The Bertico v Dunkin’ Brands Canada Ltd. 2012 QCCS 2809, decision involved a claim brought by twenty-one Quebec Dunkin’ Donuts franchisees for the purpose of seeking formal termination of their leases and franchise agreements, plus damages for breach of the franchise agreement. Starting in 1996, the franchisees began to alert the franchisor to the progressive increase in the fast food coffee and donut market share being absorbed by Tim Hortons. However, little was done by the franchisor in response and Dunkin’ Donuts’ market share continued to decline. In 2000, the franchisees demanded that the franchisor respond to the decreased presence of the brand in Quebec and expressed concerns regarding the management of the franchise system. Later that year, the franchisor proposed a remodel incentive program which offered the franchisees a financial incentive if they made a commitment to renovate their stores prior to the time prescribed in their franchise agreements. As a condition precedent to entering the remodel incentive program, the franchisees were obligated to sign an agreement that would bar them from bringing a claim of any kind against the franchisor. Committing to the remodel incentive program required a significant financial investment and there was no guarantee that by making that investment the franchised businesses would succeed. Those that participated in the program did not see an increase in business. As a demonstration of Dunkin’ Donuts’ fall from grace, it was noted that there were 210 stores in Quebec in 1998 and at the time this decision was released this number had been reduced to 13.
The trial judge found that the most important obligation the franchisor assumed under its franchise agreements was the promise to protect and enhance the Dunkin’ Donuts brand. The court held that “(b)rand protection is an ongoing, continuing and ‘successive’ obligation”, one that was not fulfilled by the franchisor in the Quebec market between 1995 and 2005, resulting in a breach of this fundamental responsibilities to the franchisees. The trial judge articulated this failure on the part of the franchisor as “some five years of benign neglect in the face of a determined new player in the Quebec fast food market.” In other words, the franchisor did not attempt to adapt its system in order to compete with the popularity of Tim Hortons.
Further, the trial judge ruled that the remodel incentive program recommended by the franchisor in 2000 was abusive considering the dire circumstances faced by the franchisees, and therefore consent was missing or vitiated. Any release that was signed by a franchisee was deemed to be a nullity. Those franchisees that entered into the program were not barred from bringing the action against the franchisor.
As a result, the franchisees were awarded $16.4 million for lost profits and lost investments as an “immediate and direct consequence of (the franchisor’s) default.”
While the franchisor’s appeal from the judgment is pending, six other Dunkin’ franchisees have commenced a lawsuit in the Quebec Superior Court modelled after the first lawsuit, ServicesAlimentaires Kojo Inc et al v Enterprises Dunkin Brands Canada Ltee, Docket No L66005222. The first lawsuit covered the period from 1995 to 2005. This second lawsuit covers the period from 2008 to 2012.