Achieving Results, Exceeding Expectations

Corporate Law

Bike Night, Twin Peaks and Franchise Agreements

franchiseThe recent violence at a Waco, Texas restaurant has called into question the rights and responsibilities of franchisees and franchisors.

On May 15th, during a so-called “Bike Night” at the Waco Twin Peaks, an enormous altercation took place among rival motorcycle gangs, resulting in the deaths of nine people, 18 injured people and 170 arrests. Immediately thereafter, the franchisor filed a lawsuit to revoke the franchisee’s agreement and terminate their relationship. The lawsuit also seeks damages as well as non-monetary relief. The case is in the discovery phase now.

We do not know the details of the Twin Peaks franchise agreement. Most franchise agreements include clauses that deal with the following issues:

• Branding, including the look of an establishment, its products, logos, and its message. The franchise agreement will typically include a trademark license.
• Marketing, including what the franchisor has researched and created and will disseminate and what is the responsibility of the franchisee
• Operating Procedures: this can include employee training, hiring and firing, billing, purchasing, and creation of all products (think McDonald’s special sauce)
• Location: this ensures that locations don’t compete with one another and make an assumption that the franchisor has evaluated locations for best return of investment
• Fees: This will include the fees for buying into the franchise as well as other optional fees.
• Conflict resolution: Many franchise agreements indicate how conflicts are to be resolved, including clauses about mediation and arbitration, as a way to mitigate future litigation costs on behalf of the franchisor.

Not all franchise agreements include language about safety and security. However, some franchisors have verbiage in their agreement that the agreement can be nullified if the safety of the guests or staff is at risk. The franchisor in the Twin Peaks situation seems to hold the franchisee partially responsible for the violence, based upon the statements of the Waco police, who indicate that they were unable to collaborate with the franchisee to head off impending violence by cancelling a scheduled “Bike Night”. The police indicated that the franchisee was not legally obligated to cooperate with the police and they are still determining if there was any criminal wrongdoing.

Allegedly, the Waco police then contacted the Twin Peaks corporate headquarters in Dallas to see if they would intervene after failing to obtain cooperation from the Waco franchisee.

According to statements from the CEO of Twin Peaks, Rick Van Warner, the company then tried to dissuade the franchisee from holding the Bike Night, but the franchisee would not be persuaded. Van Warner indicated that future franchise agreements will include language that allows the franchisor more control vis a vis the franchisee in health and safety as well as special event situations.

In other franchisee-franchisor disagreements, the franchisee is often given an opportunity to “cure” any issues that are in conflict with the franchisor. In this situation, it appears that the Twin Peaks franchisee was not given that opportunity. Whether that was lawful or not remains to be seen.