Judge takes a bite out of Dunkin’ Donuts

After a nine-year legal battle, the Superior Court of Québec’s Justice Daniel H. Tingley has ordered Dunkin’ Brands Canada Ltd. to pay plaintiffs $16.4 million in damages and costs — exactly what was claimed by the franchisees…

“This is one of the longest franchise litigation battles, probably in Canadian history, and definitely in Quebec franchise history, and I think it sends a strong signal,” says Frederic Gilbert of Fasken Martineau DuMoulin LLP who acted for the plaintiffs. “Not only franchisors but franchisees in the franchise industry in Canada should acknowledge this decision and say, ‘how does this impact my business?’”

Canadian Lawyer magazine
June 26, 2012

Judge takes a bite out of Dunkin’ Donuts
Jennifer Brown

donut.jpg

The judge calls the case ‘a sad saga as well of how a once successful franchise operation … fell precipitously from grace… .’ (photo: Shutterstock)

After a nine-year legal battle, the Superior Court of Québec’s Justice Daniel H. Tingley has ordered Dunkin’ Brands Canada Ltd. to pay plaintiffs $16.4 million in damages and costs — exactly what was claimed by the franchisees.

In his ruling in Bertico Inc. v. Dunkin’ Brands Canada Ltd., Tingley found in favour of Dunkin’ Donuts’ former franchisees, who were suing the franchisor for incompetence, negligence, lack of support and assistance, as well as flagrant breach of the contract entered into between the franchisor and its franchisees. The latter applied, in particular, to protect and enhance the brand between 1995 and 2005 — a period when Tim Hortons and other coffee franchises in the province were rising in popularity.

“This is one of the longest franchise litigation battles, probably in Canadian history, and definitely in Quebec franchise history, and I think it sends a strong signal,” says Frederic Gilbert of Fasken Martineau DuMoulin LLP who acted for the plaintiffs. “Not only franchisors but franchisees in the franchise industry in Canada should acknowledge this decision and say, ‘how does this impact my business?’”

Dunkin’ Donuts has indicated it intends to appeal the decision.

In his remarks Tingley stated: “It is a sad saga as well of how a once successful franchise operation, a leader in its field — the donut/coffee fast food market in Quebec — fell precipitously from grace in less than a decade; literally, a case study of how industry leaders can become followers in free market economies.”

While there used to be more than 200 Dunkin’ Donut stores in Quebec, there are now less than a dozen.

At one point Dunkin’ Donuts wanted its franchisees to move up their renovation deadline under the contract and a promise was made that if the franchisees put money in earlier than stipulated it might help them compete with Tim Hortons. Dunkin was supposed to contribute $40 million, half of which would come from the franchisees, but it didn’t fulfill its end of the deal.

After 72 days of testimony, Tingley determined that the franchisees were not poor operators. “They were amongst the best and most successful in the Quebec ‘réseau.’ Many of the owners operated several stores.”

The case is unique says Jennifer Dolman, a commercial litigation partner with Osler Hoskin & Harcourt LLP, because the judge treated it as a fundamental breach of the contract.

“That’s very rare. I can’t think of another case like it. Franchisees do try to take the position they’ve had a fundamental breach but that’s really for total failure of consideration when one of the contracting parties is not getting any benefit from their bargain,” she says.

However, Dolman says it is important that the judge stipulated that franchisors are not entirely the guarantor of success.

“A franchisee enters into a franchise agreement with the expectation that they are going to be somewhat successful and make that choice to go into a franchise as opposed to hanging up their own shingle because there is a system to rely on. In this case though Tim Hortons was coming on in a big way and Dunkin’ was not supporting its franchisees, so facing competition, one by one, they started closing. Whenever franchisees close franchisors want to avoid that because it’s not good for their reputation.”

Dolman says the leading case in Ontario is Shelanu Inc. v. Print Three Franchising Corp. but unlike the Dunkin’ Donut case, the judge did not find there was a fundamental breach of contract.

“The trial judge in that case felt there was a fundamental breach but it went to the court of appeal and the court said no, because even with a litany of complaints the court couldn’t find a substantial failure of consideration under the contract because the franchises still had the right to use the mark, the system and the brand,” she says.

In most cases, even if franchisees are unhappy, Dolman says there is still value to the brand they are using.

“In this case the judge felt what was crucial was the brand and this brand had been completely devalued in the Quebec market and franchisees had very little to show for their investment.”

http://www.canadianlawyermag.com/legalfeeds/927/Judge-takes-a-bite-out-of-Dunkin-Donuts.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+LegalFeedsBlog+%28Legal+Feeds+Blog%29


Brought to you by WikidFranchise.org

Risks: 1,001 ways to make your life miserable, 100 per cent of settlements have gag orders, 2 per cent of valid claims make it to Trial, Able to finance and sell negative cash flow franchise on crooked appraisals, Abusive relationships of all kinds affects people deeply, Ad hominem attack, Advertising fund buys franchisor’s assets, Advertising fund use disagreements, Award-winning franchisees, Arthur Wishart Act (Franchise Disclosure), 2000, Canada, Ban waivers of legal rights, Bandwagon effect, Blame the victim, Brand backlash: franchisees suffer because brand owners screw up, Breach of contract, Broken relationships, ruined lives and alienated children, Can’t sue, Class action lawsuits are an unproven form of remedy, Class action lawsuits benefit lawyers, not franchisees, Class action only as good as the lawyers involved, Class-action dead end, Coerced waiver of legal rights, self, Contracts seen as unenforceable or void, Court decision favorable to franchisees, David and Goliath story, Debt traps, Deceptive business practices, Externalities: cheap business decision when someone else pays, Extortion, Feudal relationships, Franchisor abandonment, Franchisor chooses to do nothing when told of investor losses, Franchisor negligent in not protecting tradename, Franchisor will appeal decision to gain time, FranWhack: a system that is not investment-worthy, Fraud, renovation, Ideas once outrageous are now considered normal, Imbalance of information and power, Incompetent or predatory: for the small business investor, the outcome is the same, Indemnification provisions, Independence, Independence: time to break the chain, Independent businesses much higher profit than franchised ones, Independent businesses survive longer than franchised ones, Individuals with a very successful career history, Ineffective marketing, Infamous trademark system, Investment made during stressful life event, Justice delayed is justice denied, Knew or could have reasonably been expected to know, Lawsuits, group, Lease controlled by franchisor, Lease margins are an important source of franchisor revenue, Lease obligations make franchisees pay even if not in business, Leasehold improvements worth next to nothing, Liar Loans, Live by the lawsuit, die by the lawsuit, Loan repudiation, Loan-broker fraud, Lower quality franchisees, Ludicrous demands, Mad as hell not going to take it anymore, Massive defaults, Misrepresentations, Mom-and-Pop franchisees at greatest risk, Money pit franchise, Most lucrative form of commercial lending, franchising, Must buy only through franchisor (tied buying), Name and shame campaign, No franchisor support, Misrepresentation, Only 3 ways out: resell to next loser, independence & be sued or abandon and go bankrupt, Only opening new stores for the quick cash grab, Opportunism Test: If asset ownership were reversed, would decision likely change?, Opportunism: contract creates powers which are used to strip investor value during relationship, Opportunism: self-interest with deceit, Past the Tipping Point of public contempt for franchising, Pawns in a game they can't win, Personal guarantees cause good money to go after bad, Piling on: franchisor can afford a few awards but not hundreds, Polishing a turd of an argument, Predatory actions, Predatory franchise lending, Predatory lending, Protect gross negligence, wanton recklessness and intentional misconduct, Rebranding financed by adding more government guaranteed loan, Rebranding is a great way to raise franchisor revenue, Relative of franchisor owns construction company, Renewal of contract contingent on franchisee waiving all legal rights, Renting a business causes problems down the road, Restrict gag orders, Risk much higher for franchisee than independent business, Same-store sales drop, Scapegoating, Secret kickbacks and rebates, Selling franchisee won’t sell a new franchisee a financial time bomb, Should anyone trust anything associated with franchising anymore?, Sign away human rights and legal remedies, Statute of Limitations, Ontario: 2 to 15 years, Stores shuttered, Success or failure is within the direct control of the individual franchisee, Sue first and ask questions later, Sue the bank, Suppliers and landlords act as if they were the franchisor, Supply margins are a hidden added royalty payment, System designed to fail for franchisees, System is collapsing, Tied contracting, Tip of the iceberg, Trademark, Tremendous desire to warn others, Trial decision always appealed, Truth, Unproven business model, Unilateral changes in business model drive franchisees' profits down, Unsafe at any Brand?, Unsophisticated buyers, Volume rebates, Waiver of legal rights, War of attrition, When the franchisor tanks, so does the franchisee, Who selected these allegedly moron franchisees in the first place?, Why franchisors sublease to franchisees, Why should we care? It's not our money., Will work even when Variable costs > than Selling price, You may not be the 1st but you could be the next, Canada, 20120626 Judge takes

Unless otherwise stated, the content of this page is licensed under Creative Commons Attribution-ShareAlike 3.0 License