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Franchise Litigation: Understanding the Role of Discovery in Franchise Litigation

Charles Internicola

by Charles Internicola
National Business and Franchise Lawyer

Date: 11/30/2011 | Category: Corporate Counsel | No comments

Can A Default Judgment Be Entered Against a Franchisee – Even if The Franchisee Answered the Complaint?

Answer: Yes‚ when the franchisee defendant continuously fails to comply with a discovery order.  In Jackson Hewitt‚ Inc. v. Barnes Enterprises‚ et al. United States District Court – District of NJ) the court entered default judgment against a franchisee defendant who had answered the complaint but failed to comply with the courts discovery order.  The entry of a default due to a discovery failure is an uncommon remedy but‚ from the facts of this case appears appropriate.  Especially since the defendant franchisee actively litigated a number of issues in the case but‚ selectively‚ ignored all discovery obligations.

Franchise Litigation Factors to Consider: Based on the courts decision in Jackson Hewitt‚ franchisors and franchisees should be aware of the following litigation factors:

  • For Franchisors:  Persistence matters.  Far too often litigation counsel overlooks the value of persistently and diligently pursuing discovery.  That is‚ discovery must include indepth demands.  Detailed interrogatories (written questions that the franchisee must answer) that force the franchisee to describe and identify their alleged damages and claim against the franchisor‚ are critical.  Many times franchisee counsel is not prepared to respond.  Another good point raised by this case is persistence regarding the enforcement of discovery obligations.  So‚ separate and apart from the inherent point of discovery (i.e.‚ to obtain information) there is tremendous litigation strategy and value to pursuing a detailed and diligent discovery plan – one benefit being that the Franchisee cannot sustain its claims.
  • For Franchisees:  When faced with franchisor litigation‚ it is critical to allocate the right financial and legal resources.  Understand that the "franchise litigation process" is extremely important and extensive – that is‚ you can not ignore discovery and you must plan out your claims and defenses on solid "franchise factors" that are recogized by the courts.  

When dealing with litigation‚ economics play a large factor.  Most times‚ cases settle when the parties proceed with an aggressive litigation and discovery strategy.  Interestingly‚ while a lax approach to discover is‚ in the short-term‚ less expensive‚ it usually leads to an unproductive and never ending litigation track that wastes money and time.

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