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11 Franchise L.J. 1 (1991-1992)

handle is hein.journals/fchlj11 and id is 1 raw text is: a-nchise aw . ur i. Defending Against Litigation by Third Parties in the Franchise Context by Carmine R. Zarlenga* Washington, D.C. Litigation between franchisors and their franchisees has become com- monplace. Attorneys familiar with the types of claims commonly made in franchise litigation can, for the most part, counsel their clients on a rational basis. Books, articles, and even treatises are available to assist. But no sooner than the franchise litigator achieves a modicum of comfort, a whole new type of franchise liti- Carmine R. Zarlenga gation begins to emerge. Third parties, who may be com- plete strangers to the franchise relationship, have entered the picture with increasing frequency. Some examples of third parties who may bring lawsuits relating to a franchise relationship are franchise creditors, prospective franchi- sees, customers, shareholders, and employees. They have leveled their claims against franchisors and franchisees alike, bringing more uncertainty into an already complex field. Some examples illustrate that third-party lawsuits can be as diverse and imaginative as any. In one case, the bank of a terminated franchisee brought suit against the franchisor on eleven different causes of action, including claims that the franchise had been wrongfully terminated.' More re- cently, a repairman filed a personal injury suit against a fast- food franchisor because he was injured on the premises of one of its independently owned franchisees.2 Many third- party lawsuits appear unpredictably on the franchisor's doorstep. Third parties have attempted to predicate liability on a vast array of common law and statutory theories. This anal- ysis considers the most common types of actions pursued by third parties and illustrates ways to resolve such litiga- *Mr. Zarlenga is an associate with the firm of Howrey & Simon in Wash- ington, D.C. tion at the early stages based on existing precedent. Also offered are practical suggestions to minimize exposure to third-party claims altogether. Breach of Contract Theories Third parties often attempt to bring breach of contract actions for damages or injunctive relief against both fran- chisors and franchisees. While not always well articulated, such claims usually attempt to rely on the terms of the fran- chise contract. The best defense to such claims is to empha- size that the third party is not a party to the franchise contract. As a general rule, courts have not permitted third parties to maintain suit for breach of a franchise contract (continued on page 19)

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