Opinion ID: 431798
Heading Depth: 2
Heading Rank: 1

Heading: The Franchise Relationship

Text: 4 This lawsuit was spawned in January, 1957, when Frank Dennis incorporated appellee Historic Figures, Inc. (Historic) to operate a wax museum in Washington, D.C. The display figures in the museum were provided by appellee Lynch Display Corporation (Lynch), a company formed by appellee Earl Dorfman in March, 1957, to manufacture such figures. The figures were made of a vinyl plastic material rather than the traditional beeswax and, according to the appellants, were considered a substantial improvement over the true wax figures. Brief for Appellants at 15. Lynch agreed to provide the figures for the Washington museum and to assist in installing them in appropriate historical settings. In return, Historic agreed to purchase figures exclusively from Lynch and, for a five year period, to act as Lynch's sales agent to other wax museums. 1 5 Historic soon expanded its business to franchising museums in different parts of the United States. The first franchise was granted by Historic's subsidiary National Historical Museums, Inc. (NHM), in 1960, to appellant-National Civil War Wax Museum (Gettysburg), which was owned primarily by Chaim Uberman. According to Dennis's affidavit accompanying appellees' first motion for summary judgment, the agreement between NHM and Gettysburg obligated NHM to provide Lynch figures at cost, and to furnish, at Gettysburg's request, services 'in connection with the establishment of a museum by franchisee' including historical research for the figures and display scenes, advice on the cast of characters, and story line, assistance in planning floor layouts and advice on promotional material and operating procedures. Brief for Appellees at 9. The appellants contend, however, that NHM also was obligated to provide continuing franchisor services to its franchisees in the form of assistance in the efficient operations of the museum throughout the twenty year franchise relationship. Brief for Appellant at 21. In return, Gettysburg agreed to pay NHM 5% of its annual gross receipts for twenty years, beginning in April, 1962, when the museum opened. 6 In May, 1962, NHM entered a similar agreement with appellant Historic Reviews, Inc. (Gatlinburg). NHM agreed to provide essentially the same service as it provided Gettysburg in return for 5% of Gatlinburg's gross receipts for the nineteen year four month term of the agreement. Unlike Gettysburg, Gatlinburg did not purchase the display figures from Historic, but rather leased them directly from Lynch for the term of the agreement for an annual minimum rent plus 15% of gross annual receipts over $100,000. NHM also agreed not to grant another wax museum franchise within 200 miles of Gatlinburg during the term of the agreement. 2 7 Uberman established a third franchised wax museum in Williamsburg, Virginia. NHM and appellant Williamsburg Wax Museum, Inc. (Williamsburg) entered a franchise agreement on September 22, 1967. NHM obligated itself to provide the same services as for Gettysburg and Gatlinburg, and not to franchise another wax museum within 100 miles of Williamsburg. In return, Williamsburg agreed to pay NHM 5% of its gross receipts for twenty years, and 2 1/2% of gross receipts thereafter. 8 The agreements are not typical franchises. See Brief for Appellants at 20; Brief for Appellees at 12-13. As the district court recognized: 9 [T]he characteristics that generally typify a franchise are not present here: there is no operation under a common name or designation, no cooperative advertising, no periodic inspections, and no establishment of common standards or business practice. 10 Williamsburg Wax Museum, Inc. v. Historic Figures, Inc., Civ. No. 77-0093, slip op. at 3 n. 5 (May 19, 1981) (Memorandum Order granting defendants' motion for summary judgment on their counterclaims, but denying summary judgment for defendants on plaintiffs' antitrust claims). Indeed, precisely what NHM provided in return for the franchise fee is a critical issue in the case. Appellees characterize the franchise agreements as 11 intended to get the museums off the ground by providing experienced assistance in connection with the establishment of a wax museum and by offering Dorfman's consultant services to the franchisees for this purpose only for the period prior to and during the opening of each museum.... Thereafter, ... NHM and Dorfman were obligated during the terms of the agreements to stand by to provide additional services as requested and paid for by the franchisees (and with respect to Gatlinburg and Williamsburg, also were under a continuing obligation not to establish competing wax museums in specified geographical areas) but the franchisees were under no obligation either to request or pay for such additional services. 12 Brief for Appellees at 13. The appellants' interpretation of the agreements, on the other hand, is quite different. They claim that actual services, not merely a standby commitment, were due from the defendants for the franchise fee payments, but that the defendants generally failed to honor this obligation. Brief for Appellants at 20. The record, however, shows no particular instance where NHM provided additional services, beyond start-up services, except for an additional charge.