SUBLICENSE VIOLATED STATE'S FRANCHISE SALES ACT
Because they paid fees to defendants so that “D’Lites” brand ice-cream products could be sold in plaintiffs’ stores, the latter filed suit in New York County Supreme Court alleging violations of the state’s Franchise Sales Act. Among other things, it was claimed that the defendants failed to make certain pre-sale, written disclosures which were required by the law, including “the actual revenues they were to derive from the required purchase by plaintiffs of the ice cream mix at a marked-up price.”
While the parties’ agreement was described as a “sub-license,” and clearly noted that no franchise relationship was being created, both the New York County Supreme Court and the Appellate Division, First Department, were of the view that disclaimer was “ineffective,” and that liability for the law’s violation attached. Where the AD1 disagreed with the underlying outcome was with the pre-trial dismissal of the “fraudulent inducement” cause of action brought against the defendants.
Since the AD1 thought there were “issues of fact” as to whether the defendants misrepresented “past and present profitability,” and whether plaintiffs were otherwise misled, the “fraudulent inducement” claim was reinstated. (And whether the defendants’ conduct was “willful and material,” such that it triggered their statutory obligation to pay their opponents’ legal fees, was also left for resolution at trial.)
Think they found any D’Lite in that?
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DECISION