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WRF Litigators Win Favorable Jury Verdict for H&R Block on Valuation of Franchise

December 1, 2003

Washington, DC—On October 28, 2003, after a seven-day trial, a state court jury in Kansas City, Missouri rejected the business valuation claim of a former H&R Block franchisee, awarding the franchisee just a fraction of the $35 million it had sought. WRF Franchise Partners Peter J. Klarfeld , Arthur I. Cantor, Michael L. Sturm and Tanja E. Hens handled the case for H&R Block.

The dispute stemmed from H&R Block’s decision several years ago not to renew the franchise agreements held by a number of its largest and oldest franchisees. Under the terms of their contracts, Block was required to pay each former franchisee a "fair and equitable" price for its business upon termination-in this case an amount Block calculated as $4.9 million. The franchisee argued that the value of its business was almost $40 million.

An earlier summary judgment ruling, affirmed by the Missouri Court of Appeals, had authorized H&R Block not to renew these relationships and set up the jury trial on the valuation issue. The jury concluded that the value of the business was approximately $8 million and awarded the franchisee $3.2 million-the difference between the $8 million valuation and the amount already paid to the franchisee by Block. This case highlights a trend of disputes between franchisors and franchisees over the valuation of franchised businesses.

Viewed as a test case, this was the first of nearly a dozen similar cases filed by the former H&R Block franchisees whose franchise agreements were allowed to expire. In another of those cases, pending in the U.S. District Court for the Southern District of Alabama, WRF recently obtained preliminary injunctive relief against one of those former franchisees who had refused to cease use of the H&R Block marks after his agreement had expired.

Wiley Rein & Fielding’s Franchise Litigation team is among the most experienced in the country. Our litigators have defended franchisors in virtually every type of case that can arise out of the franchise relationship. We represent clients regularly in state and federal courts throughout the country, as well as in arbitration proceedings and government investigations.