Franchisor Really, Really Unhappy With Franchisee’s Co-Promotion With a Topless Bar–Capriotti’s v Taylor

By Eric Goldman

Capriotti’s Sandwich Shop, Inc. v. Taylor Family Holdings, Inc., 2012 WL 1448514 (D. Del. April 25, 2012). The complaint and exhibits A-D, E-H and I-O. Some background.

Capriotti’s is a franchised fast-food sandwich chain, with its signature sandwich being “the Bobbie” with roasted turkey, cranberry sauce and stuffing. I’ve never been to the chain and it doesn’t sound like my kind of place, but they do have a comparatively well-developed (for a fast-food sandwich place) vegetarian menu.

In 2003, Taylor became a Capriotti’s franchisee in Las Vegas. The franchise agreement contained standard provisions requiring franchisor pre-approval of any franchisee ad copy.

You’d think that Thanksgiving-in-a-roll would sell itself, but Taylor sought a marketing edge in Las Vegas by appealing to local sensibilities. And what sells better in Vegas than sex appeal? So Taylor hooked up with a local topless bar (“Crazy Horse III”) to offer a happy hour special of a sandwich and beer for $5. The ad copy displayed the franchisor’s trademarked logo; though the parties disputed if Taylor authorized that or not. Several local publications and blogs shared the promotion with their audiences, such as this post:

“Hey, you like boobs, don’t you? Of course you do. You like sandwiches too, right? Now why not put them together…. Apparently Crazy Horse III is teaming up with Capriotti’s to offer lap dance enthusiasts six-inch-subs with a beer for five bucks during happy hour from 1 to 7 p.m. daily….”

Capriotti’s learned that Taylor had allegedly cooperated with the topless bar on the promotion and sent a breach notice with a 5 day cure period. Feeling that Taylor didn’t adequately remedy the situation, Capriotti’s then sent a notice to terminate the franchise agreement. Taylor continued operating the franchise without change (although at some point the topless bar stopped the promotion), so Capriotti’s sued Taylor in Delaware, and Taylor countersued.

The court doesn’t understand why the parties sued in Delaware when both litigants are based in Nevada, so it transfers the case back to Nevada. The court also denies the plaintiff’s preliminary injunction request because of the parties’ factual disagreements and the unavailability of a key witness (the topless bar manager). These parties should settle, but they’ll probably spend hundreds of thousands of dollars on attorneys’ fees fighting over the implications of associating sub sandwiches with naked breasts instead.

What remains puzzling to me is why Capriotti’s thinks it’s worth suing to get Taylor out. Perhaps the association with a topless bar is so irreparably distasteful to Capriotti’s that it’s worth killing the relationship. The opinion also indicates that other franchisees in the local area were unhappy (jealous?) about the promotion. More likely, there’s a backstory that makes the franchisor’s litigiousness more explainable. Many franchisors would have gladly looked the other way or simply counseled the franchisee about its behavior going forward. After all, even if Taylor authorized the ad copy without permission, it was in the service of moving more Bobbies.

From the franchisee’s perspective, this case is a good reminder that franchisors can be unduly sensitive about lascivious associations. Plus, franchisees shouldn’t forget that franchisors may be delighted to have a pretextual excuse to shut down a longtime franchisee. The franchise agreement is the foundational document for the franchisee’s business; it needs to be respected at all costs.