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Baskin-Robbins Lawyers Explain Away 'Fee' Charged to Its Supplier to Then Be Charged to Franchisees Is Not A 'Fee'

Gray Plant Mooty attorneys, representing Baskin-Robbins in litigation, clarified in a legal article yesterday, after a judge ruled in their favor in September, the issue at the center of the case that begs the question: When is a "fee" not a "fee."

The franchisor's legal counsel explains it like this: "Baskin-Robbins charges its designated supplier [Dean Foods] a fee for the right to manufacture and sell Baskin's proprietary ice cream products to Baskin's franchisees. The supplier includes an amount equal to the fee in the price that it charges Baskin's franchisees for those products."

The attorneys, Justin L. Sallis and Peter J. Klarfeld, state in their Lexology legal report that the case, Association of Independent BR Franchise Owners v. Baskin-Robbins Franchising, LLC, brought by an association of Baskin-Robbins franchisees, asked for a declaration from the court that the price component paid by its members that was attributable to the fee paid by the supplier to Baskin-Robbins was, in fact, an unauthorized fee imposed by Baskin-Robbins on its franchisees. They explain the judge's decision this way:

The court first found that Baskin-Robbins' franchisees pay a "price" for products that they purchase, not a "fee." The attorney state, "In reaching that finding, the court relied on the Black's Law Dictionary definitions of "fee" and "price" and the fact that Baskin franchisees pay a single amount to the supplier, not Baskin, for products."

Next, they explain the court considered whether Baskin-Robbins' franchise agreement prohibited the supplier, Dean Foods, from including an amount "equal to the fee" that it must pay Baskin-Robbins in the price that the supplier charges franchisees. The legal counsel says the court found that the only relevant provisions of the franchise agreement required franchisees to purchase products from Baskin-Robbins designated supplier, at the supplier's price.

The article goes on to explain, "The court further observed that "pass-through costs and charges along the supply chain is a standard industry practice."

In closing, the Gray Plant Mooty attorney surmise, "Finally, the court held that even if it were to find ambiguity in the language of the franchise agreement and extend its analysis beyond the agreement's four corners, the parties' course of dealing further demonstrated that the supplier's practice of passing along its cost to franchisees was not prohibited under the franchise agreement." They add, "Specifically, the court observed that the practice had been in place for many years with franchisees' knowledge and without their objection and that Baskin expressly advised franchisees in their disclosure documents that Baskin received revenue from franchisees' purchase of products from Baskin's designated supplier [Dean Foods]."

Gray Plant Mooty Article: A Fee Charged by A Franchisor To A Designated Supplier, Which Is Passed Along By The Supplier In The Price It Charges Franchisees For Products, Is Not A Fee Imposed By The Franchisor On Franchisees


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About Janet Sparks

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Janet Sparks is the former publisher of the Continental Franchise Review, an industry newsletter that covered the franchise community for over 30 years. She has also been a columnist for a leading franchise magazine for the past 13 years. Today she is an independent journalist who engages in investigative reporting, tackling complex issues that impact the franchise industry.

Janet can be reached at jsparks@bluemaumau.org or at 303-799-7398.