Mark Bloom and Gene Scheiman, partners in Arent Fox’s New York office, won a major victory for our client, Dale Carnegie & Associates, Inc., when a New York State trial court granted their motion for a summary defense judgment in a litigation brought by a former franchisee of Dale Carnegie territories in the United Kingdom.

“It is a significant decision with important implications for Dale Carnegie and its franchise system, which is located throughout the United States and the world,” Bloom said.

Scheiman added, “A negative decision after trial could have substantially raised the risk of claims from other former franchisees looking to Dale Carnegie as a ‘deep pocket’ guarantor of continuing license fees.”

• The Litigation

In 2005, the former franchisee, P. Sherman Brown, filed suit against Dale Carnegie & Associates (DCA) and the new franchisee, Business Leadership Group, alleging BLG failed to pay certain continuing license fees as required by the original franchise agreement with DCA.

In its claims against DCA, Brown alleged that Dale Carnegie breached its franchisee agreement with him because the territories Brown once managed at a profit did not perform as well once they were assigned to BLG. Brown claimed the reduction in the productivity and profitability of the territories it previously managed was proof that DCA did not act in good faith when it selected BLG as the successor franchisee.

Following discovery and other favorable dispositive motion practice, Bloom and Scheiman filed their summary judgment motion. They framed the motion around contract language and the court’s earlier rulings that good faith was implied therein. Bloom and Scheiman argued, among other bases, that Brown’s cause of action should be dismissed because DCA’s interests were, in fact, financially aligned with Brown’s when it selected the successor franchisees.

Bloom and Scheiman specifically pointed to the language of the franchisee agreement itself, which provided that DCA was not “a guarantor of the payment of the Continuing License Fee” to Brown.

• Court Grants Arent Fox’s Motion

The court agreed, granted DCA’s motion and dismissed plaintiff’s case. Rejecting Brown’s argument that DCA had not acted in good faith when it selected BLG as the successor franchisee, the court stated:

“DCA has proved that it made reasonable efforts to choose a successor [franchisee] for the Brown territories, The DCA/Brown license agreement does not set forth any specific criteria that DCA had to follow in selecting a successor [franchisee] and that DCA failed to adhere to.”

“Having proved that it complied with its obligations under the DCA/Brown license agreement, DCA is entitled to summary judgment,” the court concluded, giving DCA a major legal victory for their franchise system.

If you should have any questions about the decision, or if you would like to learn more about Arent Fox's franchise practice, please do not hesitate to contact our attorneys.