Fisher & Zucker
FRANCHISE ALERT - November 1999 Newsletter Article

Choose Your Words Carefully

Language used in correspondence to a delinquent franchisee can be crucial to the enforcement of a franchisor's post-termination rights. In Baskin-Robbins, Inc. v. Douglass, 1999 WL 528194 (S.D.N.Y. July 22, 1999), a New York federal court refused to enjoin a Baskin-Robbins franchisee from continuing to operate using Baskin's trademarks after Baskin terminated the franchise agreement. The court based its decision entirely on the wording of a termination letter from Baskin's counsel to the franchisee.

Baskin issued the termination letter to its franchisee in June 1998. In the termination letter, Baskin advised the franchisee that the franchise agreement was terminated because the franchisee failed to cure financial defaults identified in a previous notice of default. The termination letter, however, also advised the franchisee that if the franchisee contested the termination, Baskin would seek a judicial determination regarding the termination and judicial enforcement of its rights. In an apparent effort to avoid a wrongful termination claim and to preserve the rights of the parties, Baskin also stated in the termination letter that if the franchisee contested the termination, Baskin would continue to honor its obligations under the franchise agreement (and expected the franchisee to comply with its obligations) until a judicial determination of the parties' rights.

When the franchisee failed to comply with its post-termination obligations, Baskin filed a federal lawsuit, asserting claims for breach of contract, trademark infringement and unfair competition. Baskin subsequently moved for a preliminary injunction to enjoin the franchisee from using its trademarks.

The court denied Baskin's motion and granted summary judgment to the franchisee on Baskin's claims for trademark infringement and unfair competition. The court found that Baskin would not likely succeed on the merits of its claim because the language of the termination letter granted the franchisee express permission to use Baskin's trademarks until a judicial determination was rendered. Because a judicial determination requires an adjudication on the merits, the court reasoned that the franchisee was permitted to use Baskin's trademarks (and was therefore incapable of committing trademark infringement) until the final hearing of the case.

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