Franchise Broker, Independent of Its Client Franchisor, May Be Held Liable for New York Franchise Act Fraud Claims. In a stunning development, a Minnesota federal court magistrate recommended in seven cases involving the same franchisor—and the court adopted the recommendations—that a franchise broker may be held liable for New York Franchise Act fraud claims related to the broker’s franchise sales activities on behalf of franchisor I Love Kickboxing (ILKB) (The defendant franchise broker was also deemed possibly liable for violations of the Minnesota Franchise Act.) Golden Polar Bear v. FranChoice, No. 19-CV-484 (MJD/ECW) (D. Minn. 2019), report and rec. adopted, No. 19-CV-484 MJD/ECW (D. Minn. 2020); Rise Above Fitness v. FranChoice, No. 19-CV-1435 (MJD/ECW) (D. Minn. 2019), report and rec. adopted as modified, No. CV 19-1435 (MJD/ECW) (D. Minn. 2020); Johnson v. FranChoice, No. 19-CV-1417 (MJD/ECW) (D. Minn. 2019), report and rec. adopted, No. CV 19-1417 (MJD/ECW) (D. Minn. 2020); Xiaolin Li v. FranChoice, No. 19-CV-1267 (MJD/ECW) (D. Minn. 2019), report and rec. adopted, No. CV 19-1267 (MJD/ECW) (D. Minn. 2020); Hamilton v. FranChoice, No. 19-CV-1426 (MJD/ECW) (D. Minn. 2019), report and rec. adopted, No. CV 19-1426 (MJD/ECW) (D. Minn. 2020); Orange Rabbit v. Franchoice, No. 19-CV-687 (MJD/ECW) (D. Minn. 2019), report and rec. adopted, No. CV 19-687 (MJD/ECW) (D. Minn. 2020); and Hasko v. FranChoice, No. 19-CV-702 (MJD/ECW) (D. Minn. Dec. 19, 2019), report and rec. adopted, No. CV 19-702 (MJD/ECW) (D. Minn. 2020).

One of these cited cases, Li v. FranChoice, is representative of them all. Plaintiff Li alleged that franchise broker FranChoice violated the New York Franchise Act by, inter alia, making improper financial performance representations, understating the cost to develop the subject franchise, misrepresenting that the franchise could be operated by an absentee owner and improperly stating that it was possible to open additional franchised locations with the profits of one or two locations.

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