Franchise counsel should be aware of a number of significant judicial decisions rendered over the past year addressing charges of fraud attendant to the sale of a franchise network; whether a prospective franchisee may invoke the protections of the New York Franchise Act after being denied a franchise by a major convenience store franchisor; whether a law firm may be held jointly and severally liable with its franchisor client for violations of the New York Franchise Act;1 and, the trouble that franchisors can get into when their franchisees do not properly identify themselves as such.
Fraud and Misrepresentation
In Century Pacific Inc. v. Hilton Hotels Corp. et al.,2 a franchisee of Red Lion Hotels alleged that the prior owner of that system—Hilton Hotels Corporation (now known as Hilton Worldwide Inc.)—committed fraud and misrepresentation by allegedly misrepresenting its intention to sell the Red Lion franchise network to a third party.3 Plaintiff essentially claimed that Hilton Hotels knew of its plans to sell the Red Lion network at the time that plaintiff entered into Red Lion franchise agreements but failed to inform plaintiff of this fact.
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