Franchisee 101: Planet Interference

Lewitt Hackman

A federal court in New Hampshire found a multi-unit operator of five Planet Fitness gyms plausibly alleged the franchisor interfered with its business relationships and denied Planet Fitness’ motion for judgment on the pleadings.

JEG-United (“JEG”) alleged it entered into a letter agreement with Planet Fitness, in which they agreed to negotiate an agreement giving JEG the opportunity to establish Planet Fitness gyms in Mexico. If the parties reached an agreement, separate franchise agreements would govern each additional location.

JEG claimed Planet Fitness interfered with three transactions to develop additional gyms: (1) Planet Fitness instructed a retail company with whom JEG had a preexisting landlord-tenant relationship, to stop working with JEG in creating a portfolio of potential locations; (2) Planet Fitness attempted to convince a potential buyer of JEG’s gyms that Planet Fitness would sell gyms to them on better terms; and (3) Planet Fitness interfered with JEG’s negotiations to buy competing gyms and convert them to Planet Fitness gyms, to expand Planet Fitness’ growth in Mexico.

In response to each alleged interference, Planet Fitness argued it would have been a necessary party to any future franchise agreement and would have the right to pre-approve new locations.

The court disagreed, finding JEG had a plausible claim for interference in each of the three instances. While Planet Fitness would be a party to any future franchise agreement and could later refuse to grant franchise contracts to JEG, the franchise relationship between Planet Fitness and JEG did not make Planet Fitness a party to contracts, agreements, and negotiations between JEG and third parties. Multi-unit developers’ duties typically include negotiating with landlords and vendors to develop franchised locations. While a franchisor seeks to control and protect its brand in connection with potential locations and agreements, its options to inject itself directly in a developer’s third-party dealings may be limited. A franchisor may be subject to tortious interference, breach of the implied covenant of good faith and fair dealing, and related claims.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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