Ryan is an attorney and valuation specialist residing in Chicago. He chronicles his thoughts and research on FranchisePundit.com. You may reach him by email ryanknoll@gmail.com or mobile telephone 312-212-3423.
What can go wrong if your franchisor is also your supplier? A lot. Krispy Kreme, along with many franchisees such as Dippin’ Dots, are required to buy supplies direcly from the company. So what’s the big deal, right? Well, what do you do if they threaten to not ship supplies unless you agree to new terms, such as payment upfront instead of the normal 30-35 days? If you don’t comply you can’t operate your business. That was the unfortunate situation faced by a few Krispy Kreme franchisees. Krispy Kreme threatened to stop shipments unless it received $1 million that is in dispute (it didn’t say if those were late payments or due to new Agreement terms sought by Krispy Kream). In this case, the franchisees were lucky and the court agreed with their argument. The court ordered Krispy Kreme to resume shipment of supplies under the traditional terms of the agreement. The order includes assertions by the franchisee that Krispy Kreme –
"has refused to ship Plaintiff ingredients, supplies, and equipment, including doughnut mix – all of which are necessary to Plaintiff’s business operations – on terms previously agreed to by the parties."
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Does the franchisee get reimbursed by the franchisor for legal fees? It seems unfair that if the franchisor is in the wrong that the franchisee would have to bear the burden of paying for legal representation.
Al- it depends on the franchise agreement and perhaps any applicable laws. Generally, the “American” rule is that each party pays their own attorney
fees in the absence of an agreement or statute. The “English” rule is loser pays. And in some states if one party has granted itself the unilateral right for attorney fee’s then, by operation of law, it is made a bilateral agreement– meaning the prevailing party could get them.
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