Twin City Lodging LLC bought a Best Western Hotel in Mankato, Minnesota, then entered into a “Membership Agreement” with Best Western International. Best Western granted Twin City a license to operate the hotel under Best Western’s brand. Not long after, Best Western terminated Twin City’s membership and sued for breach of contract, trademark infringement and other claims. Twin City counterclaimed. Each moved to dismiss the other’s claims and the rulings hinged on whether Best Western was a franchisor under the Minnesota Franchise Act (“MFA”).
Twin City’s counterclaim alleged violations by Best Western of the MFA. Best Western moved to dismiss the counterclaim, arguing it was not a franchisor subject to the MFA but rather a non-profit corporation. The judge found Twin City plausibly alleged Best Western was subject to the MFA and rejected Best Western’s argument that it was a “nonprofit marketing cooperative,” not a franchisor.
The judge concluded that all three requirements for a franchise were met:
(1) a right granted to Twin City to engage in business using Best Western’s trade name or other commercial symbol;
(2) a “community of interest” in the marketing of goods or services between the franchisee and franchisor, because the parties had a shared interest in operating a successful hotel under Best Western’s name; and
(3) a “franchise fee” paid by the franchisee in the form of “entrance fees” and “annual dues” paid to Best Western.
The judge then found that Twin City sufficiently pleaded violations based on Best Western’s failure to register, and termination without required notice or good cause. However, Twin City’s claim that Best Western unlawfully discriminated was dismissed for failure to allege facts showing that Twin City was treated differently than any other comparable franchise.
If a business relationship feels like a franchise relationship, there’s a good argument, and good chance, that it is a franchise subject to state and federal franchise rules and regulations. Such rules and regulations seek to benefit franchisees and can be invoked if the franchisee is mistreated by the franchisor or the business relationship is wrongfully terminated.
Source: Best Western Int'l Inc. v. Twin City Lodging LLC, Case No. CV-18-03374-PHX-SPL (D. Ariz. July 30, 2019) [2019 WL 3430174]
