News Briefs

Wisconsin Court Dismisses Class Action Against Quiznos

Quiznos survived a major challenge when the U.S. District Court for the Eastern District of Wisconsin dismissed a class action lawsuit filed by franchisees against the sandwich chain. The franchisees also alleged that Quiznos' actions violated the Wisconsin Fair Dealership Law.

Twelve franchisees filed claims against Quiznos for overcharging for supplies from a mandated list of vendors. The franchisees alleged fraud and improper business practices because Quiznos received rebates from those vendors.

U.S. District Judge William Griesbach ruled that Quiznos' franchise disclosure materials properly informed the franchisees of the company's policies.

'We are happy with the result,' said Frederic Cohen, ChengCohen LLC (Chicago), one of the law firms that represents Quiznos. 'We have maintained from the outset that the claims are not only demonstrably false, but legally deficient as well. Judge Griesbach agreed, ruling that the fraud, RICO, and state and federal antitrust claims failed to even state a claim upon which relief may be granted.'

Lawsuits in Illinois and Colorado, filed on similar grounds and filed by the same plaintiffs' law firm, Marks & Klein, LLP (Red Bank, NJ), are pending. 'This ruling has no effect on the other class action cases pending against Quiznos, which are alive and well,' said attorney Justin Klein. 'Based on Quiznos' history of mistreatment of its franchisees and the deceit alleged in the complaints, I am not surprised that Quiznos has publicly interpreted the ruling so broadly. Simply, they are wrong.'

Klein added that the Wisconsin franchisees will 'continue to vigorously pursue relief within the bounds of Judge Griesbach's opinion, and plan on appealing the decision with respect to those areas we feel the court got wrong.'

However, Cohen noted on behalf of Quiznos that 'Judge Griesbach's ruling focused on the federal claims. His conclusions were consistent with prevailing federal law. We look forward to substantively similar rulings in the remaining actions.'

U.S. Senate Looks at Price Agreements in Wake of Leegin

The U.S. Senate has taken the first step toward restoring resale pricing standards, as industry groups have encouraged Congress to write legislation to reverse the potential impact of the U.S. Supreme Court decision Leegin Creative Leather Products, Inc. v. PSKS, Inc. (2007 CCH Trade Cases ' 75,753).

S. 2261, the Discount Pricing Con-sumer Protection Act, was introduced by U.S. Sen. Herb Kohl (D-WI) on Oct. 30, with co-sponsors Sen. Joseph Biden (D-DE), and Sen. Hillary Rodham Clinton (D-NY). The bill would restore the rule that vertical agreements to set minimum prices violate the Sherman Act ' the standard prior to Leegin. This per se rule made it easier for discount retailers to challenge manufacturers' resale price maintenance agreements, and it potentially affected franchise operations in which prices are set by franchisors.

Hilton Wins Dismissal of Lawsuit

Hilton Hotels, Corp., Doubletree Corp., and Red Lion Corp. hotel chains won dismissal of a lawsuit filed by franchisees over the sale of the Red Lion franchise brand. The plaintiffs, Century Pacific Inc. and Becker Enterprises Inc., challenged Hilton's sale of the Red Lion franchise less than a year after the franchisees agreed to convert hotels to the Red Lion brand.

The court ruled that Hilton's on-again, off-again decisions about investing in the Red Lion brand and seeking franchisees constituted typical business strategy and planning. 'Officers of a public corporation were engaged in positioning its portfolio of assets for expansion so as to maximize shareholder return by constantly reevaluating options for further sale, development, or other dispositions,' wrote U.S. District Court, Southern District of New York Judge Kenneth M. Karras. '[This] merely reflects officers carrying out their fiduciary duties to shareholders.'

The court dismissed three charges ' common law fraud, negligent misrepresentation, and fraudulent omission. The dismissal followed dismissal of two other charges in the same court by Judge Shira J. Scheidlin in April 2004 (Century Pacific v. Hilton Hotels Corp., No. 03-CV-8258, 2004 WL 868211 (S.D.N.Y., April 21, 2004).

The dispute arose soon after Century Pacific agreed in April 2001 to convert a hotel in Colorado Springs, CO, to Red Lion, a brand owned by Hilton. The Red Lion brand was weak at the time, and Hilton and previous owner Doubletree each had considered converting all Red Lion hotels to other brands. Instead, at the time, Hilton decided to push ahead with a new marketing and franchising campaign.

Century Pacific was one of the first franchisees to sign up under the new program. In the franchise agreement, Century Pacific negotiated a clause that it could terminate its agreement if Hilton sold the brand during the third, fourth, or fifth years of the companies' five-year contract. The court noted that 'even with the addition of the Three-Year Window clause, however, Hilton expressly retained the right to sell Red Lion in the agreement.'

At about the same time, Becker Enterprises signed an agreement to convert a hotel in Pagosa Springs, CO. The three-year termination clause was not included in the agreement.

Meanwhile, Hilton was fielding offers for the Red Lion brand, though the court noted that these were unsolicited offers. By September 2001, Hilton had agreed to sell the Red Lion chain and some Red Lion properties to WestCoast Hotels. The deal was completed on Jan. 1, 2002.

About a year later, both plaintiffs terminated their contracts with Red Lion, and then sued.

Wisconsin Court Dismisses Class Action Against Quiznos

Quiznos survived a major challenge when the U.S. District Court for the Eastern District of Wisconsin dismissed a class action lawsuit filed by franchisees against the sandwich chain. The franchisees also alleged that Quiznos' actions violated the Wisconsin Fair Dealership Law.

Twelve franchisees filed claims against Quiznos for overcharging for supplies from a mandated list of vendors. The franchisees alleged fraud and improper business practices because Quiznos received rebates from those vendors.

U.S. District Judge William Griesbach ruled that Quiznos' franchise disclosure materials properly informed the franchisees of the company's policies.

'We are happy with the result,' said Frederic Cohen, ChengCohen LLC (Chicago), one of the law firms that represents Quiznos. 'We have maintained from the outset that the claims are not only demonstrably false, but legally deficient as well. Judge Griesbach agreed, ruling that the fraud, RICO, and state and federal antitrust claims failed to even state a claim upon which relief may be granted.'

Lawsuits in Illinois and Colorado, filed on similar grounds and filed by the same plaintiffs' law firm, Marks & Klein, LLP (Red Bank, NJ), are pending. 'This ruling has no effect on the other class action cases pending against Quiznos, which are alive and well,' said attorney Justin Klein. 'Based on Quiznos' history of mistreatment of its franchisees and the deceit alleged in the complaints, I am not surprised that Quiznos has publicly interpreted the ruling so broadly. Simply, they are wrong.'

Klein added that the Wisconsin franchisees will 'continue to vigorously pursue relief within the bounds of Judge Griesbach's opinion, and plan on appealing the decision with respect to those areas we feel the court got wrong.'

However, Cohen noted on behalf of Quiznos that 'Judge Griesbach's ruling focused on the federal claims. His conclusions were consistent with prevailing federal law. We look forward to substantively similar rulings in the remaining actions.'

U.S. Senate Looks at Price Agreements in Wake of Leegin

The U.S. Senate has taken the first step toward restoring resale pricing standards, as industry groups have encouraged Congress to write legislation to reverse the potential impact of the U.S. Supreme Court decision Leegin Creative Leather Products, Inc. v. PSKS, Inc. (2007 CCH Trade Cases ' 75,753).

S. 2261, the Discount Pricing Con-sumer Protection Act, was introduced by U.S. Sen. Herb Kohl (D-WI) on Oct. 30, with co-sponsors Sen. Joseph Biden (D-DE), and Sen. Hillary Rodham Clinton (D-NY). The bill would restore the rule that vertical agreements to set minimum prices violate the Sherman Act ' the standard prior to Leegin. This per se rule made it easier for discount retailers to challenge manufacturers' resale price maintenance agreements, and it potentially affected franchise operations in which prices are set by franchisors.

Hilton Wins Dismissal of Lawsuit

Hilton Hotels, Corp., Doubletree Corp., and Red Lion Corp. hotel chains won dismissal of a lawsuit filed by franchisees over the sale of the Red Lion franchise brand. The plaintiffs, Century Pacific Inc. and Becker Enterprises Inc., challenged Hilton's sale of the Red Lion franchise less than a year after the franchisees agreed to convert hotels to the Red Lion brand.

The court ruled that Hilton's on-again, off-again decisions about investing in the Red Lion brand and seeking franchisees constituted typical business strategy and planning. 'Officers of a public corporation were engaged in positioning its portfolio of assets for expansion so as to maximize shareholder return by constantly reevaluating options for further sale, development, or other dispositions,' wrote U.S. District Court, Southern District of New York Judge Kenneth M. Karras. '[This] merely reflects officers carrying out their fiduciary duties to shareholders.'

The court dismissed three charges ' common law fraud, negligent misrepresentation, and fraudulent omission. The dismissal followed dismissal of two other charges in the same court by Judge Shira J. Scheidlin in April 2004 (Century Pacific v. Hilton Hotels Corp., No. 03-CV-8258, 2004 WL 868211 (S.D.N.Y., April 21, 2004).

The dispute arose soon after Century Pacific agreed in April 2001 to convert a hotel in Colorado Springs, CO, to Red Lion, a brand owned by Hilton. The Red Lion brand was weak at the time, and Hilton and previous owner Doubletree each had considered converting all Red Lion hotels to other brands. Instead, at the time, Hilton decided to push ahead with a new marketing and franchising campaign.

Century Pacific was one of the first franchisees to sign up under the new program. In the franchise agreement, Century Pacific negotiated a clause that it could terminate its agreement if Hilton sold the brand during the third, fourth, or fifth years of the companies' five-year contract. The court noted that 'even with the addition of the Three-Year Window clause, however, Hilton expressly retained the right to sell Red Lion in the agreement.'

At about the same time, Becker Enterprises signed an agreement to convert a hotel in Pagosa Springs, CO. The three-year termination clause was not included in the agreement.

Meanwhile, Hilton was fielding offers for the Red Lion brand, though the court noted that these were unsolicited offers. By September 2001, Hilton had agreed to sell the Red Lion chain and some Red Lion properties to WestCoast Hotels. The deal was completed on Jan. 1, 2002.

About a year later, both plaintiffs terminated their contracts with Red Lion, and then sued.