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Court Watch

By Susan H. Morton and David W. Oppenheim
December 01, 2003

Franchisor Potentially Liable for Failure to Contribute to Advertising Fund

The U.S. District Court for the District of Massachusetts has denied a franchisor's motion to dismiss a class action complaint brought by a group of franchisees alleging that the franchisor breached its franchise agreements when it failed to put advertising fees collected from franchisees that underreported gross sales into the advertising and sales promotion fund, and instead diverted the fees to its own account. Moghaddam, et. al. v. Dunkin' Donuts, Inc., 2003 WL 22519474 (D. Mass. 2003).

The plaintiff franchisees owned and operated Dunkin' Donuts shops throughout Broward County, FL. Their franchise agreements obligated them to pay monthly franchise fees of 4.9% to 6.99% of gross sales and to make monthly advertising contributions to the Dunkin' Donuts of America, Inc. Franchise Owners' Advertising and Sales Promotion Fund (the “Advertising Fund”) of 5% of gross sales.

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