Dunkin Brands to appeal judge's $16.4-million award to former franchisees

MONTREAL— Dunkin Brands did not do its job of working to protect and build the Dunkin’ Donuts brand in Quebec.

That, according to Superior Court of Quebec Justice Daniel H. Tingley, is why he ordered the franchisor last week to pay $16.4 million in damages and costs to a group of 21 former franchisees suing the company for incompetence, negligence, lack of support and assistance, and flagrant breach of contract.

The day the judge’s decision was released, Dunkin’ Brands, based in Canton, MASS, issued a statement saying it strongly disagreed with the decision, believed the damages awarded were unwarranted, and it intended to appeal.

The franchisees’ lawyer, Frederic Gilbert of the firm Fasken Martineau DuMoulin LLP, sees the judge’s decision as setting a precedent. “Not only franchisors but franchisees in the franchise industry in Canada should acknowledge this decision and say, ‘How does this impact my business?’” said Gilbert in a release.

"Justice Tingley has issued a rigorous judgment that has all the makings of a leading case on franchising in Canada. This decision will become a reference tool for setting the basic guidelines governing contractual relations between parties."

Jennifer Dolman, a commercial litigation partner with Osler Hoskin & Harcourt LLP, told Canadian Lawyer that she viewed the case as unique because the judge treated it as a fundamental breach of contract. “That’s very rare,” she said. “I can’t think of another case like it. Franchisees do try to take the position they’ve had a fundamental breach but that’s really for total failure of consideration when one of the contracting parties is not getting any benefit from their bargain,” she said.

The time period covered by the lawsuit was 1995 to 2005, when Dunkin Brands went from being a leader in the coffee and doughnut field in Quebec with more than 200 units, to a small player with less than a dozen stores.

The franchisee plaintiffs, who had a total of 32 restaurants, launched their suit in 2003.

They claimed that Dunkin Brands failed to do what was necessary when Tim Hortons and other franchises were expanding in the province. They said that Dunkin Brands Canada (called Allied Domecq Retailing International [Canada] when the suit was filed) did not run strong enough marketing campaigns and offered products not suited to the Quebec market.

They ended up closing their stores or selling them at much lower prices than they would have if the restaurants were successful businesses.

Justice Tingley rejected the company’s argument that that franchisees were responsible for the drop in their business. He wrote in his decision that the franchisees were not poor operators. “Not by a long shot.” He stated they were among the best and most successful in Quebec.