Court Watch

The court based its decision on the typicality requirement for class certification in Federal Rule of Civil Procedure 23, which states that the claims or defenses of the representative parties must be typical of the claims or defenses of the class. Whether the plaintiff provided consent for the text messages is a critical issue in this case, and the inquiry would differ depending on whether the plaintiff actually did or did not provide his cell phone number to the Jersey Mike's store. The court determined that the plaintiff cannot represent a class of individuals who did not give their phone numbers to Jersey Mike's because the plaintiff is not certain he did not do so. Similarly, the court determined that the plaintiff cannot represent a class of individuals who did provide their phone numbers, but did not specifically consent to text messages, since again the plaintiff is uncertain if he provided his phone number. The plaintiff's claim cannot be typical of a class he is not certain he belongs to, and therefore his inconsistent testimony resulted in a denial of class certification.

Franchisor Sanctioned For Failing to Prepare Its Representative for Corporate Deposition

In the case of Janko Enterprises, Inc. v. Long John Silver's, Inc., Bus. Franchise Guide (CCH) ' 15,263 (W.D. Ken. April 2, 2014), the plaintiff franchisee, Janko Enterprises, Inc., moved to compel continuance of a corporate deposition of the defendant franchisor, Yum Brands, Inc. Janko issued a 30(b)(6) notice to take the deposition of Yum Brands and identified three topics in the notice: 1) the decision by Yum Brands to divest the Long John Silver brand; 2) the performance of the company-owned Long John Silver units; and 3) the decision not to franchise any additional A&W, Long John Silver, or combined A&W and Long John Silver units. Yum Brands designated William Lawrence Gathof, its corporate treasurer, to appear on behalf of the corporation.

Janko's motion claimed that Gathof was not adequately prepared to respond to questions on the first and third topics. Gathof had not spoken with members of the leadership or management teams about the listed subjects and could not answer questions about when discussions on these topics began or provide specifics about the decision-making process. Yum Brands, on the other hand, argued that Janko failed to describe the areas of inquiry with the required specificity and that Gathof had adequate knowledge to respond to the overly broad deposition notice. Yum Brands took the position that it could not have better prepared the witness because the notice was materially defective.

When a party is served with a Rule 30(b)(6) deposition notice, it is obligated to produce one or more witnesses with knowledge about the subjects listed in the notice and to prepare the witnesses to testify not simply to their own personal knowledge, but the knowledge of the corporation. Therefore, the corporation is required to educate the witnesses to the extent that the information is reasonably known to the corporation. This education requirement includes reviewing relevant documents and interviewing employees that have personal knowledge of the topics. A corporation's failure to adequately prepare its designated witness or witnesses can be deemed a nonappearance at the corporate deposition, resulting in sanctions.

Upon reviewing the facts and legal standard, the court agreed with Janko that Yum Brands did not properly designate or prepare its witness. In reaching this conclusion, it rejected Yum Brands' argument that the deposition notice must describe the areas of inquiry with “painstaking specificity.” While this language appears in two cases from the Federal District Court in Kansas, it has not been adopted by other courts, and, in fact, has been rejected in other decisions in Kansas. The court in this case determined that Rule 30(b)(6)'s language, which requires that subjects be described with “reasonable particularity” is clear and there is no requirement of “painstaking specificity.” The court held that the deposition topics were described with reasonable particularity in the notice provided by Janko. In addition, the court stated that Janko has struggled to obtain adequate discovery responses throughout the course of the litigation, and therefore may not have been able to describe the areas of deposition inquiry with more particularity. The court also noted that if Yum Brands believed that the deposition notice was insufficient, the proper course would have been to move for a protective order before the deposition.

Overall, the court believed that Gathof was inadequately prepared and evasive in his deposition testimony. The court summarized the deposition preparation as consisting of merely of reading the discovery documents that Yum Brands had provided to Janko, without speaking with the limited number of individuals that had first-hand knowledge: “Gathof in this respect was nothing more in the [c]ourt's view than a funnel for information previously provided in document discovery by Yum!” Therefore, it granted Janko's motion to continue the deposition and required that Yum Brands pay Janko's attorneys' fees and costs associated with the continued deposition.

Counsel for franchisors are advised to be aware of these preparation requirements when faced with a 30(b)(6) deposition notice. The corporation must not only designate an appropriate witness, but must educate that witness through documents and interviews with other employees.

Federal Court Enforces Franchisee Post-Termination Obligations

The United States District Court for the District of Minnesota recently enforced the post-termination obligations of an Anytime Fitness franchisee, including the obligations of the franchisee to de-identify with the brand and comply with its obligations not to compete. In Anytime Fitness, LLC v. Edinburgh Fitness, LLC, No. 14-348 (DWF/JJG), 2014 U.S. Dist. LEXIS 50337 (D. Minn. April 11, 2014), the district court was presented with a situation in which a former franchisee converted its Anytime Fitness center into a competitive fitness center upon the termination of the franchise agreement, in violation of its obligation not to compete. The former franchisee also attempted to transfer the names, contact information, and billing information of members of the former franchised location to the competitive facility, arguing that the franchise agreement, while preserving ownership of that information for the franchisor, gave the franchisee the right to use the information during and following the term of the agreement. The franchisee also continued to display Anytime Fitness's names and trademarks after the termination of the franchise agreement, both at the location of the former Anytime Fitness center and at another fitness center located several miles away.

Anytime Fitness moved for a preliminary injunction to enforce the post-termination obligations in the franchise agreement. First, it sought to enforce the franchisee's covenant not to compete at the location of the former Anytime Fitness center and at a nearby location. Second, it sought to enjoin the use of Anytime Fitness's intellectual property, including its trademarks and the confidential membership information associated with the former franchise. The district court granted Anytime Fitness's motion in all respects, enforcing the covenant not to compete and enjoining the franchisee and others from infringing on Anytime Fitness's trademarks (requiring, among others, that the telephone number associated with the former Anytime Fitness center be transferred to the franchisor). On the issue of the use of the customer information following termination of the franchise agreement, the district court held that use of the information to operate a competitive business “is not an authorized use of the data,” and enjoined the franchisee from disclosing or using Anytime Fitness's confidential or proprietary information, including customer information. The court also awarded Anytime Fitness its attorneys' fees incurred in enforcing the terms of the franchise agreement.

Cynthia M. Klaus is a shareholder and Susan E. Tegt is an associate with Larkin Hoffman. Ms. Klaus can be contacted at [email protected], and Ms. Tegt can be contacted at [email protected].

Inconsistent Testimony Made Plaintiff Not Typical Of Proposed Class

The Federal District Court in the Southern District of California denied class certification in a case in which an individual claimed violations of state and federal laws prohibiting text messages to consumers without their consent. Ryan v. Jersey Mike's Franchise Systems, 2014 U.S. Dist. LEXIS 42677 (S.D. Cal. March 28, 2014). Jersey Mike's, a sandwich shop franchisor, has a loyalty program through which customers can collect points and redeem them for free products. Jersey Mike's and its franchisees use an automatic dialing service to send text messages to loyalty program members who have provided their cell phone numbers.

The named plaintiff in this case was issued a loyalty card on May 16, 2013, at a franchised Jersey Mike's store. On May 28, 2013, he received a promotional text message from the store. The plaintiff followed instructions on the text message to opt out of further messages, and he received no further messages from Jersey Mike's or its franchisees. He then filed a class action lawsuit claiming violations of state and federal laws prohibiting text messages delivered by automatic dialing services without the consent of the recipient, alleging that the messages are aggravating and require consumers to pay their cell phone providers for the unwanted messages. At his deposition, the plaintiff testified unequivocally that he did not provide his cell phone number when he received his loyalty card. In his declaration accompanying his opposition to the motion to deny class certification, however, he stated that he did not remember giving his cell phone number, but was not 100% sure.

The court based its decision on the typicality requirement for class certification in Federal Rule of Civil Procedure 23, which states that the claims or defenses of the representative parties must be typical of the claims or defenses of the class. Whether the plaintiff provided consent for the text messages is a critical issue in this case, and the inquiry would differ depending on whether the plaintiff actually did or did not provide his cell phone number to the Jersey Mike's store. The court determined that the plaintiff cannot represent a class of individuals who did not give their phone numbers to Jersey Mike's because the plaintiff is not certain he did not do so. Similarly, the court determined that the plaintiff cannot represent a class of individuals who did provide their phone numbers, but did not specifically consent to text messages, since again the plaintiff is uncertain if he provided his phone number. The plaintiff's claim cannot be typical of a class he is not certain he belongs to, and therefore his inconsistent testimony resulted in a denial of class certification.

Franchisor Sanctioned For Failing to Prepare Its Representative for Corporate Deposition

In the case of Janko Enterprises, Inc. v. Long John Silver's, Inc., Bus. Franchise Guide (CCH) ' 15,263 (W.D. Ken. April 2, 2014), the plaintiff franchisee, Janko Enterprises, Inc., moved to compel continuance of a corporate deposition of the defendant franchisor, Yum Brands, Inc. Janko issued a 30(b)(6) notice to take the deposition of Yum Brands and identified three topics in the notice: 1) the decision by Yum Brands to divest the Long John Silver brand; 2) the performance of the company-owned Long John Silver units; and 3) the decision not to franchise any additional A&W, Long John Silver, or combined A&W and Long John Silver units. Yum Brands designated William Lawrence Gathof, its corporate treasurer, to appear on behalf of the corporation.

Janko's motion claimed that Gathof was not adequately prepared to respond to questions on the first and third topics. Gathof had not spoken with members of the leadership or management teams about the listed subjects and could not answer questions about when discussions on these topics began or provide specifics about the decision-making process. Yum Brands, on the other hand, argued that Janko failed to describe the areas of inquiry with the required specificity and that Gathof had adequate knowledge to respond to the overly broad deposition notice. Yum Brands took the position that it could not have better prepared the witness because the notice was materially defective.

When a party is served with a Rule 30(b)(6) deposition notice, it is obligated to produce one or more witnesses with knowledge about the subjects listed in the notice and to prepare the witnesses to testify not simply to their own personal knowledge, but the knowledge of the corporation. Therefore, the corporation is required to educate the witnesses to the extent that the information is reasonably known to the corporation. This education requirement includes reviewing relevant documents and interviewing employees that have personal knowledge of the topics. A corporation's failure to adequately prepare its designated witness or witnesses can be deemed a nonappearance at the corporate deposition, resulting in sanctions.

Upon reviewing the facts and legal standard, the court agreed with Janko that Yum Brands did not properly designate or prepare its witness. In reaching this conclusion, it rejected Yum Brands' argument that the deposition notice must describe the areas of inquiry with “painstaking specificity.” While this language appears in two cases from the Federal District Court in Kansas, it has not been adopted by other courts, and, in fact, has been rejected in other decisions in Kansas. The court in this case determined that Rule 30(b)(6)'s language, which requires that subjects be described with “reasonable particularity” is clear and there is no requirement of “painstaking specificity.” The court held that the deposition topics were described with reasonable particularity in the notice provided by Janko. In addition, the court stated that Janko has struggled to obtain adequate discovery responses throughout the course of the litigation, and therefore may not have been able to describe the areas of deposition inquiry with more particularity. The court also noted that if Yum Brands believed that the deposition notice was insufficient, the proper course would have been to move for a protective order before the deposition.

Overall, the court believed that Gathof was inadequately prepared and evasive in his deposition testimony. The court summarized the deposition preparation as consisting of merely of reading the discovery documents that Yum Brands had provided to Janko, without speaking with the limited number of individuals that had first-hand knowledge: “Gathof in this respect was nothing more in the [c]ourt's view than a funnel for information previously provided in document discovery by Yum!” Therefore, it granted Janko's motion to continue the deposition and required that Yum Brands pay Janko's attorneys' fees and costs associated with the continued deposition.

Counsel for franchisors are advised to be aware of these preparation requirements when faced with a 30(b)(6) deposition notice. The corporation must not only designate an appropriate witness, but must educate that witness through documents and interviews with other employees.

Federal Court Enforces Franchisee Post-Termination Obligations

The United States District Court for the District of Minnesota recently enforced the post-termination obligations of an Anytime Fitness franchisee, including the obligations of the franchisee to de-identify with the brand and comply with its obligations not to compete. In Anytime Fitness, LLC v. Edinburgh Fitness, LLC, No. 14-348 (DWF/JJG), 2014 U.S. Dist. LEXIS 50337 (D. Minn. April 11, 2014), the district court was presented with a situation in which a former franchisee converted its Anytime Fitness center into a competitive fitness center upon the termination of the franchise agreement, in violation of its obligation not to compete. The former franchisee also attempted to transfer the names, contact information, and billing information of members of the former franchised location to the competitive facility, arguing that the franchise agreement, while preserving ownership of that information for the franchisor, gave the franchisee the right to use the information during and following the term of the agreement. The franchisee also continued to display Anytime Fitness's names and trademarks after the termination of the franchise agreement, both at the location of the former Anytime Fitness center and at another fitness center located several miles away.

Anytime Fitness moved for a preliminary injunction to enforce the post-termination obligations in the franchise agreement. First, it sought to enforce the franchisee's covenant not to compete at the location of the former Anytime Fitness center and at a nearby location. Second, it sought to enjoin the use of Anytime Fitness's intellectual property, including its trademarks and the confidential membership information associated with the former franchise. The district court granted Anytime Fitness's motion in all respects, enforcing the covenant not to compete and enjoining the franchisee and others from infringing on Anytime Fitness's trademarks (requiring, among others, that the telephone number associated with the former Anytime Fitness center be transferred to the franchisor). On the issue of the use of the customer information following termination of the franchise agreement, the district court held that use of the information to operate a competitive business “is not an authorized use of the data,” and enjoined the franchisee from disclosing or using Anytime Fitness's confidential or proprietary information, including customer information. The court also awarded Anytime Fitness its attorneys' fees incurred in enforcing the terms of the franchise agreement.

Cynthia M. Klaus is a shareholder and Susan E. Tegt is an associate with Larkin Hoffman. Ms. Klaus can be contacted at [email protected], and Ms. Tegt can be contacted at [email protected].