Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—Cal. App: Refusal to enjoin termination of yogurt franchises not abuse of discretion, (Apr 20, 2016)

By Michael Menzhuber, J.D., LL.M.

A trial court did not abuse its discretion by denying a yogurt distributor’s request for a preliminary injunction, barring termination of its three franchises in Barcelona, Spain, the California Court of Appeal in Los Angeles has ruled. The appellate court agreed that the distributor failed to establish a likelihood of success on the merits of its fraudulent inducement, promissory estoppel, breach of contract, and breach of the implied covenant claims (Asha Vico S.L. v. Wellspring Industry, Inc., April 19, 2016, Blumenfeld, S.).

Asha Vico S.L. entered into a distribution agreement with Golden Global Limited to sell Tutti Frutti (TF) Frozen Yogurt at a store in Barcelona, Spain. The parties later entered into two separate agreements to open two additional stores in Barcelona.

An addendum to the distribution agreement provided Asha Vico with a right of first refusal for master licensing rights to the TF brand throughout Spain. If proposed, Asha Vico would have 60 days to accept a proposed exclusive agreement for master licensing rights. If Asha Vico refused the proposed exclusive agreement or failed to accept it within the 60-day period, the master licensing rights could be assigned to another party through a separate exclusive agreement.

In February 2014, Wellspring, Industry, Inc., acting on behalf of Golden Global, sent Asha Vico a proposed master licensing agreement. Asha Vico rejected the proposed master licensing agreement on March 20, 2014. The parties, however, continued to discuss a possible agreement. On August 5, 2014, Wellspring terminated the negotiations. Asha Vico’s distribution agreements were subsequently terminated by Golden Global.

After filing a complaint against Golden Global and Wellspring, Asha Vico filed a motion for a preliminary injunction. The trial court found that Asha Vico had not demonstrated a likelihood of prevailing on the merits and denied the motion. Asha Vico appealed the judgment on the basis that the trial court abused its discretion.

The appellate court determined that the negotiating history between the parties strongly supported the trial court’s finding that Asha Vico declined to accept the proposed master licensing agreement within 60 days of it being offered. The trial court reasonable rejected Asha Vico’s claim that Wellspring was operating in bad faith because there was no evidence that (1) the terms of the proposed master agreement were so appalling as to shock the conscience and (2) Wellspring had offered more favorable terms to Strauss while it was negotiating with Asha Vico.

Additionally, Asha Vico’s remaining arguments lacked merit. Specifically, there was no authority that would allow an adverse inference against the defendants for exercising their rights to challenge discovery. Also, Asha Vico’s argument—that it did not reject Golden Global’s offer for a master licensing agreement because the offer was extended by Wellspring—was without merit because there was substantial evidence that Wellspring was acting on behalf of Golden Global.

The case is No. B260766.

Attorneys: David Martinez, Jennifer W. Leland, and Eliot M. Houman (Robins Kaplin) for Asha Vico S.I. Jules L. Kabat, Irene Y. Lee, and Paul A. Kroeger (Russ, August & Kabat) for Wellspring Industry, Inc.

Companies: Asha Vico S.L.; Wellspring Industry, Inc.

Cases: FranchisingDistribution LouisianaNews