When Franchisee Counsel Goes Too Far

By Barry M. Heller and Scott McIntosh

The vast majority of franchisors have seen their share of complaints filed by franchisees that are anything but the "short and plain statement of the claim" mandated by the Federal Rules of Civil Procedure. See Fed. R. Civ. P. 8(a)(2). Such complaints frequently contain numerous claims, many of which are precluded by the terms of the franchise agreement or by applicable law. A recent federal court decision Dunkin' Donuts Incorporated v. N.A.S.T., Inc., No. 02 C 1272, 2003 U.S. Dist. LEXIS 9849 (N.D. Ill. docketed June 12, 2003), illustrates that there can be deterrents against lawyers who irresponsibly (and especially repeatedly) bring meritless claims against franchisors.

In N.A.S.T., the franchisee filed a counterclaim to the franchisor's complaint for an asserted violation of the franchise agreement. The court characterized the franchisee's filing as "an attacka 96 paragraph, nine count Counterclaim." After Dunkin' Donuts filed a motion for partial summary judgment, the franchisee sought to withdraw the aspects of its counterclaim that had been grounded in breach of fiduciary duty, conversion, negligence, and unjust enrichment. Dunkin' Donuts responded by seeking attorneys' fees and costs that it had incurred in defending against the claims the franchisee had withdrawn. Before considering the merits of Dunkin' Donuts' request, the district court found it worth repeating that the franchisee's counsel "appears to have made somewhat of a career out of franchisee litigation against Dunkin' [Donuts]."

The district court framed its inquiry as whether the four theories of counter-recovery "were not asserted in objective good faith (see 28 U.S.C. 1927 ('Section 1927')) or were even advanced in bad faith (sanctionable under the inherent power doctrine articulated in Chambers v. NASCO, Inc., 501 U.S. 32, 43-51 (1991))." Before evaluating the claims, the court noted that it was not necessary to consider the "bad faith" standard in Chambers and that, in the interests of the attorney-client privilege, the court would not seek to determine whether sanctions would more appropriately be imposed on the franchisee or franchisee's counsel, but would instead allow the franchisee and his counsel to determine among themselves the apportionment of any monetary sanctions.

Analyzing each of the four voluntarily dismissed claims separately, the court found that each of the claims did not satisfy the "objective good...