This is the sixth of our year-long series of articles reviewing the recent progeny of what we identified in December 2007 as the most significant franchise case decisions summarized in Issues 1 through 100 of The GPMemorandum. The sixth of those cases was Dunkin’ Donuts Inc. v. Priya Enterprises, Inc., 89 F. Supp. 2d 319 (E.D.N.Y. 2000), a case handled by current Gray Plant Mooty attorneys before they joined our firm. In Priya, Dunkin’ Donuts initiated a lawsuit seeking an injunction to compel Priya’s compliance with its health, safety, and sanitation standards, as required under the franchise agreement. Within a few months after the lawsuit was filed, the franchisees had come into substantial compliance with Dunkin’s standards. Dunkin’ abandoned its request for injunctive relief, but continued to seek the attorneys’ fees and costs it incurred in initiating the action, pursuant to the franchise agreement. The court granted Dunkin’s motion for summary judgment on its claim for attorneys’ fees and costs. The Priya decision is significant because it demonstrates that a franchisor can successfully sue its franchisees to obtain compliance with system standards, obey all laws clauses, and other franchise agreement provisions, and can collect the attorneys’ fees and costs it incurs in doing so.
Since Priya, courts nationwide have continued to hold that franchisors have the right to enforce system standards contained in the franchise agreement and also to collect contractually mandated attorneys’ fees and costs incurred in enforcing standards. Although Priya involved health, safety, and sanitation standards, these principles have been extended to various other contractual obligations, including those related to franchisors’ decisions to rebrand, to implement new programs, to upgrade computer and other systems, to introduce new products, and to require remodels and refurbishments. In the past 60 issues, The GPMemorandum has reported on several additional standards cases, such as Burger King Corporation v. E-Z Eating, 41 Corporation, a 2009 Eleventh Circuit case summarized in our Issue 122, and LaQuinta Corp. v. Heartland Properties, LLC, a Sixth Circuit decision from 2010 that was summarized in Issue 131. In deciding these cases, as in many franchise disputes, the courts turn first to the contract between the parties, and this sometimes cuts against the franchisor. For example, as we reported in Issue 144, an Illinois federal court Stuller v. Steak N Shake Enterprises, held in 2011 that a franchisee was likely to succeed on its claim that the franchisor could not terminate it for failing to comply with pricing and promotional policies because the franchise agreement was ambiguous on the issue. That decision was affirmed by the Seventh Circuit, as we later reported. But when the franchise agreement plainly contemplates compliance with particular system standards, courts remain willing to enforce such provisions.