Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—W.D. Mo.: Dr. Vinyl breaches contract, ordered to pay franchisee $10K, (Jun 1, 2016)

By Greg Hammond, J.D.

Dr. Vinyl, a professional vinyl and leather repair franchisor, has been ordered to pay a former franchisee $10,000 for violating a master franchise agreement. The federal district court in Kansas City, Missouri, concluded that Dr. Vinyl failed to pay the master franchisee a commission for selling a franchise in Oklahoma (Restored Images Consulting, LLC v. Dr. Vinyl & Associates, Ltd., May 31, 2016, Kays, G.).

Restored Images Consulting, LLC signed a master franchise agreement with Dr. Vinyl & Associates, Ltd. in December 2004. Subsequently, Restored Images filed suit against Dr. Vinyl, alleging that Dr. Vinyl breached the agreement by failing to pay Restored Images a $10,000 commission when it sold a franchise in Oklahoma. Dr. Vinyl filed counterclaims and brought Restored Images’ owner into the litigation as a third-party defendant.

Breach of contract. The court concluded that Dr. Vinyl breached the master franchise agreement by failing to pay the commission and consequently ordered Dr. Vinyl to pay Restored Images $10,000. In reaching its conclusion, the court determined that Restored Images performed its obligations under the agreement. Although Restored Images did not sell the required number of franchises under the master franchise agreement, Dr. Vinyl waived its right to enforce that part of the contract because it did not demand performance for more than nine years and did not terminate the master franchise agreement for nonperformance. In addition, Dr. Vinyl continued to pay Restored Images royalties. The court additionally found that the statute of limitation period did not bar Restored Image’s claim because it was brought within the relevant 10 year statute of limitations.

Dr. Vinyl’s claims. The court next determined that Dr. Vinyl failed to prove any of its claims against Restored Images for breach of the master franchise agreement for accepting royalty overpayments, unjust enrichment, conversion, breach of the master franchise agreement for revealing trade secrets, and tortious interference. In particular, the court found that no provision in the agreement required Restored Images to refund royalty overpayments. In addition, the overpayments were voluntary, which precluded Dr. Vinyl from proving a claim of unjust enrichment. The court also determined: (1) because Dr. Vinyl unconditionally gave Restored Images the overpaid royalties, it could not prove conversion; (2) the non-compete agreement did not bind Restored Images, so Restored Images did not violate the agreement’s trade secret provision and non-compete clause; and (3) Restored Images did not tortiously interfere with a business expectancy because Dr. Vinyl had no valid business expectancy and suffered no damages.

Dr. Vinyl’s claims against Restored Images’ owner were also rejected. The court determined that the owner was not liable on his guaranty because Restored Images did not owe Dr. Vinyl any debts. Furthermore, Dr. Vinyl’s failure to provide the owner with any advertising for his franchise demonstrated that Dr. Vinyl breached the franchise agreement, which excused the owner’s failure to make franchise fee payments.

The case is No. 4:14-CV-527-DGK.

Attorneys: Elliot S. Wiczer (Wiczer & Sheldon, LLC) and Robert Flynn (The Flynn Law Firm, PC) for Restored Images Consulting, LLC. Gary M. Steinman (Schulz, Bender, Maher, Hill & Steinman, PC) for Dr. Vinyl & Associates, Ltd.

Companies: Restored Images Consulting, LLC; Dr. Vinyl & Associates, Ltd.

Cases: FranchisingDistribution MissouriNews