Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—8th Cir.: Law firm’s withdrawal from lawsuit against franchisor not prejudicial, (Mar 14, 2016)

By Linda O’Brien, J.D., LL.M.

A franchisor’s counsel should have been allowed to withdraw from a case after the franchisor failed to pay its legal fees and failed to provide certain information related to its defense, the U.S. Court of Appeals in St. Louis has ruled. The withdrawal would not severely prejudice the franchisor or any third parties, according to the appeals court (Sanford v. Maid-Rite Corporation, March 11, 2016, Per Curiam).

In 2013, current and former franchisees filed suit against diner-style restaurant franchisor Maid-Rite Corporation and its executives, Bradley and Tania Burt, asserting claims for breach of contract, fraud, negligent misrepresentation, and violations of state franchise and consumer protection laws. The franchisees alleged that the defendants had made misrepresentations in franchise disclosure documents and business plans about the company’s profitability that induced them into purchasing franchises and opening Maid-Rite restaurants. The franchisees contended that they suffered losses of over $4 million.

The defendants retained Larkin, Hoffman, Daly & Lindgren, Ltd. as counsel in September 2014 and agreed to the terms of its engagement letter, which explained that the defendants would be billed on a monthly basis for services performed and costs incurred. Larkin sent invoices to the defendants every month from September 2014 through January 2015. Although the defendants paid the September 2014 invoice, they failed to make any subsequent payments. The defendants also failed to provide Larkin with information critical for its defense.

Larkin moved to withdraw in January 2015. In March 2015, a magistrate judge denied the motion and the denial was later affirmed by the district court. Larkin filed an interlocutory appeal.

The district court abused its discretion in denying Larkin’s motion to withdraw, the appellate court determined. First, Larkin met the requirements of the Minnesota Rules of Professional Conduct, since the defendants’ refusal to pay and failure to provide information important to their defense was a “substantial failure to fulfill an obligation to the lawyer.” Second, Larkin provided the defendants with notice at least four weeks prior to filing its motion to withdraw, over six months prior to the close of discovery, and over one year from the earliest possible trial date.

Third, since there were no immediate deadlines in the case, the defendants had sufficient time to secure new counsel. Finally, the defendants failed to identify any prejudice to third parties, and the plaintiffs did not oppose Larkin’s motion. Thus, it was appropriate for Larkin to seek withdrawal, the appellate court concluded.

The case is No. 15-2424.

Attorneys: William Michael Garner (Garner & Ginsburg, P.A.) for Don Sanford, Don's Crumble Beef Sandwich Shoppe and Detroit Lakes Maid-Rite, LLC.

Companies: Don's Crumble Beef Sandwich Shoppe; Detroit Lakes Maid-Rite, LLC; Maid-Rite Corporation

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