July 22, 2025|Franchise Frontlines
July 22, 2025 | United States District Court for the Central District of California | Order on Motions to Dismiss
Executive Summary
In Taferner v. Inspire Brands, Inc., 2025 WL 3969676 (C.D. Cal. July 22, 2025), Judge Wesley L. Hsu dismissed all Dunkin’ parent entities and the franchisor, Dunkin’ Donuts Franchising LLC (“DDF”), from a putative California class action alleging that certain Dunkin’ franchisees imposed undisclosed “eat-in” or “junk” fees. The court held that plaintiffs failed to establish Article III standing as to the Dunkin’ parent entities and failed to establish specific personal jurisdiction over DDF. The court also dismissed an individual franchisee member for failure to plead alter ego or post-dissolution liability. Although the claims against the franchisee entities remain pending, the decision provides significant guidance on standing, agency, alter ego, and jurisdictional limits in franchise-based consumer litigation.
Relevant Background
Plaintiff brought a putative class action alleging that certain Dunkin’-branded restaurants in California imposed undisclosed or mischaracterized fees. The complaint asserted claims under California’s Unfair Competition Law, False Advertising Law, Consumer Legal Remedies Act, and various common-law theories.
The defendants included multiple layers of the Dunkin’ corporate structure—Inspire Brands and related parent entities—as well as Dunkin’ Donuts Franchising LLC (DDF), the franchisor. The complaint also named franchisee entities and certain individual franchisee members.
The district court previously dismissed portions of the original complaint, identifying deficiencies in standing and personal jurisdiction. Plaintiff filed a First Amended Complaint (FAC), attempting to cure those defects through expanded alter ego and agency allegations.
The Dunkin’ defendants again moved to dismiss.
Decision
The court granted the motion in significant part.
1. Article III Standing – Corporate Parents
The court dismissed all Dunkin’ parent entities—Inspire Brands and related holding companies—with prejudice for lack of Article III standing.
The court emphasized that plaintiffs cannot “lump” corporate parents together with the franchisor absent specific factual allegations establishing causation. Because the alleged injury arose from fees charged by franchisee restaurants, and the FAC failed to plausibly allege that the parent entities directly caused or controlled the imposition of those fees, the relationship was “attenuated” and insufficient to establish standing.
The court also rejected plaintiff’s alter ego and successor liability theories as conclusory and unsupported by facts.
2. Personal Jurisdiction – Franchisor (DDF)
The court dismissed DDF, the franchisor, for lack of specific personal jurisdiction.
Although DDF had purposeful contacts with California by virtue of operating a franchise system in the state, the court concluded that plaintiff failed to establish the required nexus between those forum contacts and the alleged injury.
The FAC alleged that DDF maintained brand standards, influenced menu boards, and controlled the “brand” of point-of-sale (POS) systems used by franchisees. However, the court found those allegations insufficient to demonstrate that plaintiff’s injury—payment of alleged hidden fees—“arose out of or related to” DDF’s California-directed conduct.
The court relied in part on Reingold v. Elements Therapeutic Massage, concluding that generalized brand control and marketing oversight are insufficient to establish proximate causation for jurisdictional purposes.
3. Agency Theory Rejected
Plaintiff argued that the franchisees acted as DDF’s agents, thereby imputing their contacts to DDF.
The court rejected that theory, emphasizing that a franchise relationship alone does not create agency. To establish agency, the plaintiff must plausibly allege substantial control over the specific instrumentality that caused the injury.
Here, the FAC alleged that DDF “allowed” franchisees to impose fees and failed to prevent them from doing so. The court found those allegations insufficient to demonstrate the type of direct, mandatory control required to establish agency.
The court distinguished cases where franchisors allegedly required franchisees to use specific software that mandated the challenged conduct.
4. Individual Franchisee Member Liability
The court also dismissed an individual LLC member (Bayley) for failure to state a claim.
The FAC alleged that the individual, as a managing member of the franchisee LLC, directed and controlled company policies. The court held that such boilerplate allegations are insufficient to pierce the corporate veil or establish alter ego liability under California law.
The court further noted that California Corporations Code § 17707.07 permits post-dissolution liability only to the extent assets were distributed to members. Because the FAC failed to allege that assets were distributed to the individual member, that theory also failed.
Looking Forward
This decision reinforces several structural protections frequently implicated in franchise litigation.
First, corporate family separation continues to matter. Absent well-pleaded facts supporting alter ego or direct involvement, parent entities are not automatically subject to suit based solely on ownership relationships.
Second, brand standards, centralized marketing, and POS branding—without more—are insufficient to establish specific personal jurisdiction for claims arising from franchisee-level pricing practices. Courts continue to require a meaningful causal nexus between the franchisor’s forum-directed conduct and the plaintiff’s injury.
Third, agency theories must be grounded in allegations of substantial control over the specific conduct at issue. Allegations that a franchisor “allowed” or failed to prevent certain practices do not automatically establish agency.
Finally, individual LLC member liability remains tightly cabined. Boilerplate allegations that a member “directed policies” are insufficient to pierce the corporate veil, and post-dissolution liability requires specific allegations of asset distribution.
This is a pleading-stage decision, and it does not address the merits of whether the fees at issue were lawful. Rather, it underscores the continuing importance of careful corporate structuring and clear delineation of franchisor and franchisee responsibilities in consumer-facing systems.
This article is based solely on the opinion of the Court in this matter. The author has not conducted any independent investigation into the facts. For the avoidance of doubt, each statement related to the law and facts in this article is drawn from the Court’s opinion in this case.
Thomas O’Connell is a Shareholder at Buchalter LLP and Chair of the firm’s Franchise Practice Group. For questions about this article or media inquiries, you can contact Tom at toconnell@buchalter.com.
This communication is not intended to create, and does not create, an attorney-client relationship or any other legal relationship. No statement herein constitutes legal advice, nor should it be relied upon or interpreted as such. This communication is for general informational purposes only and is not a substitute for legal counsel. Readers should not act or refrain from acting based on any information provided without seeking appropriate legal advice specific to their situation. For more information, visit www.buchalter.com.
