Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION NEWS: Publisher of “fun family newspaper” claims it was franchisee, (Feb 14, 2014)

By Peter Reap, J.D., LL.M.

Hometown Publishing, LLC, has filed suit in the federal district court in Raleigh against Kidsville News! Inc., alleging that that the Fayetteville, North Carolina-based company sold it an illegal franchise by failing to provide the required disclosures mandated by the FTC Franchise Rule. Hometown, a New Jersey entity, includes in its complaint claims for violation of the North Carolina Unfair and Deceptive Trade Practices Act (“NCUDTPA”) and for fraud by omission.

According to the complaint, on or about May 3, 2010, the parties entered into a Publisher License Agreement wherein Hometown was granted a non-exclusive, non-transferable license to use Kidsville’s trademarks in connection with publishing a version of Kidsville’s “fun family newspaper” in an exclusive assigned territory, and advertising thereof, including use on signage, print advertising, correspondence with potential and existing readers, sponsors and advertisers and other promotional materials used in connection with publishing the newspaper.

Hometown asserts that it obtained the right to operate a business that was identified or associated with Kidsville’s mark, and that Kidsville exerted authority and control over the operation of Hometown’s business, meeting those elements of the Franchise Rule’s definition of “franchise.” Moreover, Hometown contends that it paid Kidsville a franchise fee under the meaning of the Franchise Rule, pointing out that the parties’ agreement required Hometown to pay an annual license fee of $13,800 in quarterly installments. After signing the agreement, Hometown paid a total of $6,900 to Kidsville, including $1,150 for the quarterly license fee.

Hometown alleges that Kidsville committed a deceptive and unfair trade practice by holding itself out as a licensor (versus a franchisor), without complying with the required laws and regulations governing franchising regarding providing required disclosures to prospective franchisees, including Hometown, as required by the Federal Franchise Rule. Further, as a proximate result of Kidsville’s fraudulent omissions, Hometown was induced to enter into the agreement with Kidsville and consequently was damaged in an amount in excess of $350,000.

The complaint requests compensatory as well as special, punitive, and/or treble damages, and an award of Hometown’s costs and attorney fees.

The complaint in Hometown Publishing, LLC v. Kidsville News! Inc., Case No. 5:14-CV00076, was filed February 11, 2014.

Attorneys: Mario L. Herman (Law Offices of Mario L. Herman) for Hometown Publishing, LLC.

Companies: Hometown Publishing, LLC; Kidsville News! Inc.

News: FranchisingDistribution NorthCarolinaNews