Historical Review of Franchise Fees: Litigating the Franchise Fee Element in 2005

Historical Review of Franchise Fees: Litigating the Franchise Fee Element in 2005

 

April 4, 2019

 

And the saga continues . . .

 

In Three M Enterprises, Inc. v. Texas D.A.R. Enterprises, Inc., 368 F. Supp. 2d 450 (D. Md. 2005), defendants were unable to prevail on a motion to dismiss on its argument that plaintiff was not a “franchise” under Maryland law. Specifically, defendants argued that plaintiff cannot be a franchisee under Maryland law because plaintiff did not pay a franchise fee. In support, defendants submitted two exhibits which demonstrated that plaintiff’s alleged $15,000 “franchise fee” was merely an order for goods. The court, however, found defendants argument unpersuasive.

 

First, the court noted that defendants failed to address plaintiff’s allegation that plaintiff paid “a fee in the amount of $15,000 and indirect franchise fees during the course of the relationship.” Second, the court noted that defendants’ arguments attacked the factual sufficiency of plaintiff’s complaint, which was premature at that stage in the proceeding. Because of this, defendants’ motion to dismiss for failure to state a claim was denied.

 

Takeaway: This case is good reminder that a franchisee can seek protection under a state’s franchise act by alleging not only that it paid a franchise fee, but also that it paid an “indirect” franchise fee.

 

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