What are the implications of the pending litigation against ADQ (Item 3) for a potential Dq Treat franchisee's territory rights (Item 12)?
Dq_Treat Franchise · 2025 FDDAnswer from 2025 FDD Document
igation**
Pending Cases
Oakland Family Restaurants, Inc. and Lake Area Restaurants, Inc. v. American Dairy Queen Corporation (United States District Court, Eastern District of Michigan, Southern Division, #2:21-cv-12539-TGB-EAS, filed October 28, 2021). Plaintiffs, Dairy Queen® franchisees, initiated this litigation seeking a declaratory judgment that ADQ must allow them to divide their respective territories and assign their existing 1965 agreement to multiple transferees, each for a separate portion of their territory, rather than requiring each transferee to sign ADQ's current form of franchise agreement. Additionally, Plaintiffs claimed breach of contract resulting in monetary damages, promissory estoppel, attorney's fees and costs. On March 31, 2024, the court ruled in favor of ADQ and against Plaintiffs on all claims. Plaintiffs filed a Notice of Appeal on April 18, 2024, and oral argument was held on January 28, 2025. On March 12, 2025, the United States Court of Appeals for the Sixth Circuit issued Judgement affirming the district court's grant of summary judgement in favor of ADQ. The Sixth Circuit opined that, among other things, ADQ had good cause for conditioning consent to transfer on prospective franchisees' execution of a new agreement, ADQ did not breach its agreement with Plaintiffs and Plaintiffs were not entitled to
declaratory relief. On March 25, 2025, Plaintiffs filed a Petition for Panel Rehearing and Petition for En Banc Rehearing.
2-MNA, LLC vs. American Dairy Queen Corporation (State of Minnesota Fourth Judicial District Court, Hennepin County, #27-CV-24-12897, filed August 30, 2024). Plaintiff, a DQ franchisee, initiated this litigation seeking a temporary restraining order preventing ADQ from terminating Plaintiff's franchise agreement for the use and/or storage of rerun (defined as the use and/or storage of soft-serve mix that has been run through a soft serve machine) which is a public health and safety zero-tolerance violation of the franchise agreement. Plaintiff alleges breach of contract, breach of the implied covenant of good faith and fair dealing, and violation of the Minnesota Franchise Act. Additionally, Plaintiff is seeking temporary and permanent injunctive relief, compensatory damages, attorneys' fees, and costs. ADQ opposed the Plaintiff's motion for a temporary injunction.
What This Means (2025 FDD)
According to Dq Treat's 2025 Franchise Disclosure Document, the pending litigation against American Dairy Queen Corporation (ADQ) discussed in Item 3 does not directly impact the territory rights of a prospective Dq Treat franchisee, as clarified in Item 12. The litigation, Oakland Family Restaurants, Inc. and Lake Area Restaurants, Inc. v. American Dairy Queen Corporation, involved existing Dairy Queen franchisees seeking the right to divide their territories and assign their agreements to multiple transferees under the original 1965 agreement terms. The court ruled in favor of ADQ, a decision upheld by the United States Court of Appeals for the Sixth Circuit. The plaintiffs' subsequent petitions for rehearing were unsuccessful. This case primarily concerned the transfer and division of pre-existing territorial rights under older agreements, not the granting of new territories.
Item 12 of the FDD clearly states that Dq Treat franchises are site-only franchises, meaning franchisees are not granted any exclusive territory. Dq Treat franchisees operate at a specific authorized location and do not have territorial protection against competition from other franchisees, company-owned outlets, or alternative distribution channels controlled by ADQ. ADQ and its affiliates retain the right to operate or franchise competing businesses under various trademarks at any location, including non-traditional venues, without restriction. This includes the right to sell products and services through any distribution channels, including the internet, without compensating franchisees.
Therefore, the outcome of the Oakland Family Restaurants litigation reinforces ADQ's right to enforce its current franchise agreement terms, which do not include exclusive territories for Dq Treat franchisees. A prospective franchisee should understand that they will not have any territorial protection and may face competition from other Dq Treat stores, DQ Grill & Chill locations, or other businesses operated or franchised by ADQ. This lack of territorial exclusivity is a critical factor to consider when evaluating the potential profitability and competitive landscape of a Dq Treat franchise.