Franchises and The Laws that Govern Them - Essay Example

Topic: Franchises and the Laws that Govern them Franchises and The Laws that Govern Them Stuller, Inc. v. Steak N Shake Ent. Inc.Facts of the case: This case is on the duties of a franchisee to the franchise. Stuller, a Steak N Shake franchisee, allege Defendants adopted a policy purporting to require all franchisees to follow set menu and pricing, with the exception of breakfast items, and offer all company promotions as published. According to Stuller, this policy was contrary to long-standing custom, practice, policy, agreement, and representation, that franchisees could set their own prices for menu items, maintain ‘custom menus,’ and choose whether to follow promotions.

Stuller further alleges that when Stuller refused to implement the Policy, Defendants sent default notices threatening to terminate Stuller’s franchises. Stuller alleges Defendants breached the implied covenant of good faith and fair dealing by attempting to force Stuller to adopt the policy. Both Defendants filed motions to dismiss, denying SNS Operations’ motion to dismiss on the ground that SNS Operations had assigned the Agreements to SNS Enterprises.The recommended dismissal of Count treated as a breach of contract claim, was based on the failure to allege damages.

Stuller did not object to the Report and Recommendation’s characterization of Count II as a breach of contract claim. To state a breach of contract claim under Illinois law, a plaintiff must allege the existence of a contract, substantial performance by the plaintiff, a breach by the defendant, and damages resulting there from. The court found the defendants’ evidence only showed future damages that might be incurred, and, therefore, found the defendants failed to meet their burden of showing actual damages.

The court concluded the counterclaim was premature and dismissed it without prejudice.According to the Illinois Franchise Disclosure ActThe stated intent of the IFDA is to: (1) “Provide each prospective franchisee with the information necessary to make an intelligent decision regarding franchises being offered for sale”;(2) “Protect each prospective franchisee and the franchisor by providing a better understanding of the business and the legal relationship” between them. 815 ILCS 705/2(2).

A private right of action is by section 26 of the IFDA: “Any person who offers, sells, terminates, or fails to renew a franchise in violation of this Act shall be liable to the franchisee who may sue for damages caused thereby.” 815 ILCS 705/26. Moreover, a franchisee may sue for rescission for a violation of sections 5, 6, 10, 11, or 15 of the IFDA. 815 ILCS 705/26.ConclusionNot only Stuller alleged untrue statement material was made Stuller also alleged was violated material omission absence language Defendants set prices employment device scheme artifice defraud engagement act practice course business operate fraud deceit Stuller Therefore, Count III states a claim for relief under the IFDA.

IT IS THEREFORE ORDERED that the Report, and Recommendation (d/e 33) are IN PART and ADOPTED IN PART and Stuller’s objections to the Report and Recommendation (d/e 35) are ALLOWED. Defendant Steak N Shake Enterprises, Inc.’s Motion to Dismiss Counts II and III of the First Amended Complaint (d/e 21) are, and Defendant Steak N Shake Operations, Inc.’s Motion to Dismiss (d/e 23) is. Defendants shall file Answers to the First Amended Complaint on or before June 14, 2011. IT IS THEREFORE SO ORDERED.

Effect case business world and society generally Before implementing any policy to set prices, franchisors should check the language of the franchise agreements and the disclosure documents of the existing franchisees. If nothing in them expressly grants the right to set, or prohibits setting, the franchisees’ prices, franchisors should look for provisions that allow them to make changes to the system, to standards or specifications. They should check whether “system” includes “prices.

”Franchise companies should consider the economic effect on franchisees and set the price bearing in mind that the potential effect. Franchisors should adhere to that price in any company-owned units. And they must add language to their current franchise agreement to indicate that setting the maximum and minimum prices is part of the rights they have, as part of their right to change standards and the system. Compared to other types of business entities such as a corporation and LLC, they would not have been in better conditions, for the same laws would govern them.

A corporation has a vertical structure of operations in which the laws come from above, and all employees will be by them. There is an employee-employer relationship.Links Used:http://dockets.justia.com/docket/circuit-courts/ca7/11-2656/http://law.justia.com/cases/federal/district-courts/illinois/ilcdce/3:2010cv03303/50773/64ReferenceHoy, J. V. (1997). Franchise law firms and the transformation of personal legal services. Westport, Conn.: Quorum Books.Schneider, J. A., & Nye, R. J. (2003).

Business franchise law: cases and materials. Durham, N.C.: Carolina Academic Press.Zaid, F. (2005). Franchise law. Toronto: Irwin Law.