Faegre Drinker Team Secures Significant Win for American Dairy Queen and Minnesota Franchisors

On Jan. 12, 2023, a team of Faegre Drinker litigators obtained a decisive victory on a motion to dismiss on behalf of client American Dairy Queen on an issue that will help protect franchisors across Minnesota from forum shopping by out-of-state franchisees. The court’s ruling, an important precedent, makes clear that the Minnesota Franchise Act (MFA) does not apply to out-of-state franchisees merely because a Minnesota-based franchisor consented to the sale of the franchise to that franchisee.

The dispute arose after Dairy Queen exercised its rights under the franchise agreement regarding the relocation of an Oklahoma restaurant. Unhappy with Dairy Queen’s decision, the plaintiff — an out-of-state franchisee — brought suit against Dairy Queen in Minnesota federal court, asserting an MFA claim, among others.

The dispute involved an out-of-state franchise run by an out-of-state franchisee who had acquired the franchise through an out-of-state assignment from an out-of-state assignor. The plaintiff claimed that the MFA applied because Dairy Queen — which is headquartered in Minnesota — had consented to the out-of-state assignment. The consent Dairy Queen provided is something Minnesota franchisors do routinely, and if such consent were held sufficient to subject franchisors to the MFA, it would represent a significant expansion of the reach of the MFA.

The court granted Dairy Queen’s motion to dismiss the MFA claim, holding that consenting to the assignment of a franchise alone does not trigger the application of the MFA.

The Minnesota-based Faegre Drinker team included partner Lauren Linderman and associates Josh Turner, Hannah Leiendecker and Josiah Young.

In an article by Minnesota Lawyer, the team emphasized how the ruling is important because it resolves an issue of law relevant to the MFA’s application. They stated, “There are two lines of cases in the District of Minnesota. The first line of cases holds that the MFA does not apply to out-of-state franchisees, full stop. The second line of cases holds that the MFA could apply to out-of-state franchisees if conduct regulated by the Act took place in Minnesota.” They added, “To Dairy Queen’s knowledge, no court had considered the issue of whether a Minnesota franchisor’s mere consent to the assignment of a franchise located outside Minnesota from one non-Minnesota entity to another non-Minnesota entity was sufficient to trigger the application of the MFA.”

See Minnesota Lawyer's coverage of the case and verdict for more details.