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Court Watch

By Susan H. Morton and David W. Oppenheim
August 10, 2004

Concealing Rebates from Franchisee No Violation, But Minnesota Court Rules Earnings Claims Might Be Fraudulent

The U.S. District Court for the District of Minnesota has ruled that a tire and oil-change franchisor's failure to disclose rebates that it received from suppliers did not violate the Illinois Franchise Disclosure Act (IFDA) or constitute fraud by omission, but it may have committed fraud under the IFDA and common law by making sales projections that were false and not included in the UFOC as earnings claims. In a separate opinion, the court permitted the franchisee to amend the counterclaim to request punitive damages. Team Tires Plus, Ltd. v. Mark Heartlein, et al., __ F.Supp.2d __, CCH Bus. Fran. Guide Par. 12,820 and __ F.Supp.2d __, CCH Bus. Fran. Guide Par. 12,821 (D.Minn. 2004).

Tires Plus brought suit in Minnesota, its home state, against Heartlein, a franchisee based in Illinois with stores in both Illinois and Iowa. The suit alleged breach of contract for failure to pay fees. Heartlein then raised several counterclaims, against which Tires Plus moved for summary judgment. The parties agreed that Illinois law governed the counterclaims under the IFDA, but Minnesota law governed the other counterclaims. The court granted summary judgment for Tires Plus on the counterclaim involving non-disclosure of supplier rebates, but it denied summary judgment on the others, and it granted Heartlein leave to amend fraud counterclaims to request punitive damages.

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