Thursday, June 07, 2007

Posting Suicide Note on Website Likely Did Not Justify Franchise Terminations

This posting was written by Cheryl Montan, editor of CCH Guide to Computer Law.

A group of Quiznos franchisees were likely to succeed on their claim that Quiznos wrongfully terminated their franchises in retaliation for their affiliation with a group that posted a former franchisee’s suicide letter on a website, the federal district court in Denver has ruled. Thus, the court issued a preliminary injunction barring the terminations pending trial on the merits of the franchisees’ claims.

The franchisees were board members of a franchisee advocacy group with an acrimonious history with the company. The group operated a blog for franchisees to vent their frustrations and exchange ideas.

Quiznos unilaterally terminated the franchises immediately after learning that the advocacy group posted on its website the suicide note of former franchise owner who fatally shot himself in the bathroom of one of the company's stores. The franchisee’s note attributed his suicide to Quiznos and to litigation with the company over his franchise.

Reason for Termination, Opportunity to Cure

The franchisees contended that Quiznos terminated the franchises without providing specific reasons or an opportunity to cure in violation of the franchise agreement. One store owner also alleged a violation of Minnesota franchise law. Quiznos countered that the terminations were permissible under a provision in the franchise agreement giving it the right to immediately terminate a franchisee, without opportunity to cure, for committing fraud or for engaging in conduct that, in the “sole judgment” of the company, materially impaired the goodwill associated with the QUIZNOS mark.

Effect of Posting on Mark

However, there was no indication that in deciding to terminate the franchises, Quiznos had evaluated or even considered the impact of the website posting on the QUIZNOS mark, the court observed.

Although the suicide note was available on a public website, Quiznos presented no evidence that any consumers had seen the note and, as a result, thought ill of the company or declined to purchase its products. Without such evidence, the franchise owners were likely to succeed on their claim that Quiznos exceeded its contractual authority in terminating their franchises, the court concluded.

The decision is Bray v. QFA Royalties LLC, Civil Action No. 06-cv-02528-JLK-BNB, filed May 3, 2007. Full text will appear in the CCH Business Franchise Guide and CCH Guide to Computer Law.

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