Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION NEWS: Supreme Court declines review in Dickey’s Barbecue misrepresentation suit, (Apr 18, 2016)

By Greg Hammond, J.D.

Dickey’s Barbecue Restaurants, Inc., a national franchisor of quick-service barbeque restaurants, was denied Supreme Court review today of a decision by the U.S. Court of Appeals in Richmond, Virginia, that reversed and remanded a district court’s denial of Dickey’s motion to compel arbitration. Franchisees filed suit against Dickey’s in the federal district court in Greenbelt, Maryland, claiming that Dickey’s misrepresented start-up and other costs in violation of Maryland franchise law (Dickey’s Barbecue Restaurants, Inc. v. Chorley Enterprises, Inc., Dkt. 15-719).

The appellate court concluded that common law claims of fraud and breach of contract must proceed in arbitration, while the franchisees’ Maryland Franchise Law claims must proceed in the Maryland district court. Dickey’s argument that the Federal Arbitration Act preempts a franchise agreement clause that stated the agreements “shall not require” the franchisees to waive their “right to file a lawsuit alleging a cause of action arising under Maryland Franchise law in any court of competent jurisdiction in the State of Maryland” was unavailing. The appellate court noted that when a party to a contract voluntarily assumes an obligation to proceed under certain state laws, traditional preemption doctrine does not apply to shield a party from liability for breach of that agreement.

The petition asked: Is an otherwise-preempted state law, rule, or regulation that is required by a state regulator to be included in a contract, as a condition and prerequisite for doing business in the state, not preempted on the ground that it was “voluntarily” included in the contract because the party (i) could have simply declined to do business in the state or (ii) could have filed a declaratory action challenging the state regulator’s position before including the otherwise preempted contract clause in its agreements?

Advertising, product mislabeling. Yarn retailer The Knit With was denied Supreme Court review of a decision entered by the U.S. Court of Appeals in Philadelphia, which affirmed that Knit With failed to sufficiently allege false advertising or racketeering claims to pursue an action against a group of yarn designers and a distributor for allegedly participating in a conspiracy to sell mislabeled yarn. The questions presented were: (1) Does the scope of a false advertising action categorically bar a retailer’s redress of marketplace injuries resulting from its wholesaler mis-labeling products supplied for re-sale to consumers when a federal statute mandates product labeling accurately disclose the products’ composition? (2) Does the holding in Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496-97 (1985)—that a plaintiff has 1964(c) standing only if, and can recover to the extent that, he has been injured in his business or property by the conduct constituting the violation—no longer reflect this Court’s determination whether a plaintiff has a cause of action (standing) under 18 U.S.C. 1964(c) or may courts determine a claim made to the measure of damages provided by 1964(c) negates a cause of action to redress injury to business of property by reason of another’s conduct of an enterprise through a pattern of racketeering activity? (The Knit With, A Pennsylvania Partnership v. Knitting Fever, Inc., Dkt. 15-1008).

State unfair trade practices, removal. The High Court denied review of the State of Vermont’s request to decide whether the U.S. Court of Appeals for the Federal Circuit erroneously took jurisdiction over a patent holder’s appeal of an order remanding the case to state court. Vermont filed unfair trade practices and deceptive trade practices claims against MPHJ Technology Investments, LLC, under the Vermont Consumer Protection Act, for purportedly sending deceptive demand letters to Vermont businesses. At issue was a September 28, 2015, decision by the Federal Circuit, holding that removal of the action was properly denied by a federal district court because Vermont’s complaint did not call into question federal law. The petition for review asked: Did the Federal Circuit erroneously take jurisdiction over this appeal of the remand order? (Vermont v. MPHJ Technology Investments, LLC, Dkt. 15-838).

Attorneys: Roger B. Kaplan (Greenberg Traurig, LLP) for Dickey’s Barbecue Restaurants, Inc. Russell J. Gaspar (Cohen Mohr, LLP) for Chorley Enterprises, Inc. Bridget C. Asay, Office of the Attorney General, for the State of Vermont. William Bryan Farney (Farney Daniels PC) for MPHJ Technology Investments, LLC. James F. Casale for The Knit With. Roy A. Klein for Knitting Fever, Inc.

Companies: Dickey’s Barbecue Restaurants, Inc.; Chorley Enterprises, Inc.; MPHJ Technology Investments, LLC; The Knit With; Knitting Fever, Inc.

News: Advertising FranchisingDistribution StateUnfairTradePractices