News

Canadian court orders Dunkin' Donuts to pay $16.4M in franchisee suit

June 26, 2012

After a legal proceeding that lasted nine years, the Superior Court of Québec's Justice Daniel H. Tingley ordered Dunkin' Brands Canada Ltd. to pay plaintiffs $16.4 million in damages, plus legal interest and expert witness costs.

The lawsuit was filed in 2003 by a group of Quebec Dunkin' Donuts franchisees against the company on a variety of claims. The court ruled for the plaintiffs and issued a judgment against Dunkin' Brands on June 22.

Dunkin' Donuts' former franchisees were suing the franchisor for incompetence, negligence, lack of support and assistance, as well as flagrant breach of the contract, notably to protect and enhance the brand between 1995 and 2005.

"It is a sad saga as well of how a once successful franchise operation, a leader in its field — the donut/coffee fast food market in Quebec — fell precipitously from grace in less than a decade; literally, a case study of how industry leaders can become followers in free market economies," Tingley said. "But the greatest failing of all was ADRIC's failure to protect its brand in the Quebec market. No doubt the host of failings chronicled by the franchisees contributed to the collapse of the Dunkin' Donuts' brand in Quebec. A successful brand is crucial to the maintenance of healthy franchises. However, when the brand falls out of bed, collapses, so too do those who rely upon it. And this is precisely what has happened in this case."

According to Frédéric Gilbert (Fasken Martineau), who represented the franchisees with the collaboration of Guy de Blois (Langlois Kronström Desjardins), acting as legal advisor, the Tingley judgment will have major repercussions on how franchisees are protected and how franchisors' responsibilities are defined.

"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," Gilbert said.

In response to the ruling, Dunkin' Brands announced it expects to increase its legal reserve in its current quarter.

Dunkin' Brands had previously reserved $4 million on its consolidated balance sheet to reflect the company's estimate of the potential loss which could be incurred in connection with this matter.

A statement from Dunkin' Brands reads that the company strongly disagrees with the decision reached by the court and believes the damages awarded were unwarranted. The company is proud of its efforts to support all of its franchisees in Quebec and around the world, the statement concluded, and it intends to vigorously appeal the decision.

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