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Association of Independent BR Franchise Owners v. Baskin Robbins Franchising, LLC

United States District Court, D. Massachusetts

September 27, 2017

ASSOCIATION OF INDEPENDENT BR FRANCHISE OWNERS, Plaintiff,
v.
BASKIN ROBBINS FRANCHISING, LLC, Defendant.

          FINDINGS OF FACT, RULINGS OF LAW, & ORDER

          WILLIAM G. YOUNG DISTRICT JUDGE.

         I. INTRODUCTION

         In this action for declaratory relief, the Association of Independent BR Franchise Owners (the “Association”) seeks a judgment that franchisor Baskin Robbins Franchising, LLC (“Baskin”) has no contractual right to charge its franchisees a “Commercial Factor Fee.” The parties have now filed cross-motions for summary judgment, Pl. Association Independent BR Franchise Owners Mem. Law. Supp. Mot. Summ. J. (“Pl.'s Mem.”), ECF No. 56; Pl.'s Mem. Points and Authorities Resp. Mot. Summ. J. (“Pl.'s Opp'n”), ECF No. 65; Pl. Association Independent BR Franchise Owners Reply Supp. Mot. Summ. J. (“Pl.'s Reply”), ECF No. 73; Mem. Def. Baskin-Robbins Franchising LLC Supp. Mot. Summ. J. (“Def.'s Mem.”), ECF No. 53; Mem. Def. Baskin-Robbins Franchising LLC Opp'n Mot. Pl. Association Independent BR Franchise Owners Summ. J. (“Def.'s Opp'n”), ECF No. 64; Reply Mem. Def. Baskin-Robbins Franchising LLC Supp. Mot. Summ. J. (“Def.'s Reply”), ECF No. 72, and accompanying statements of fact, Pl. Association Independent BR Franchise Owners Statement Undisputed Material Facts (“Pl.'s Facts”), ECF No. 57; Def. Baskin-Robbins Franchising LLC's Statement Material Facts (“Def.'s Facts”), ECF No. 54. By agreement of the parties, this Court held a case stated hearing[1] on June 9, 2017, Electronic Clerk's Notes, ECF No. 74, and here issues findings of fact and rulings of law.

         II. FINDINGS OF FACT

         Baskin is a Delaware limited liability company with its principal place of business in Canton, Massachusetts. Def.'s Facts ¶ 1. For over fifty years, Baskin has licensed independent business owners to operate ice cream shops that use the Baskin Robbins trademark and sell Baskin's proprietary ice cream and related products. Id. ¶ 4. Members of the Association are standalone franchisees that collectively own eighty-four Baskin Robbins stores. Compl. ¶¶ 15-16.

         Prior to 1998, Baskin franchisees either paid no royalty fees or paid a small percentage of “Continuing Franchise Fees” (0.5%), and purchased the vast majority of their ice cream products from Baskin or an affiliate. Pl.'s Facts ¶¶ 1-2. As a result, Baskin derived its primary revenue from the sale of ice cream products. Id. In 1998, Baskin offered its franchisees a “Royalty Conversion Program” that: 1) raised or imposed for the first time a Continuing Franchise Fee of 4.9%; 2) raised the advertising fee paid by the franchisee to 5.0%; 3) lowered the costs for ice cream products and other goods; and 4) charged a “Commercial Factor” on ice cream and other products. Id. ¶ 3. The vast majority of then existing franchisees accepted the terms of the program, and executed conversion agreements that included terms requiring franchisees to pay to Baskin a “Commercial Factor” on its ice cream and related products. Id. ¶ 6. Today, the number of franchisees remaining subject to these conversion agreements is close to zero. Id.

         Beginning in 2000, new and renewing franchisees have entered into a franchise agreement (which the Association refers to as the “Current Franchise Agreement”[2]) that does not contain the terms “Commercial Factor” or “Commercial Factor Fee.” Id. ¶ 9. Also in 2000, Baskin ceased production of ice cream, outsourcing the manufacture and wholesale distribution of its proprietary products to Dean Foods, a dairy vendor designated by Baskin. Def.'s Facts ¶ 6. Pursuant to the Current Franchise Agreement (“Agreement”), franchisees must purchase all of their ice cream and related products from Dean Foods. Id. ¶ 9. Dean Foods pays a fee to Baskin based on the volume of Dean Foods's sales of certain products to Baskin franchisees. Id. ¶ 7. This basic arrangement has been in effect for approximately sixteen years. Id. ¶ 11.

         Dean Foods charges Baskin franchisees a “Commercial Factor” on products. Id. ¶ 9. In 2016, franchisees paid a commercial factor of $1.26 per tub of ice cream, and $6.52 per case of Pastry Pride Non-Dairy Whip Topping. Pl.'s Facts ¶¶ 12-13.

         Each Agreement contains an integration and merger clause, which provides that the Agreement can only be modified by a writing signed by the parties. Pl.'s Facts ¶ 18. For example, the 2000 Agreement contains a clause that states:

This Agreement, and the documents referred to herein shall be the entire, full and complete agreement between FRANCHISOR and FRANCHISEE concerning the subject matter hereof, and supersedes all prior agreements, no other representation having induced FRANCHISEE to execute this Agreement; and there are no representations, inducements, promises or agreements, oral or otherwise, between the parties not embodied herein, which are of any force or effect with reference to this Agreement or otherwise. No amendment, change or variance from this Agreement shall be binding on either party unless executed in writing.

Id., Ex. 3, Baskin-Robbins 2000 Franchise Agreement, BASKIN0000910, ECF No. 57-3.

         III. RULINGS OF LAW

         The issue before the Court is the interpretation of the Current Franchise Agreement. The Association views the dispute fundamentally as concerning the scope of contractually permissible fees, contending that because the fully integrated franchise agreements do not include a “Commercial Factor Fee” as part of the Agreement's fee provisions, franchisees have no contractual obligation to pay such fees. Pl.'s Opp'n 12-13. On the other hand, Baskin frames the dispute as one concerning product pricing, arguing that the Commercial Factor is simply a franchise fee charged to Dean Foods, that Dean Foods then passes on to the purchasers of their products, the franchisees. Def.'s Mem. 1-2. The Court begins with the proper characterization of the Commercial Factor, then examines the relevant provisions of the Agreement and the parties' course of dealing.

         A. ...


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