3 Int'l J. Franchising L. 3 (2005)

handle is hein.journals/intjoflw3 and id is 1 raw text is: I CASE NOTE

Grounds for Recovering against a
Franchisor- New York Court of
Appeals Clarifies Tortious
by David W. Oppenheim, Kaufmann, Feiner, Yamin, Gildin & & Robbins LLP, New York
In Carvel Corporation v. Elizabeth A. Noonan, et al., 3 N.Y.3d 182, 785 N.Y.S.2d 359 (N.Y. 2004), New York's
highest court has he[d that ice cream franchisor Carve[ did not tortious[y interfere with the prospective
economic relations of its franchisees by implementing its controversiat 'supermarket sates program'.

Another chapter in the decade-long battle between
prominent   ice-cream  franchisor, Carvel, and    its
franchisees over Carvel's controversial 'supermarket
sales program' has been written - this time by the
New York Court of Appeals (New York's highest court).
And for those of you keeping score at home (or abroad,
as the case may be), it was Carvel that recorded a major
victory and dealt the relentless franchisee plaintiffs a
devastating blow by securing a ruling which effectively
reversed three separate jury verdicts in favour of Carvel
franchisees totaling in excess of $i million (USD). In its
ruling, the New York Court of Appeals clarified the law
of intentional interference with prospective economic
relations, and declared that a franchisee cannot recover
against a franchisor on a claim       based on alleged
intentional interference with prospective economic
relations unless the franchisee can show       that the
franchisor's conduct was 'criminal or independently
Nature of the Dsopute
In order to understand where we are in this saga, one
must understand where we have been. The dispute
< between Carvel and certain of its franchisees began in
1992, when Carvel began to sell its products in
supermarkets. That decision    marked   a significant
deviation in prior marketing and sales efforts and did
0  not sit well with certain Carvel franchisees who claimed

that they had previously received assurances from the
company's President and Chief Executive Officer that
Carvel had no plans to distribute through supermarkets.
Why did Carvel change its policy? Why would a
company    whose founder, Tom Carvel, once referred to
supermarkets (and presumably the many ice cream and
frozen yogurt manufacturers that sold to them) as the
,enemy'   suddenly decide to distribute its ice cream
products in supermarkets? Simply, Carvel had no
choice. In   the  decade   prior  to  instituting  its
supermarket program, Carvel had seen sales in its
franchised  stores steadily  decline as a result of
competition from other frozen dessert providers, who
were selling their products in supermarkets, and from
non traditional competitors such as McDonald's and
Burger King, who began selling frozen desserts in their
restaurants. Because of the steady decline in sales,
Carvel commissioned a study of its market decline,
which concluded that it would be in the best interests of
Carvel to begin distributing in supermarkets. Carvel
accepted the recommendation, and implemented its
supermarket sales program in the 1992.2
The Carvel supermarket sales program was not
designed exclusively to benefit the franchisor. To the
contrary, all Carvel franchisees were     invited  to
participate  by  servicing  the  many   supermarkets,
convenience stores and other retail venues with which
Carvel had agreed to supply its products at wholesale.
Most Carvel franchisees welcomed the new business
venture and the opportunity it provided. But a splinter


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