regulation in China will be promulgated this year. Major franchisor presence in China has been limited in most cases to direct ownership of units in a partnership with local Chinese company. The franchising arm of American restaurant and other franchise companies has not been permitted access to China because of its 1997 measures on franchising. These measures only allowed franchise operations for domestic companies. It is expected that the new franchise regulations will permit foreign companies to franchise in China. One caution from this article though: Although the Ministry of Commerce official has announced the promulgation of the franchise rule this year, this same promise was made in 2002 and 2003. In an interesting statement on the previous estimates, the Minister of Commerce official stated that "this time it is true . . . ."
IHOP Carries Franchise Expansion into the Northeast. Last summer, IHOP Corp., based in Glendale, California announced a shift in its corporate focus from restaurant development to franchise sales. See blog entry July 25, 2003. On June 10, the Boston Business Journal reported that IHOP plans to develop 28 new restaurants in four states over the next two to ten years -- including Massachusetts and Rhode Island. Rick Celio, vice president of franchise and development for IHOP, said that since the 2003 announcement of IHOP's shift to franchisee-financed development, the company has signed agreements for the development of 233 new IHOP restaurants.
In federal court in Denver, five Phoenix area franchisees sued their Colorado-based franchisor, Quiznos Sub, for deceptive trade practices, breach of contract and fraud. According to the Denver Post, the claims are related to Quiznos' 1999 expansion in Arizona. In a March 2003 press release on Quiznos' website, the company stated that it was expanding at a rate of one new store every 16 hours. One of the allegations asserted by the Phoenix franchisees is that Quiznos reneged on promises that stores would not be too close together. They are seeking recision of their franchise agreements, restitution, treble damages and attorney's fees.
Reuters reports that McDonald's is venturing into the world of co-branding by opening the first restaurant that combines the McDonald's hamburger concept with Boston Market products. McDonald's purchased Boston Market in 2000 and operates 630 restaurants under the Boston Market trademarks. The co-branded unit will open in Northwest Chicago -- close to McDonald's corporate offices in Oak Brook, Illinois -- and will feature hardwood floors, accent lighting and cushioned seating, which features are in line with the newer Boston Market units.
The Wall Street Journal (subscription required) reported Thursday that Burger King announced its fourth consecutive month of same store sales growth. May sales for the burger chain rose 7.5%. BK's CEO, Brad Blum, believes that momentum is starting to grow. The chain plans to launch its Angus steak burger (although there is some trademark dispute over the product -- see blog dated June 2, 2004) later this month.
This article in Franchise-Chat.com outlines the material provisions of Italy's new franchise disclosure legislation. One of the more disconcerting clauses requires the franchisor to "guarantee" a minimum term which would allow for amortization of the investment. The minimum term set forth in the legislation is three years.
The FTC announced last week that it has reached a settlement with chicken purveyor KFC over its advertising. The Kentucky Fried Chicken franchisor became the subject of an FTC investigation after it aired commercials last fall suggesting that its chicken was a component of a healthy eating plan and that it was compatible with low-carb diets. While the FTC did not endorse any specific diet, it recognized that both the Atkins and South Beach diets restricted dieters' consumption of breaded foods. KFC pulled the campaign shortly after it was launched. See blog entries dated 10/29/03 and 11/20/03. The FTC charged KFC with making false claims in its advertising. In the settlement, the parties agree that KFC will not (i) compare the health benefits of its food to a Burger King Whopper, (ii) state that its products are compatible with low-carb eating plans, or (iii) make any representations about its chicken, unless the statements are true and are supported by evidence. A copy of the settlement is available here.
Little Caesars has filed suit against forty franchisees for using non-conforming ingredients at their Little Caesars restaurants. The complaint alleges trademark infringement, trademark infringement and breach of contract. The franchisee association claims that the lawsuit is nothing more than Little Caesars retaliation against franchisees who refuse to purchase product from the franchisor's distributorship. A copy of the complaint is available here.
In the June 1, 2004 Wall Street Journal (subscription required), an interesting article outlined the new trend in convenience stores to move to smaller locations within airports, office buildings, universities and hospitals. Retailers, like 7-Eleven, Inc., report that these locations which are frequented by the employees and residents of the area sell a high number of impulse items that typically carry a higher profit margin. The article also reports that the advantage of the small location is that it can adapt its merchandise to fit its typical consumer -- for example, a location that caters to business commuters carries a different selection of items from one that serves university students. Given the competition in the convenience store market at gas stations and other outlets, retailers views this type of non-traditional development as a good way to take advantage of niche markets.
The former CEO of Mailboxes Etc., Jim Amos, in conjunction with Carousel Capital, has acquired Sona International, the franchisor of 21 laser skin treatment centers across the U.S. Carousel Capital is an investment firm that last year partnered with the Halifax Group to fund a management-led buyout of Meineke Car Care Centers (see blog entry July 11, 2003). Amos sits on Meineke's board and will serve as Sona International's chairman and CEO. Sona expects to open 55 more locations this year.
In a lawsuit filed in St. Louis last month, Indianapolis-based franchisor Steak 'n Shake alleged that Burger King's new marketing campaign for the "Angus Steak Burger" infringes on Steak 'n Shake trademark "Steakburger." While a TRO has been denied because Burger King represented that it would not immediately launch the ad campaign, a hearing on Steak 'n Shake's motion for preliminary injunction is set for June 15. Burger King claims that the terms "steak" and "burger" are generic and, therefore, not protected by trademark law. A copy of the Steak 'n Shake complaint is available here: Download file">Steak 'n Shake Company v. Burger King Corp.
GNC Corp., the parent of General Nutrition Centers, has filed a preliminary copy of a prospectus with the SEC, evidencing its intention to offer public stock on the New York Stock Exchange. According to the papers, the company expects to raise approximately $278 million in net proceeds from the offering. A copy of the SEC filing is available here.
In an opinion filed on Wednesday, a three-judge panel of the Third Circuit vacated portions of what was originally a $51 million judgment entered by a Delaware jury in 1999 (the trial judge reduced the judgment to $31.4 million on post-trial motions) to just $3.34 million. In the case, the plaintiff alleged that Sheraton mismanaged plaintiff's hotel and the complaint included racketeering charges that Sheraton accepted kickbacks and rebates from suppliers. After losing the case, Sheraton sued its lawyers, LeBeouf, Lamb, Greene and MacRae, for malpractice in New York. The malpractice portion of this case has been the subject of some commentary. A New York jury ordered the firm to pay the punitive damages portion of the Delaware judgment. This judgment is under appeal in New York. In the Sheraton appeal, the Third Circuit held that the trial judge's failure to require the jury to find "clear and convincing evidence" to support punitive damages invited error. A copy of the opinion can be found here.
In a deal announced on Friday, Ultimate Franchise Systems will acquire Obee's Franchise Systems, the owner and franchisor of Obee's Subs. Obee's Subs is a South Florida restaurant chain with 65 existing units and 70 in development. Ultimate Franchise Systems owns a stake in ten other restaurant chains (totaling approximately 524 restaurants) and is an investor in a 40-unit chain of wellness clinics. The terms of the deal for Obee's were not disclosed.
Business Week provides an in-depth analysis of the Domino's planned IPO -- including a review of Domino's same store sales (which increased by 1.6% in 2002 and 2.6% in 2003), increase in cheese prices, Domino's long-term debt and the performance of company-owned stores (which account for 28.2% of total annual revenue).
Ind US Business Journal reports that a Dunkin' Donuts case pending in an appeals court in Massachusetts may substantially affect a franchisor's rights to enforce post-term covenants not to compete. The case involves a former Dunkin' franchisee who sold his Dunkin' shops in Syracuse, NY and wanted to open an independent shop 300 miles away. Because the Dunkin' franchise agreements restricted the franchisee for two years from operating a doughnut shop within 5 miles of his former shops or any existing Dunkin' shops, the franchisee's proposed operation would violate his franchise agreement obligations. When the franchisee sought Dunkin's waiver of the restrictive covenant, Dunkin' refused. The franchisee then filed a declaratory judgment action seeking a ruling that the covenant was unenforceable. The trial court entered judgment in Dunin's favor, but the Massachusetts Supreme Judicial Court allowed the franchisee's appeal. In its appeal, the franchisee claims that "until now no Massachusetts court has ruled on the reasonableness of a geographic restriction, which extends beyond the surrounding area of a former business in the franchise context." The franchisee argued that because Dunkin' has almost 1,000 units in Massachusetts and New Hampshire, the covenant virtually forecloses a former franchisee from operating a competing business in those states. Dunkin' argues that the franchisee signed the covenant as part of his purchase of the business to acquire Dunkin' proprietary and confidential information. The necessary protection of this information justifies the use of restrictive covenants in franchise agreements. Both IFA and the AAFD submitted amicus curiae briefs in the appeal. A copy of the IFA brief can be found here.