Right at Home is a franchisor in the home healthcare space. Faegre Drinker represented Right at Home when complications arose after one of its longtime franchisees sought to sell a location after more than fifteen years in the business. The franchisee negotiated a letter of intent (LOI) and later an asset purchase agreement (APA) with a buyer. After the execution of the LOI, but before the APA was signed, Right at Home received calls from local law enforcement from which it learned that law enforcement was looking into the seller’s practices for collecting, accounting for, and applying or refunding prepayments by customers for home care services. Our client responded to the informal requests for information. Our client alerted the franchisee-seller to the communications and informed him that our client, as the franchisor, required that the franchisee-seller disclose the law enforcement inquiries to the buyer, which he agreed to do and informed the franchisor that he had, in fact, done so.
Ultimately, buyer and seller finalized the APA and the franchisor approved the sale and signed a new franchise agreement with the buyer. Some months after the sale closed, the buyer heard rumors in the marketplace that the seller had mishandled customer prepayments and demanded that our client purchase the franchise. Our client declined, and the buyer commenced litigation in state court on claims of fraudulent concealment and negligent misrepresentation against the franchisor and three of its executives, notwithstanding an arbitration provision in the franchise agreement.
After an odyssey through the state and federal courts, the team compelled the franchisee to pursue the case in arbitration. After discovery, the case went to a fully evidentiary hearing shortly before year end. In March of 2019, the arbitrator denied the buyer’s claims in full, finding that the buyer had failed to prove key elements of the claims.