Franchise Lawyer Blog

Rights of Franchisees

Periodically we will examine recent decisions and statutory developments that relate to the relationships of franchisors and franchisees. The following is a developing case of significance.

Unless the Court of Appeals rules otherwise–and whether the high court of New York State will even hear the issue remains to be seen–a franchisor may not employ a pre-sale questionnaire subscribed by a prospective franchisee to summarily defeat the franchisee’s claims of fraud brought under the New York Franchise Act.

In Emfore Corp. v. Blimpie Associates, Ltd, et al., the Appellate Division, First Department reversed the trial court’s dismissal of a franchisee plaintiff’s claims of fraud in the inducement under section 687 of the NY Franchise Act, holding that subsections (4) and (5), the “anti-waiver” provisions of the Act, preclude such dismissal.

Blimpie, supported by the International Franchise Association as amicus curiae, moved the First Department to reconsider, maintaining that questionnaires are used to root out fraud, not to foster it; the appellate court in May modified its decision and order, but did not alter its general holding. Again with the IFA in its corner, Blimpie most recently moved the First Department for a clarification of its ruling or, in the alternative, leave to appeal to the Court of Appeals. The First Department last week denied the motion in its entirety.

Einbinder & Dunn represents Emfore Corp.

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