Association of Independent BR Franchise Owners v. Baskin Robbins Franchising, LLC
1:16-cv-10963
D. Mass.Sep 27, 2017Background
- Baskin Robbins Franchising, LLC (Baskin) licenses independent franchisees to operate Baskin Robbins stores; the Association represents 84 standalone franchise owners.
- Older (pre-1998) franchise arrangements produced revenue largely from product sales; a 1998 Royalty Conversion Program introduced a 4.9% continuing franchise fee, higher advertising fee, lower product costs, and a “Commercial Factor” charged on products.
- Since 2000, franchisees have executed integrated written Franchise Agreements that do not mention a “Commercial Factor Fee,” and these Agreements require purchase of Baskin products from Baskin’s designated supplier (Dean Foods) at the supplier’s prices.
- Dean Foods pays Baskin a fee based on volume and charges franchisees a line-item called a “Commercial Factor” that is embedded in Dean Foods’ product price; franchisees paid these charges for years without successful objection.
- The Association seeks a declaratory judgment that Baskin has no contractual right to charge franchisees a Commercial Factor Fee; Baskin contends the Commercial Factor is a pass-through component of product pricing (a fee it charges Dean Foods and Dean Foods passes on).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether franchisees are contractually obligated to pay the Commercial Factor | The integrated Franchise Agreements list fees payable to Baskin and do not include a "Commercial Factor Fee," so franchisees owe no such fee | The Agreements require franchisees to buy products from Baskin’s designee at the designee’s prices; Baskin charges Dean Foods a franchise fee that Dean Foods may pass through as part of product price | Held for Baskin: Commercial Factor is a pass-through component of product price and not an unauthorized extra fee on franchisees |
| Whether the term "Commercial Factor" is a separate franchisor fee payable by franchisees | Commercial Factor is functionally a Baskin fee collected through Dean Foods and thus must be listed in the Agreement’s fee provisions | It is a pricing component of Dean Foods’ wholesale price for required products and not a separate franchise fee listed in the Agreements | Court treated Commercial Factor as part of product price (pass-through) rather than an independent unlisted fee |
| Whether extrinsic evidence/course of dealing alters contract interpretation | The Agreement is integrated and unambiguous; extrinsic evidence is unnecessary to bar the fee | Course of performance (years of payment, disclosures, Brand Contribution Plan funded from Commercial Factors) confirms parties’ understanding that the charge was permissible | Even if considered, course of dealing supports Baskin’s interpretation; court need not rely on extrinsic evidence |
| Proper method of contract interpretation under Massachusetts law | Integration/merger clause bars collateral promises; lack of explicit fee means it cannot be imposed | Contracts construed as a whole, including product-pricing clauses that allow purchase at supplier prices | Court interprets the contract as a whole and applies Massachusetts law: product-pricing provisions permit the pass-through Commercial Factor |
Key Cases Cited
- Norfolk & Dedham Mut. Fire Ins. Co. v. Morrison, 456 Mass. 463 (Mass. 2010) (contract interpretation and ambiguity are questions of law for the court)
- Eigerman v. Putnam Invs., Inc., 450 Mass. 281 (Mass. 2007) (whether a contract is ambiguous is a question of law)
- Boston Edison Co. v. Federal Energy Regulatory Comm'n, 856 F.2d 361 (1st Cir. 1988) (interpretation of integrated agreements considers transaction circumstances)
- Hemi Group, LLC v. City of New York, 559 U.S. 1 (U.S. 2010) (third-party use can be relevant in fraud contexts; referenced regarding third-party conduits)