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Q & A with Frank Zaid: Opt in or out of court proceedings

Franchisee association action
In November 2012, the Quebec Superior Court heard a motion brought by a franchisor, MTY Tiki Ming Enterprises, to have an action dismissed that had been commenced by an association of Tutti Frutti franchisees and five individual directors of that association. The plaintiffs were seeking a total credit of nearly $1.5 million in principal and interest on the contributions by the 28 Tutti Frutti franchisees in Quebec to the franchise system’s publicity fund, related to the amount of discount coupons and gift certificates issued by the franchisor.

The franchisor argued the association could not institute such proceedings seeking to obtain monetary gain for its members, under Quebec’s Civil Code, which states “a contract of association is a contract by which the parties agree to pursue a common goal other than the making of pecuniary profits to be shared between the members of the association.”

The plaintiffs argued the association was not seeking pecuniary gain for itself, however, but rather a credit for its members—and the five directors were “mandatories” of the members of the association and could sue to assert the rights and interests of the association.

The court concluded the motion was seeking to assert rights and interests that go beyond those of the association, because it sought to assert the individual rights of the franchisees, as each franchisee had a distinct monetary claim. In addition, the directors only had the right to act as mandatories of the members of the association, but not to assert the individual rights of the members against the franchisor. For these reasons, the court dismissed the motion of the plaintiffs to institute proceedings against the franchisor.

As in the Dunkin’ Donuts intervention motion, this decision is somewhat unique to Quebec, as the procedure involved is specifically provided for in the Civil Code. There is no reported case that has been brought against a franchisor in any of the common-law provinces by an independent franchisee association. Now, the Tutti Frutti case may present a high hurdle for other franchisees attempting to bring an action against their franchisor through an association.

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