How does the litigation history described in Cinnaholic's Item 3 potentially impact the franchisee's obligations outlined in Item 9?
Cinnaholic Franchise · 2025 FDDAnswer from 2025 FDD Document
Franchisor Initiated Litigation:
In Re: Cinnaholic Franchising, LLC v. Revel Systems Inc., Case No. 2023CV384522.
Franchisor filed suit against Revel Systems in the Superior Court of Fulton County, state of Georgia alleging that Revel fraudulently induced and then materially breached a Master Services Agreement (MSA), pursuant to which Revel was to supply a point-of-sale platform for the acceptance and processing of customer payment cards. Franchisor alleged that Revel knew of but did not disclose serious problems with its system, including frequent outages that left Revel clients unable to accept debit and credit cards from their customers. Franchisor sought damages in an undetermined amount and a judgment that the MSA is no longer in effect due to Revel's material breach. Revel counterclaimed alleging that Franchisor breached its obligation to deploy the Revel platform at a specific number of Franchisor locations by the end of 2022. The parties entered into a Confidential Settlement Agreement and Release of Claims, and this action was dismissed in August, 2024.
In Re: Cinnaholic Franchising, LLC v. Calipto Foods, Inc., Case No. 30-2022-01250359-CU-PT-CJC.
Franchisor terminated its Franchise Agreement with Calipto Foods, Inc. on December 30, 2021, and filed suit to compel arbitration on March 17, 2022, in the Superior Court of California for Orange County. Former franchisee initially opposed Franchisor's motion to compel arbitration. An order stipulating to arbitration was entered in the case on August 30, 2022. This case was dismissed without prejudice May 22, 2023.
What This Means (2025 FDD)
Based on the 2025 FDD, Item 3 outlines Cinnaholic's litigation history, which includes lawsuits the company initiated against a point-of-sale system provider (Revel Systems Inc.) and a former franchisee (Calipto Foods, Inc.). Item 9 typically details the franchisee's obligations, but the provided excerpts do not include Item 9. Therefore, it's not possible to directly connect the litigation history to specific franchisee obligations. However, the litigation history could indirectly affect a franchisee's obligations. For example, a dispute with a technology vendor like Revel Systems might lead to changes in the approved point-of-sale systems, potentially requiring franchisees to adopt new (and possibly costly) systems. Similarly, disputes with former franchisees could lead to stricter enforcement of franchise agreement terms, impacting current franchisees.
Several excerpts discuss the franchisee's rights and Cinnaholic's obligations, particularly in the context of Minnesota and New York laws. For instance, Minnesota Statute 80C.12 Subd. 1(G) states that Minnesota considers it unfair to not protect the franchisee's right to use the trademarks. The franchisor will protect the franchisee's rights to use the trademarks, service marks, trade names, logotypes, or other commercial symbols or indemnify the franchisee from any loss, costs, or expenses arising out of any claim, suit, or demand regarding the use of the name. This suggests that Cinnaholic is obligated to protect the franchisee's right to use its trademarks and indemnify them from related legal claims.
In New York, the addendum to the franchise agreement specifies that Cinnaholic will not assign the agreement except to an assignee willing and able to assume Cinnaholic's obligations. It also clarifies that the franchisee retains all rights and causes of action arising from Article 33 of the General Business Law of the State of New York, ensuring that non-waiver provisions are satisfied. Additionally, the indemnification clause in Section 18.1 of the agreement does not apply to claims arising from Cinnaholic's breach of the agreement or any other civil wrong. These stipulations aim to protect the franchisee's rights and limit their obligations in certain situations.
To fully understand the potential impact of Cinnaholic's litigation history on a franchisee's obligations, a prospective franchisee should carefully review Item 9 of the FDD, which specifically outlines those obligations. They should also inquire about how past litigation has influenced Cinnaholic's operational procedures, franchisee support, and enforcement of franchise agreement terms. Understanding these aspects will provide a clearer picture of the potential risks and responsibilities associated with investing in a Cinnaholic franchise.