Court Finds that Franchisee Took Commercially Reasonable Steps to Dissociate from Franchisor

  • February 20, 2021
  • Steven Goldman and Alana Spira

Tiny Hoppers Corp., Nasim Management Solutions Inc., Tiny Hoppers Canada Inc., Brigida Aversa, Theresa Bertuzzi, and Rashid Nasim (the “Franchisor or “Tiny Hoppers”) brought a motion for summary judgment seeking an order that 2402074 Ontario Inc., 2359251 Ontario Inc., 2370471 Ontario Inc., 2409133 Ontario Inc., Nahid Almashni, and Jamal Mansour Mayali (collectively, the “Franchisees” ) repay $500,000 paid pursuant to Minutes of Settlement. The Franchisor also claimed that the Franchisees made defamatory remarks and sought damages on this basis.

The Franchisees brought a cross-motion seeking an order dismissing the Franchisor’s claim and requesting an order that the Franchisor pay the balance of $224,000 still owing under the Minutes of Settlement.  

The motion was heard by Justice R. Smith on February 25, 2020 and the Reasons for Decision released April 28, 2020.

Facts

Tiny Hoppers, a franchisor of early learning centres, entered into a franchise agreement with the Franchisees to operate early learning centres in Guelph, Cambridge, and Brampton, Ontario. In January 2015, the Franchisees served the Franchisor with written notice of rescission of the franchise agreement pursuant to section 6 of the Arthur Wishart Act (Franchise Disclosure).

On March 17, 2015, the parties settled the rescission claim and signed Minutes of Settlement under which the Franchisor agreed to pay the Franchisees $750,000 and the Franchisees agreed to dissociate from Tiny Hoppers but were permitted to continue operating the early learning centres. The Minutes of Settlement further provided that the Franchisor could recover the settlement amount if the Franchisees failed to dissociate. In the Full and Final Release signed by the Corporate Franchisees (but not the individual franchisees), the Corporate Franchisees agreed they would not disparage the Tiny Hoppers’ name. On September 1, 2015 Tiny Hoppers failed to make an instalment payment of $75,000 and has also failed to make any further instalment payments.

After the settlement was reached, the Franchisees rebranded as Dino & Kidz. On May 21, 2015 the defendant Nahid Almashni published a statement on the Defendant corporation’s website which was followed by approximately 5,000 parents in which several topics were discussed including “Why the Name Change”. The Plaintiff Franchisor objected to the last two paragraphs which stated,

“In the process of taking over the centers, we the owners, inherited and assumed all prior issues relating to Guelph and Cambridge. Our decision to leave the franchise was a strategic business decision. It stemmed on the basis of providing us the owners, full control of handling previous lingering issues, under the Tiny Hopper Brand.

In removing the center from the brand name, we now have the ability to make immediate necessary changes, relevant to each centre, without restriction, as was the case under the previous brand name.”

Decision and Disposition

The Court found that the Franchisees took commercially reasonable steps to dissociate from the Tiny Hopper brand, including:

  1. Amending the Master Business License and informing the banks and insurer of the name change;
  2. Sending a letter to the parents advising them of the rebranding and that they were no longer under the ownership of Tiny Hoppers; and
  3. Removing Tiny Hoppers signage and returning the Tiny Hoppers Mascot

The Court also found that reference by the Franchisees in an online post to “immediate necessary changes” it could make or “previous lingering issues” it had to address was not a failure to dissociate and thus not a breach of the Minutes of Settlement. The Court found that the agreement that the Franchisees would continue to run the early learning centres included an understanding that the Franchisees would communicate to parents regarding the transition.

The Court also found that the post was not defamatory because it did not lower the Franchisor’s reputation in the eyes of a reasonable person.

The Court ordered that the Franchisor pay the Franchisees the $224,000 outstanding under the Minutes of Settlement as there was no breach of the agreement.

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