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Probably just talking to myself (many reasons to do so this past week, no doubt) - while this board still lasts? - but any word yet about KNOT's love spat with the weddingpages franchisees, or do we still have to wait for end-of-month ruling?
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I probably should have picked up some shares at .50 but I wasn't paying attention. Oh well. I have e-mailed the knot investor relations, as well as one of the franchisees involved in the lawsuit, so hopefully somebody will tell me something.

The lawsuit is both for unspecified damages, and an injunction (I think mostly it's about an injunction). What the plaintiffs want, as I understand it, is for the Knot to cease accepting ad revenue on its local "wedding pages" part of the website. This was brought up at the very end of the conference call (you can access the call on the knot website). They didn't talk about it much. They said less than 1% of their revenues are at issue. They also said the "alliance agreements" expire on Decemeber 31, 2000. I have no idea what the hell that means. The contracts run out with their franchisees? They no longer get revenues from weddingpages after 12/31/00? It was frankly a bizarre way to end a conference call, it raised more questions than it answered.

Some of the weddingpages magazines, by the way, are wholly owned by the company (not franchised out), no idea what percentage.

As for cash burn rates, the company had $19 million plus at the end of Q3, probably $16-$17 million now. Enough cash to last them through 2001, and one or two quarters in 2002, if the burn rates stay the same. Interestingly, as far as I can tell, they haven't laid anybody off (I've got three internet investments--Amazon, Internet Capital and SciQuest--and they have all laid people off). So either the company is very confident about its expenditures, or has trouble making tough decisions.

The November 30 deadline came and went, no news, no press release, no explanation. I'm not too impressed with allowing the lawsuit to happen, and the lack of info given to investors. Still have questions about management. Still love the business model. Great brand and they are a pr machine (but an ir disaster).

Watching and waiting...


Taylor
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I spoke with a nice lady from The Knot investor relations, who called me. She couldn't help me much, unfortunately, as the new SEC rules prohibits a company from giving information to one party at a time. What she did tell me:

The lawsuit is currently still in mediation, so it hasn't been resolved yet. The Knot's position is that the suit involves only those revenues derived from the "local city" part of the website, less than 1% of the Knot's revenues. The Alliance agreement is in regard to franchisees using the Knot website--it runs out December 31, 2000. She stressed to me that this suit does not affect any revenues derived from the existing Weddingpages franchise (i.e. the offline media).

Also, I was able to obtain a copy of the complaint, filed in New York, which is a public document. (Did not obtain this from The Knot IR, of course!)

First off, 40% of the Weddingpages districts are contracted out to franchisees (20 out of 50), the rest are company-owned. Of those 20 franchisees, 18 are suing The Knot. I have attached a copy of the complaint at the bottom of this post. Here are my thoughts:

The franchisees are largely upset about two things:

1) Access to The Knot website.

Background: the Alliance Agreement, allowing Weddingpages to sell space on the Knot website, was signed by Weddingpages and The Knot in June '99. The Knot has since gone on to acquire Weddingpages, and make it a subsidiary. The Alliance Agreement expires in two weeks, 12/31/00. Upon expiration of the Alliance Agreement, the franchisees will no longer have access to the The Knot website, unless they sign new agreements on terms more favorable to the Knot.

The franchisees' position is that the acquisition has made them franchisees of the Knot, and that access to the website is part of their right as franchisees. The Knot's position is that the franchise agreements only apply to offline media (books, magazines, etc), not the website, access to which is controlled by the seperate Alliance Agreement. (important note: the overwhelming majority of revenues derived from Weddingpages has nothing to do with the website).

2) The wedding planner.

Background: The franchisees had traditionally sent a wedding planner to bride-to-bes, which they used to generate leads and to obtain ad revenues. The Knot has begun sending its own wedding planner.

The franchisees' position is that the Knot wedding planner has substantially harmed their business, since the Knot is competing with the franchisees in their own territory. The Knot's position (I'm guessing here) is that the wedding planner is sent to people via the website, and so it is national in scope, and outside the bounds of the local franchisee agreements.


Okay. No idea who will win the lawsuit, offhand I would say the Knot has a stronger legal position, but my ignorance is probably greater than my knowledge on this issue.

Couple of investor-related points: the Knot has been very focused on protecting and extending its brand (good) and going after local markets (good) but they managed to anger their franchisees and get themselves sued (bad). Management has said that less than 1% of their revenues are "at issue," (meaning the access to the local city area of the website), but if the court were to find that the Knot had breached the franchisee agreements, it seems to me that damages could be a lot higher than that.

I suspect that this case will be settled and the franchisees will be bought out, as the anger seems to be so high as to make any sort of business relationship impossible. My two cents. The whole complaint is below.


Taylor



Nature of Dispute
1. In this proceeding, the Plaintiffs, who are franchisees of Defendants Weddingpages, Inc. (“Weddingpages”) and The Knot, Inc. (“The Knot”) seek equitable and monetary relief for Defendants' fraud, breach of contract, violation of law and unlawful invasion of Plaintiffs' exclusive territories. Plaintiffs own and operate franchises within exclusive geographical areas for the advertising and promotion of local products and services to prospective brides (and bridegrooms) for their weddings. Each Claimant franchisee has exclusive rights within its territory to sell advertising in publications including a wedding planner book and a magazine entitled “The Weddingpages,” and exclusive rights in its territory to use “The Weddingpages” and certain other marks in other advertising media, including the Internet. Each franchisee distributes the wedding planner and magazine within its exclusive territory to prospective brides and provides the names and addresses of the subscribing brides to the local advertisers who then use them as leads for sales. The franchisees have used this successful formula for over 15 years.
2. Beginning approximately in July 1999, the Defendants undertook a plan and course of action to exploit and sell the reputation, rights, and privileges that the franchisees had developed within their local areas to a new enterprise known as “The Knot.” In brief, and as described more fully below, The Knot is engaged in the marketing and sale of products and services for weddings through the Internet. Ken Nanfito, principal owner of Weddingpages, undertook to sell the Weddingpages business to The Knot, and as an inducement to franchisees not to protest the affiliation with The Knot, Weddingpages initially not only made The Knot name and trademarks available to Weddingpages' franchisees but required them to use “The Knot” in connection with their businesses; falsely represented to franchisees that they would enjoy the added benefits and compensation from an alliance with The Knot; and falsely failed to tell them that affiliation with The Knot in fact threatened the long-term viability of the franchisees, their territories and businesses.
3. Now, having induced the franchisees to share their businesses and territories with The Knot, Weddingpages and The Knot, under the control of or with the knowing participation of Nanfito; Brad Poppen, President of Weddingpages; Steve Saffar, Publisher of Weddingpages; David Liu, Chairman, President and CEO of The Knot; and Ben Bilbrough, director of local services for The Knot, have proposed an agreement that has the effect of diminishing or eliminating franchisee territories. Under that proposed agreement, (a) franchisees will no longer have the right to use The Knot's name or marks; (b) The Knot will do business in the exclusive franchised territories without the participation or consent of franchises; (c) the Weddingpages mark, plan and program will be made inferior to The Knot and effectively eliminated; and (d) The Knot will encroach upon and use Plaintiffs' territories without compensating them. The plan further provides that franchisees may partially avoid these consequences by agreeing to become “commissioned sales agents” for The Knot — a proposal that in fact is an unlawful and invalid offer of a franchise for The Knot. These actions by The Knot and Weddingpages constitute (a) fraud and misrepresentation; (b) violation of state franchise registration and disclosure laws; (c) breaches of the Plaintiffs' franchise agreements; (d) violations of the implied covenant of good faith and fair dealing; (e) tortious interference with existing and prospective contracts and business relations; (f) violations of the Nebraska Franchise Practices Act as well as the California and Illinois Franchise Relations Acts; (g) acts of unfair competition; and(h) violations of the Texas Deceptive Trade Practices Act. Plaintiffs, accordingly, seek (a) a preliminary and permanent injunction against any sale, commerce, advertising or promotion by The Knot or Weddingpages within their exclusive territories; (b) preliminary and permanent injunctive relief against the continued unlawful offer of franchises in the form of commissioned sales agent agreements that Defendants are pursuing; (c) preliminary and permanent injunctions against any actual or prospective interference with Plaintiffs' rights; (d) rescission of the unlawful franchise sales Defendants have engaged in; (e) an award of actual and punitive damages for the injuries Defendants have inflicted on Plaintiffs; and (f) an award of attorneys' fees.
Jurisdiction and Venue
4. This Court has jurisdiction of this matter because the amount in controversy exceeds $25,000; venue is proper here because the principal defendant resides here.
Parties
5. Each of the Plaintiffs was initially a franchisee of Weddingpages, Inc. pursuant to a franchise agreement, described more fully below, that provides each with an exclusive territory. The identity of each of the Claimant franchisees, the date of its franchise agreement, and the exclusive territory in which it has a franchise for Weddingpages is set forth on Exhibit 1.
6. Weddingpages, Inc. is a Delaware corporation with its principal place of business in Omaha, Nebraska that publishes a wedding planner and magazine entitled “Weddingpages” and that has, since approximately 1984, offered franchisees the opportunity to sell advertising in the planner, magazine and on the Internet in exclusive local territories pursuant to franchise agreements. Pursuant to an agreement Dated February 1, 2000, Weddingpages agreed that it would be acquired by The Knot. That transaction closed on or about March 30, 2000. Weddingpages has done business, transacted business and sold franchises in New York State as alleged more fully herein.
7. The Knot, Inc. is a Delaware corporation with its principal place of business in New York, New York. The Knot is engaged in the marketing and promotion over the Internet of products and services for brides and bridegrooms about to be married. Through various agreements, alliances, ownership and prospective ownership, and through its total and complete domination and control of the Weddingpages, The Knot acts as, is and has held itself out as the alter ego of Weddingpages.
8. Ken Nanfito was the principal owner of Weddingpages and actively participated in, knew of and furthered the acts and transactions constituting the violations of franchise registration and disclosure laws described more fully below but including, among other things, personally making the false representations that Weddingpages had a long term agreement with The Knot; failing to disclose to franchisees the terms and conditions of the Alliance Agreement between The Knot and Weddingpages; representing to franchisees that it would be beneficial to them for The Knot and Weddingpages to work together; and failing to disclose that the sale of the Weddingpages to The Knot was, in the absence of any protection for franchises, likely to lead to The Knot's obtaining and taking over the territories of the franchisees. Nanfito is subject to jurisdiction in this state by reason of his participation in the unlawful offer and sale of franchises in violation of New York law and other transaction of business in the State, as alleged more fully herein.
9. Brad Poppen is the president of Weddingpages and actively participated in, knew of and furthered the acts and transactions constituting the violations of franchise registration and disclosure laws as described more fully below but including, among other things, personally making the false representation that as a single entity, Weddingpages and The Knot would be more effective on a local level; representing to franchisees that they would be secure in the businesses that they owned when in fact The Knot had desires to take over their territories; inducing franchisees to use The Knot trademarks so as to reduce their dependence upon Weddingpages trademarks and then changing course so as to withdraw The Knot trademarks; entering into a license agreement with The Knot on behalf of the Weddingpages company-owned markets pursuant to which The Knot would provide articles and materials for a new magazine called The Knot Weddingpages. Poppen is subject to jurisdiction in this state by reason of his participation in the unlawful offer and sale of franchises in violation of New York law and other transaction of business in the State, as alleged more fully herein.
10. David Liu is the Chairman, President and Chief Executive Officer of The Knot and knew of, directed and participated in the acts and transactions that The Knot engaged in that constituted violations of the franchise registration and disclosure laws set forth below. Liu is a citizen and resident of New York.
11. Steve Saffar is publisher of the Weddingpages and knew of, directed and participated in the acts and transactions that constituted violations of franchise registration and disclosure laws set forth below. Saffar is subject to jurisdiction in this state by reason of his participation in the unlawful offer and sale of franchises in violation of New York law, as alleged more fully herein.
12. Ben Bilbrough is director of local services for The Knot and actively participated in, knew of and directed the acts constituting the violations of franchise registration and disclosure statutes by, among other things, removing franchisee cities from The Knot Web site; refusing to communicate with Weddingpages franchisees; and participating in the structuring of the offer of the commission sales agreement that was offered under cover of a letter signed by him and dated June 17, 2000. Bilbrough is subject to jurisdiction in this state by reason of his participation in the unlawful offer and sale of franchises in violation of New York law and other transaction of business in the state, as alleged more fully herein.
Background
13. Each of the Plaintiffs purchased, for an initial payment of approximately $15,000 per territory, the right to operate a “Weddingpages” business within an exclusive territory. The business is founded upon the sale of advertising to local businesses that cater to brides and bridegrooms. That advertising appears in an annual wedding planner entitled “The Weddingpages;” in a magazine entitled “Weddingpages Bride & Home Magazine;” in select markets in a “Profile Edition” publication; and, more recently, on the Internet. The wedding planner and magazines contain editorial content designed to assist prospective brides and bridegrooms in planning a wedding. Articles might include, for example, features on how to select a wedding dress, what size facility to use for a particular number of guests, how to evaluate a caterer and the like. The wedding planner and magazines also contain substantial advertising, both national and local. Each local franchisee solicits advertising from local vendors of goods and services, such as caterers, photographers, facilities, bakers, and tuxedo rental outlets. The nature and quality of this advertising is of paramount importance to both the franchisee and the advertiser: As print advertising, it appears in a book or magazine that the prospective bride or bridegroom will see repeatedly through the 6 to 24 month process of planning the wedding. The advertisements are usually in color and appear prominently in the wedding planner, magazine or Internet. Accordingly, the bride or bridegroom sees the ad repeatedly, a key factor in its effectiveness. Thus, for example, if a bride wishes to find the provider of a particular type of wedding cake, she knows that there is an ad for it in the Weddingpages planner or magazine. Because of these advantages, the print advertising in the Weddingpages commands a premium price.
14. Each of the franchisees has historically promoted the publications in a number of ways. The magazines are sold on newstands and through similar distribution channels as ordinary consumer magazines; the wedding planner historically has been promoted in strategic locations such as jewelry stores, where brides see a sample copy and order it with a reply card or over a toll-free “800” number or over the Internet. Prior to the affiliation between Weddingpages and The Knot, in August 2000, as described more fully below, Weddingpages, as the franchisor, had nationwide contracts with jewelry stores for the placement of the wedding planner as well as a national “800” number, and their own web site, Weddingpages.com, over which brides could order the planner.
15. A key feature of the franchisee's business is the provision to advertisers of monthly lists of sales leads. The leads, historically, were generated by the bride's order of the wedding planner through a reply card she filled out at the jewelry store or through the 800 number or the Internet. The franchisor then forwards the wedding planner to each prospective bride or bridegroom. The advertisers then use these lists of sales leads in order to solicit the brides directly. Thus, the advertiser gets another benefit from the advertising: a built-in list of leads to pursue in its sales efforts. Those leads are particularly useful because they reinforce the print advertising.
The Franchise Agreements
16. Each of the franchisees entered into a franchise agreement with Weddingpages, the substance of which is reflected in the written agreements between the parties, the correspondence, the oral discussions and understandings between them, the custom and usage of the trade and the course of dealing between the parties.
17. All the Plaintiffs have entered into one of two forms of written franchise agreements. Most of the Plaintiffs have entered into the “new” form of agreement (as indicated on Exhibit 1), while some have entered into the “old” form of agreement (also indicated on Exhibit 1).
18. The new form of written agreement provides that the franchisees have certain rights, as set forth below:
(a) Section 1 grants the franchisee an exclusive “area” and states that the franchisor will not operate any other business under the “marks” within that area except for national accounts. The marks include the name “Weddingpages” and “such other trade names, service marks . . . as are now designated (and may hereinafter be designated by the franchisor in writing) as part of the System.”
(b) The franchisor will continue to develop, use and control the marks “for the benefit and use of itself and its franchisees . . ..”
(c) Section 3.06 provides that the Franchisor will assist the franchisee in preparing rate sheets for advertising each year, but that the franchisee will set the rates in its sole discretion. Section 3.07 states that the franchisor will provide a list of potential or prospective advertisers in the Area.
(d) Section 6 states that the “whole or any portion of know-how, knowledge, methods, specifications, processes, procedures, and/or improvements regarding the Franchised Business and the System . . . is valuable and secret in the sense that it is not generally known to competitors of Franchisor.” (Emphasis added.) It further refers to the “special and unique nature of the confidential information” and provides that the franchisor shall be entitled to equitable relief if the franchisee discloses it.
(e) Among other things, section 11.06 contains the franchisee's acknowledgment that “uniform standards of quality be maintained.” Section 11.09 provides that “each and every detail of the quality of customer service, customer relations, appearance and demeanor of Franchisee and its employees . . . is important to Franchisor and to other Weddingpages businesses. Franchisor shall endeavor to maintain high standards of quality and service by all The Weddingpages businesses.” (f) Under Section 12.02, the franchisor agrees to regulate quality standards “throughout the network of Franchised Businesses.” In Section 12.03, it agrees to furnish reasonable assistance with respect to “additional products and services authorized for sale,” proper utilization of procedures regarding service and sale of products and services, and “on-going research and development of new procedures and techniques, new products and materials and other enhancements to the System.”
(g) The franchisee may terminate if the franchisor materially breaches and fails to cure within 60 days' notice.
(h) Section 21 states, among other things, that “Franchisor may not control or have access to Franchisee's funds or the expenditure thereof, or in any other way exercise dominion or control over Franchisee's Franchised Business.”
19. The old written agreement contains the following relevant provisions:
(a) The franchisor grants the franchisee an exclusive franchise within its territory to operate a Weddingpages franchise. The company will consult with the franchisee and fix a guaranteed circulation and advertising rates for advertising. (IV.1.b (02), (03).)
(b) The franchisor agrees to publish and continue publishing the wedding planner and to do so in a way that makes it possible for the franchisee to fulfill its advertising obligations to advertisers. It also undertakes to furnish adequate supplies of the planner for distribution. (IV.1(d).)
(c) The franchisor agrees to provide copies of leads for the franchise area for each month.
(d) The franchisee has the right to solely solicit advertising for any local advertisers and to submit to the company all insertion orders for such advertisements and to collect payment for such advertising. (IV.4.)
(e) The franchisor agrees not to “engage directly or indirectly, except as permitted under the provisions of this agreement, and any solicitation of advertisements on an entirely local basis at or within the franchise area, to engage in any other allied or related business activity competitive with the enterprise of franchisee under the provisions of this agreement, or enter into any Like Contract for or within the franchised area . . ..” (IV.5.)
20. Under their respective franchise agreements, each of the franchisees has performed all of its obligations and has invested substantial amounts of money and continuing efforts over many years to develop and promulgate the Weddingpages' name, marks and system. As a result, each of the franchisees has developed and enjoys a widespread reputation as a Weddingpages franchisee and has continuing and established relationships with advertisers and customers within its geographic area.
The Alliance With The Knot
21. In 1995, the franchisor launched a web site on the World Wide Web that was entitled “the-wedding-pages.com” (later “weddingpages.com”). As it was developed, that site promoted the business of the franchisees and advertisers and became an important generator of bridal leads that in turn, could sustain and generate print advertising.
22. In July 1999, Weddingpages, by its principal owner and then - President Ken Nanfito, announced to the franchisees that it was entering into an Alliance Agreement with The Knot, a competitor of Weddingpages that sold and promoted wedding products and services over the Internet. The first step in this process was that the Weddingpages Web site, which had been generating sales leads, was phased out and became “The Knot.com.” Although Plaintiffs expressed concern this alliance was temporary, and that they would promote The Knot in the short term and then lose any advantage from such efforts, Mr. Nanfito reassured them by saying that Weddingpages' agreement with The Knot was a “very long term” agreement that would benefit them. At that time, Plaintiffs, as Weddingpages franchisees, received the right (and in fact had no choice) to use the trademark “The Knot” and its affiliated graphic designs and marks. In conjunction with this change, the Weddingpages.com web site became a mere shell and all inquiries to it were transferred to the web site of The Knot. Based on Mr. Nanfito's assurances that their businesses were secure, the Claimant franchisees began to promote The Knot aggressively.
23. In February 2000, Mr. Nanfito announced that Weddingpages was being sold to The Knot. As of that time, both Weddingpages and The Knot operated as a single entity, and Brad Poppen became President of Weddingpages. In a February 2, 2000 press release from The Knot, Mr. Poppen announced that “as a single entity, we will become an even more effective business on both the local and national level.” Franchisees were then induced without choice to become what they believed to be franchisees of The Knot. As noted above, the Weddingpages.com web site became a mere conduit to The Knot's web page. At The Knot's web page, there was a position that read “Local Services by Weddingpages” that linked to a list of cities. The user could click on one of those sites and see local advertising provided by the franchise under The Knot's logo. Additionally, the name “The Knot” began appearing on the cover as well as at the bottom of every page of all Weddingpages publications; and franchisees were encouraged to answer their telephones by including The Knot's name. They received faxes from the home office stating; “After all, we are The Knot.” Additionally, part of The Knot's national program was to provide all brides who registered on TheKnot.com a free wedding planner (different than Weddingpages' planner) included in a “Knot Box” filled with products, samples, national advertisements and wedding related materials. It was then announced on a conference call to all “company market” sales representatives that the Weddingpages wedding planner was being dropped completely from all company markets. Franchisees were never notified by management that this was taking place. Subsequently the offer of a free Weddingpages planner--the centerpiece of the Weddingpages' bridal lead generating program--was removed from The Knot's web site, greatly reducing the number of monthly bridal leads provided to advertisers.
24. At the same time, in April 2000 The Knot announced a program for franchisees to sell advertising on TheKnot.com's web pages at prices and on terms dictated by The Knot, and that was unconnected to the publications. This program was at odds with the established Weddingpages strategy founded on print advertising and, in essence, threatened to put the franchisees in the untenable position of competing against themselves. The franchisees sent a letter to Ben Bilbrough and Brad Poppen stating their concerns about The Knot's new program of selling “Internet only” advertising and attempted to contact Ben Bilbrough to discuss a solution. Mr. Bilbrough refused to accept their calls for 3 weeks and instead placed in a subservient position all franchisee markets on The Knot's “city directory” portion of the web site. When franchisees inquired as to why their 20 cities had been deleted, Weddingpages responded on May 10, 2000 that it was because the drop down list showing them took too long to load and it was cumbersome to the bride. Meanwhile, on the drop-down list just below them, for wedding gowns, 173 companies were listed.
25. In fact, the representation about the drop down list was false. On June 26, 2000 in Chicago, Ben Bilbrough admitted that The Knot had not included the franchisee cities because of his personal anger and animosity that franchisees had raised concerns about having to sell Internet advertising only.
The Franchisees are Cut Off From The Knot
26. After the franchisee cities were deleted in May 2000, The Knot, with the knowledge, participation and assistance of Liu, Poppen, Saffar and Bilbrough, embarked on a plan and program that would have the practical effect of eliminating their franchised businesses and taking over their territories. First, The Knot, at Bilbrough's direction, ceased to communicate with franchisees. At the same time, The Knot removed the offer of a free wedding planner from the Weddingpages and from The Knot's web site completely.
27. Beginning in June 2000, The Knot continued to eviscerate the rights and privileges of franchisees by, among other things, attempting to insert advertising into franchisee publications without consent of the franchisees.
28. On or about June 12, 2000, The Knot restored the free wedding planner offer for Weddingpages on the web site but made it distinct from and subordinate to a wedding planner that The Knot was offering and that the franchisees had no role in or benefit from. This positioning has greatly reduced the number of bridal leads they provided their advertisers. Thus, all the franchisees had been induced to use The Knot as their trademark and to represent themselves as representatives of The Knot, but The Knot was now refusing to allow them to have the benefit of that mark.
29. On June 26, 2000, a meeting was held with franchisees in Chicago. At that meeting, Poppen and Bilbrough, on behalf of The Knot and Weddingpages, made it clear that The Knot's future course of action could result in a phasing out of the Weddingpages as a separate business, concept or entity. Among other things, they announced to the franchisees the following:
(a) The Knot was not the franchisor; rather Weddingpages was the franchisor and would be treated as a separate and distinct company, even though it was a wholly owned subsidiary of The Knot, and franchisees had already been using The Knot's trademarks and acting as franchisees of The Knot for several months.
(b) The agreement for use of The Knot's web site would expire December 31, 2000 and would not be renewed. There was and would be no web site for Weddingpages. Accordingly, the only Internet presence for Weddingpages franchisees, which was a subordinate part of The Knot's web site, was to be eliminated as of the end of the year.
(c) Weddingpages had entered into a license agreement with The Knot for company-owned markets only under which The Knot would provide web site, articles and material for a new magazine named The Knot Weddingpages that would not be available to franchisees. In other words, Weddingpages would cease to exist in company-owned markets, which comprised approximately 32 of the 50 markets in which Weddingpages did business.
(d) If franchisees wanted either to have access to The Knot web site, exposure on that web site or access to The Knot publications, they had to sign a sales representative agreement under which they would become sales representatives for The Knot. Under this agreement, promulgated by Mr. Bilbrough, the franchisee would be paid a 35% commission on Internet sales and The Knot would determine all prices. The Knot would set a quota of sales to be met and the agreement would be in effect for only 18 months. If those quotas were not met, The Knot then reserved the right to enter their markets with their own representatives to, in essence, compete with the franchisees. Effectively, the franchisees would give up their franchises in order to become sales representatives. If the franchisees did not sign this agreement Ben Bilbrough stated that The Knot would begin selling advertising on the Internet in their markets and would more than likely open a magazine as well.
30. The effect of these changes and others that Weddingpages had implemented on existing Weddingpages Franchisees, was at the least, the following:
(a) The fact that company-owned markets were ceasing to publish Weddingpages eviscerated the products that Plaintiffs had available to sell from national publications with 50 individual local markets to a local publication confined to 18 areas; clearly, the difference was substantial. Additionally, the ability of Weddingpages to continue as a viable, independent publication was put in doubt by this change, as confirmed by the fact that the editor-in-chief was called in to The Knot's headquarters and asked to justify his job.
(b) Weddingpages had discontinued the bridal-lead generators it had previously had, including its agreements with national jewelry store chains, its 800 numbers, and its Internet site.
(c) Weddingpages had no web site of its own, nor did it have any presence on The Knot's web site that would generate bridal leads. Moreover, franchisees would not be permitted to develop their own web site or use either the Weddingpages or The Knot's name or marks on their own.
(d) The Knot would come into franchisee markets with its own publications and Internet presence and compete with the franchisees.
31. On or about July 10, 2000, Weddingpages conducted its national workshop for franchisees and company-owned market sales representatives in Harvey's Casino in Council Bluffs, Iowa. Unlike prior meetings, at this meeting it was made clear that Weddingpages no longer existed for all practical purposes. Among other things:
(a) the entire meeting was conducted primarily by Knot personnel instead of Weddingpages personnel;
(b) all materials presented and discussed were The Knot brand products including media kits and brochures; in fact, when The Knot did use the Weddingpages name, it misspelled it as two words instead of one;
(c) a number of promotional items including portfolios, ink pens and bottled water were passed out, all of which contained The Knot trademark; not one item had the Weddingpages trademark;
(d) Rob Frassino, a co-founder of The Knot, apologized during one presentation for the fact that Weddingpages appeared on a screen;
(e) Steve Saffar, local marketing manager, opened “Workshop 2000” with the words “Weddingpages no longer exists . . . get ready for a new way of doing things;”
(f) Rob Frassino publicly told the franchisees and company representatives, “you must understand that you no longer work for the Weddingpages, you are now The Knot;” and
(g) Ben Bilbrough stated “the Weddingpages planner is gone.”
32. As made clear at the meetings in Chicago and Omaha, The Knot had eliminated the Weddingpages as a viable alternative or business.
33. Subsequently, The Knot has announced that it is redesignating the names of selected regions in which the local “Weddingpages” publications are published in such a way as to diminish the rights of franchisees and to confuse advertisers. For example, currently, there are separate New York City, Hudson Valley, and Long Island editions of “Weddingpages.” The Knot is renaming and merging the Hudson Valley and New York City editions into one title area “New York” which will give advertisers the impression that the “New York” edition would cover the entire New York region. The blurring of territorial lines would allow sales reps in company markets to use vast territorial descriptions as though their publication includes the franchised territory. Additionally, the consumer will be led to believe the regional title would include their specific area (i.e., California Weddingpages, does not include San Diego Edition, which is franchised).
Defendants' Misrepresentations and Fraudulent Omissions
34. Defendants were all under a duty, commencing at least in July 1999 when Weddingpages and The Knot entered into the Alliance Agreement, to make full and fair disclosure of their contracts, arrangements and plans to all of the franchisees. This duty arose from several sources, including, at least, the following:
(a) the fact that Weddingpages, The Knot and their representatives Nanfito, Liu, Poppen, Saffar and Bilbrough, all had superior knowledge of the facts concerning their plans and relationship and the manner in which those plans would affect the franchisees;
(b) the fact that Weddingpages, The Knot, Nanfito, Liu, Poppen, Saffar and Bilbrough made representations to the franchisees concerning their arrangements, plans and relationship, including representations that the two companies were in fact one entity or were acting as one entity and the fact that Weddingpages and The Knot knew and in fact encouraged the franchisees to act upon those representations and statements;
(c) the contractual obligations contained in the Franchise Agreements pursuant to which Weddingpages was obligated to assist franchisees and use the name, marks and system for the benefit of franchisees carried an implied obligation that the franchisor would make full disclosure to them;
(d) as set forth below, under the franchise disclosure laws and unfair trade practices acts of various states, the Defendants were obligated to make full and fair disclosure of all material facts to Plaintiffs.
35. Defendants made at least the following statements that were false, and known to be false at the time that they were made:
(a) Nanfito's statement, at The National Convention in July 1999, on behalf of Weddingpages, that the Alliance Agreement between Weddingpages and The Knot was a “long-term” agreement, a statement intended to induce franchisees to believe that they had a long-term future with The Knot so that they would become affiliated with The Knot and use and promote its web site and give The Knot access to their territories;
(b) the February 2, 2000 statement by Poppen that Weddingpages and The Knot were “a single entity” that would be “more effective on both the local and national level.”
(c) Poppen and Nanfito's assurances that under the Alliance Agreement, the interests of the Weddingpages franchisees would be protected and enhanced;
(d) the Weddingpages franchisees' cities had been deleted from The Knot's web site because the page would not load quickly enough.
36. The foregoing statements were made by Defendants in order to lull the Plaintiffs into inaction, to accept The Knot as their franchisor and to cooperate with it and permit it to develop and exploit The Knot's name and reputation within their territories. The foregoing statements were false, and known to be false to Defendants, in at least the following respects:
(a) the Alliance Agreement was not long-term but was good only for 18 months;
(b) Weddingpages and The Knot were not “a single entity” and never intended to be;
(c) Under the Alliance Agreement, The Knot intended to take over and exploit the Weddingpages franchisees;
(d) the Weddingpages franchisees had been deleted from The Knot's web site because of the personal animosity that Mr. Bilbrough felt toward them.
37. The Defendants also failed to disclose to Plaintiffs material information that they had a duty to disclose, including at least the following:
(a) the Alliance Agreement was for a period of only 18 months;
(b) The Knot secretly intended to take over the franchisees' territories, use the goodwill that the franchisees had developed, and subsume their territories into The Knot's marketing strategy, leaving the franchisees with no businesses of their own and no ability to compete; and
(c) the Weddingpages and The Knot were not a single entity.
38. The Defendants made the foregoing omissions knowing that they were material and misleading omissions of fact and intending that Plaintiffs rely upon the information that was disclosed as presenting the full and complete facts, when actually the Defendants were under a duty to and should have disclosed all of the facts as set forth here.
39. The Plaintiffs relied upon the Defendants' misrepresentations and omissions of fact in deciding to use The Knot trademarks and names; in permitting The Knot to do business in their territories; in deciding not to pursue action against Weddingpages and The Knot at an earlier time; and in permitting The Knot to use The Weddingpages on its web site and otherwise.
40. The Defendants' actions constitute fraud, breaches of contract, and violations of applicable law which have caused and are causing injury to Plaintiffs which is irreparable and as to which Plaintiffs have no adequate remedy of law.
COUNT I
(Fraud)
41. Plaintiffs repeat and reallege each and every allegation set forth in the preceding paragraphs as though set forth here in full.
42. The Defendants have knowingly made false and fraudulent statements and have made false omissions of fact that were necessary to be made in order to make what was said not misleading, in order to induce the Plaintiffs to give up or take action tending to give up their exclusive rights in their territories to the Weddingpages and Knot name and marks. The specific statements and omissions are set forth above.
43. Plaintiffs justifiably relied upon Defendants' statements and omissions, believing them to be true, and as a result took action that did or tended to give up their exclusive rights in their territories to the Weddingpages and Knot names and marks.
44. Plaintiffs have been injured as a result of Defendants' fraudulent statements and omissions and Plaintiffs' reliance thereon.
45. Plaintiffs are entitled to an award of actual and punitive damages as a result of their reliance upon Defendants' fraud.
COUNT II
(Negligent Misrepresentation)
46. Plaintiffs repeat and reallege each and every allegation set forth in the preceding paragraphs as though set forth here in full.
47. Defendants had a duty to Plaintiffs, particularly in the circumstances, to take due care to disclose all facts, and to ensure that such facts as they did disclose with respect to the transactions between Weddingpages and The Knot were truthful in all respects and not misleading. Defendants knew that Plaintiffs were relying upon them in connection with the those transactions and that the only information Plaintiffs could obtain about those transactions came by way of Defendants.
48. Defendants failed to exercise the level of care of a reasonable person in their positions to ensure that the statements that they made were true and complete since the statements were not true as described above.
49. Plaintiffs justifiably relied upon Defendants' representations in determining to take the actions that they took.
50. As a result of their reliance upon Defendants' misrepresentations and omissions, Plaintiffs took actions that compromised and gave up their rights to their exclusive territories and have lost the value of their franchises.
COUNT III
(Violation of the California Franchise Sales Act--Sale of Knot Franchises)
51. Plaintiffs repeat and reallege each and every allegation set forth in the preceding paragraphs as though set forth here in full.
52. The California Franchise Sales Act (the “California Sales Act”), Cal. Corp. Code § 31001 through 31516, provides, inter alia, that a franchisor may not sell or offer to sell a franchise without first registering with the state an offering circular containing certain enumerated information, which information is factual, correct and not misleading and then providing each prospective franchisee with a copy of the registered offering circular.
53. The California Sales Act further provides that in connection with the offer or sale of a franchise, no person shall make any untrue statement of a material fact in an offering circular; no person-shall use any device, artifice or scheme to defraud; no person shall omit to state a material fact necessary in order to make the statements made, in light of the circumstances, not misleading; and no person shall engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person.
54. The California Sales Act defines a “franchise” as a contract or agreement by which the franchisee is granted the right to engage in the business of offering, selling or distributing goods or services under a marketing plan or system prescribed in substantial part by the franchisor; and the operation of the franchisee's business is substantially associated with the franchisor's trademark; and the franchisee is required to pay, directly or indirectly, a franchise fee.
55. The following transactions constitute or constituted offers to sell franchises by The Knot: (a) the transactions in the Spring of 2000 pursuant to which franchisees were told that Weddingpages and The Knot were one entity and franchisees were required to use The Knot trademarks; (b) the offer to franchisees to become “commissioned sales agents” of The Knot, in that, in each of these transactions, Weddingpages franchises were offered the right to sell products and services under The Knot's trademarks and pursuant to its marketing plan, and were required to pay a fee, either in terms of a royalty or franchise fee or were required to give up substantial benefits that they had as Weddingpages franchisees.
56. Weddingpages and The Knot were “franchisors” as that term is used in the California Sales Act. Each of John Zyla, Dena Nolen and San Diego Weddingpages, Inc. (the “California Franchisees”) were “franchisees” as that term is used in the California Sales Act.
57. Weddingpages and The Knot violated the California Sales Act in the following ways:
(a) By making the untrue statements and omissions set forth above;
(b) By offering to sell to the California franchisees franchises without first registering an offering circular describing the franchise with the state; and
(c) By offering to sell to the California franchisees franchises without providing an offering circular to each franchisee as required by law.
58. Messrs. Nanfito, Liu, Poppen, Saffar and Bilbrough are officers and directors of the Weddingpages and The Knot who directly participated the acts, transactions and omissions constituting the violations of the California Franchise Sales Act, as set forth above. The California Sales Act provides that each officer, director or person who controls a person liable under the act is also jointly and severally liable. Accordingly, Messrs. Nanfito, Liu, Poppen, Saffar and Bilbrough are each equally liable with Weddingpages and The Knot for their violations of the California Sales Act.
59. The California Franchisees have been injured as a result of Defendants' violations of the California Sales Act and are entitled to: (a) a preliminary and permanent injunction against any further act constituting an offer to sell a franchise, including the offering of so-called commission sales agent contracts by Defendants until Defendants have either registered such offering with the State or obtained an exemption from registration; (b) rescission of the franchises that the California Franchisees have already been forced to acquire, meaning that The Knot must take back all of the actions that it has taken with respect to Weddingpages franchisees, including the doing of any business or solicitation of business in their territories; (c) damages actually incurred by the California Franchisees; and (d) attorneys fees.
COUNT IV
(Violation of the New York Franchise Sales Act--Sale of Knot Franchises)
60. Plaintiffs repeat and reallege each and every allegation set forth in the preceding paragraphs as though set forth here in full.
61. The New York Franchise Sales Act (the “New York Act”), N.Y. Gen. Bus. L. § 680-695, provides, inter alia, that a franchisor may not sell or offer to sell a franchise without first registering with the state an offering circular containing certain enumerated information, which information is factual, correct and not misleading and then providing each prospective franchisee with a copy of the registered offering circular.
62. The New York Sales Act further provides that in connection with the offer or sale of a franchise, no person shall make any untrue statement of a material fact in an offering circular; no person-shall use any device, artifice or scheme to defraud; no person shall omit to state a material fact necessary in order to make the statements made, in light of the circumstances, not misleading; and no person shall engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person.
63. The New York Sales Act defines a “franchise” as a contract or agreement by which the franchisee is granted the right to engage in the business of offering, selling or distributing goods or services under a marketing plan or system prescribed in substantial part by the franchisor; or the operation of the franchisee's business is substantially associated with the franchisor's trademark; and the franchisee is required to pay, directly or indirectly, a franchise fee.
64. The following transactions constitute or constituted offers to sell franchises by Weddingpages and The Knot: (a) the transactions in the Spring of 2000 pursuant to which franchisees were told that Weddingpages and The Knot were one entity and franchisees were required to use The Knot trademarks; (b) the offer to franchisees to become “commissioned sales agents” of The Knot, in that, in each of these transactions, Weddingpages franchises were offered the right to sell products and services under The Knot's trademarks and pursuant to its marketing plan, and were required to pay a fee, either in terms of a royalty or franchise fee or were required to give up substantial benefits that they had as Weddingpages franchisees.
65. Weddingpages and The Knot were “franchisors” as that term is used in the New York Sales Act. All of the Plaintiffs are “franchisees” as that term is used in the New York Sales Act.
66. Weddingpages and The Knot violated the New York Sales Act in the following ways:
(a) By making the untrue statements and omissions set forth above;
(b) By offering to sell franchises to Plaintiffs without first registering an offering circular describing the franchise with the state; and
(c) By offering to sell franchises to Plaintiffs without providing an offering circular to them as required by law.
67. Messrs. Nanfito, Liu, Poppen, Saffar and Bilbrough are officers and directors of the Weddingpages and The Knot who directly participated the acts, transactions and omissions constituting the violations of the New York Franchise Sales Act, as set forth above. The New York Sales Act provides that each officer, director or person who controls a person liable under the act is also jointly and severally liable. Accordingly, Messrs. Nanfito, Liu, Poppen, Saffar and Bilbrough are equally liable with Weddingpages and The Knot for their violations of the New York Sales Act.
68. Plaintiffs have been injured as a result of Defendants' violations of the New York Sales Act and are entitled to: (a) a preliminary and permanent injunction against any further act constituting an offer to sell a franchise, including the offering of so-called commission sales agent contracts by Defendants until Defendants have either registered such offering with the State or obtained an exemption from registration; (b) rescission of the franchises that Plaintiffs have already been forced to acquire, meaning that The Knot must take back all of the actions that it has taken with respect to Weddingpages franchises, including the doing of any business or solicitation of business in Plaintiffs' territory; (c) damages actually incurred by Plaintiffs; and (d) attorneys fees.
COUNT V
(Violation of the Illinois Franchise Act--Sale of Knot Franchises)
69. Plaintiffs repeat and reallege each and every allegation set forth in the preceding paragraphs as though set forth here in full.
70. The Illinois Franchise Sales Act (the “Illinois Act”) provides, inter alia, that a franchisor may not sell or offer to sell a franchise without first registering with the state an offering circular containing certain enumerated information, which information is factual, correct and not misleading and providing each prospective franchisee with a copy of the original offering circular.
71. The Illinois Sales Act further provides that in connection with the offer or sale of a franchise, no person shall make any untrue statement of a material fact in an offering circular; no person-shall use any device, artifice or scheme to defraud; no person shall omit to state a material fact necessary in order to make the statements made, in light of the circumstances, not misleading; and no person shall engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person.
72. The Illinois Sales Act defines a “franchise” as a contract or agreement by which the franchisee is granted the right to engage in the business of offering, selling or distributing goods or services under a marketing plan or system prescribed in substantial part by the franchisor; and the operation of the franchisee's business is substantially associated with the franchisor's trademark; and the franchisee is required to pay, directly or indirectly, a franchise fee.
73. The following transactions constitute or constituted offers to sell franchises by The Knot: (a) the transactions in the Spring of 2000 pursuant to which franchisees were told that Weddingpages and The Knot were one entity and franchisees were required to use The Knot trademarks; (b) the offer to franchisees to become “commissioned sales agents” of The Knot, in that, in each of these transactions, Weddingpages franchises were offered the right to sell products and services under The Knot's trademarks and pursuant to its marketing plan, and were required to pay a fee, either in terms of a royalty or franchise fee or were required to give up substantial benefits that they had as Weddingpages franchisees.
74. Weddingpages and The Knot were “franchisors” as that term is used in the Illinois Sales Act. Chambers Marketing Options (“Chambers”) is a “franchisee” as that term is used in the Illinois Sales Act.
75. Weddingpages and The Knot violated the Illinois Sales Act in the following ways:
(a) By making the untrue statements and omissions set forth above;
(b) By offering to sell to Chambers franchises without first registering an offering circular describing the franchise with the state; and
(c) By offering to sell to Chambers franchises without providing an offering circular to him as required by law.
76. Messrs. Nanfito, Liu, Poppen, Saffar and Bilbrough are officers and directors of the Weddingpages and The Knot who directly participated the acts, transactions and omissions constituting the violations of the Illinois Franchise Sales Act, as set forth above. The Illinois Sales Act provides that each officer, director or person who controls a person liable under the act is also jointly and severally liable. Accordingly, Messrs. Nanfito, Liu, Poppen, Saffar and Bilbrough are equally liable with Weddingpages and The Knot for their violations of the Illinois Sales Act.
77. Chambers has been injured as a result of Defendants' violations of the Illinois Sales Act and are entitled to: (a) a preliminary and permanent injunction against any further act constituting an offer to sell a franchise, including the offering of so-called commission sales agent contracts by Defendants until Defendants have either registered such offering with the State or obtained an exemption from registration; (b) rescission of the franchises that Chambers has already been forced to acquire, meaning that The Knot must take back all of the actions that it has taken with respect to Weddingpages franchisees, including the doing of any business or solicitation of business in his territory; (c) damages actually incurred by Chambers; and (d) attorneys' fees.
COUNT VI
(Violation of the New York Franchise Sales Act--Sale of Weddingpages Franchise)
78. Plaintiffs repeat and reallege each and every allegation set forth in the preceding paragraphs as though set forth here in full.
79. The New York Franchise Sales Act (the “New York Act”), N.Y. Gen. Bus. L. § 680-695, provides, inter alia, that a franchisor may not sell or offer to sell a franchise without first registering with the state an offering circular containing certain enumerated information, which information is factual, correct and not misleading and then providing each prospective franchisee with a copy of the registered offering circular.
80. The New York Sales Act further provides that in connection with the offer or sale of a franchise, no person shall make any untrue statement of a material fact in an offering circular; no person-shall use any device, artifice or scheme to defraud; no person shall omit to state a material fact necessary in order to make the statements made, in light of the circumstances, not misleading; and no person shall engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person.
81. The New York Sales Act defines a “franchise” as a contract or agreement by which the franchisee is granted the right to engage in the business of offering, selling or distributing goods or services under a marketing plan or system prescribed in substantial part by the franchisor; or the operation of the franchisee's business is substantially associated with the franchisor's trademark; and the franchisee is required to pay, directly or indirectly, a franchise fee.
82. Weddingpages was and has been a “franchisor” as that term is used in the New York Sales Act. Stuart Freeman and Weddingpages of New York, Inc. (collectively, “Freeman”) are “franchisees” as that term is used in the New York Sales Act.
83. Weddingpages violated the New York Sales Act by offering and selling Freeman a franchise without first registering the offering as required by law and by failing to provide Freeman with an offering circular as required by law.
84. Mr. Nanfito was an officer of the Weddingpages who directly participated the violations of the New York Franchise Sales Act, as set forth above. The New York Sales Act provides that each officer, director or person who controls a person liable under the act is also jointly and severally liable. Accordingly, Mr. Nanfito is equally liable with Weddingpages for its violations of the New York Sales Act.
85. Freeman has been injured as a result of Defendants' violations of the New York Sales Act and is entitled to damages incurred as a result of those violations, plus attorneys' fees.
COUNT VII
(Violation of the Illinois Franchise Act--Sale of Weddingpages Franchise)
86. Plaintiffs repeat and reallege each and every allegation set forth in the preceding paragraphs as though set forth here in full.
87. The Illinois Franchise Sales Act (the “Illinois Act”) provides, inter alia, that a franchisor may not sell or offer to sell a franchise without first registering with the state an offering circular containing certain enumerated information, which information is factual, correct and not misleading and providing each prospective franchisee with a copy of the original offering circular.
88. The Illinois Sales Act further provides that in connection with the offer or sale of a franchise, no person shall make any untrue statement of a material fact in an offering circular; no person-shall use any device, artifice or scheme to defraud; no person shall omit to state a material fact necessary in order to make the statements made, in light of the circumstances, not misleading; and no person shall engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person.
89. The Illinois Sales Act defines a “franchise” as a contract or agreement by which the franchisee is granted the right to engage in the business of offering, selling or distributing goods or services under a marketing plan or system prescribed in substantial part by the franchisor; and the operation of the franchisee's business is substantially associated with the franchisor's trademark; and the franchisee is required to pay, directly or indirectly, a franchise fee.
90. Weddingpages was and has been a “franchisor” as that term is used in the Illinois Sales Act. Chambers is a “franchisee” as that term is used in the Illinois Sales Act.
91. Weddingpages violated the Illinois Sales Act by offering to Chambers and selling to him a franchise without first registering an offering circular describing the franchise with the state; and without providing an offering circular to him as required by law.
92. Mr. Nanfito was an officer of the Weddingpages who directly participated the acts, transactions and omissions constituting the violations of the Illinois Franchise Sales Act, as set forth above. The Illinois Sales Act provides that each officer, director or person who controls a person liable under the act is also jointly and severally liable. Accordingly, Mr. Nanfito is equally liable with Weddingpages for its violations of the Illinois Sales Act.
93. Chambers has been injured as a result of Defendants' violations of the Illinois Sales Act and is entitled to an award of damages actually incurred by Chambers and attorneys' fees.
COUNT VIII
(Breach of Contract)
94. Plaintiffs repeat and reallege each and every allegation set forth in the preceding paragraphs as though set forth here in full.
95. Each of the Plaintiffs had a contract with the Weddingpages for an exclusive franchise pursuant to which it would use the name and mark of the Weddingpages as well as any names and marks that the Weddingpages designated or adopted.
96. The Knot also became the franchisor under the franchise agreements with the Plaintiffs by reason of
(a) its express assumption of those agreements through its conduct, including express representations that it was the franchisor;
(b) its insistence that franchisees use and display the name and trademarks of The Knot as well as hold themselves out as The Knot franchisees;
(c) public representations on the Internet and otherwise that The Knot and the Weddingpages operated as one enterprise; and
(d) assumption by The Knot of operations in the Weddingpages' corporate-owned territories.
97. Under those agreements, the Plaintiffs became entitled to use and display the mark “The Knot” and its associated marks and names exclusively within their franchised territories.
98. The Knot and Weddingpages have breached the franchise agreements by, among other things, the following conduct:
(a) failure and refusal to make The Knot's trademarks, trade names and affiliated systems and programs readily and exclusively available to franchisees for use and promotion in their territories in connection with their Weddingpages publications;
(b) threatening to use “The Knot” mark systems and programs in competition with the franchisees even though the franchisees have exclusive rights to that mark;
(c) failing to develop, use and control the marks for the benefit of the franchisees;
(d) otherwise failing to protect the franchisees' exclusive area by insisting that they enter into agreements pursuant to which they would have to give up their exclusive rights;
(e) failing to maintain the confidentiality of the system, by disclosing trade secrets and other confidential information from the Weddingpages to The Knot;
(f) failing and refusing to provide ongoing research and development of new products and materials that are made available to franchisees and instead diverting such research and development to The Knot and to its web site;
(g) attempting to exercise dominion and control over the franchisee and direct its expenditure of funds and pricing in violation of the express provisions of the agreement that allow the franchisee to set its own prices and providing that it is an independent contractor;
(h) failing to provide reasonable assistance to franchisees; and
(i) competing against franchisees, and redesignating the names of their territories.
99. As a result of these breaches of contract, Plaintiffs have been and continue to be injured by The Knot and Weddingpages.
100. Plaintiffs are entitled to a preliminary and permanent injunction against Defendants and all those in active concert or participation with them from continuing or undertaking any of the following conduct:
(a) using, displaying or advertising the name or mark “The Knot,” “Weddingpages” or other affiliated or confusingly similar marks or names within any franchisees' exclusive territory by way of the Internet or otherwise without the express written consent of the affected franchisee;
(b) forcing franchisees to discontinue selling advertisers on The Knot's web site;
(c) selling, offering for sale or attempting to market any products, services or advice under the mark or names “Weddingpages,” “The Knot” or other affiliated marks or names to any customer or vendor within any Plaintiffs' exclusive territory;
(d) making any representation to the public, to securities analysts or to any government agency that the Defendants have nationwide rights to use or sell under the name “The Knot” or “Weddingpages.”
101. Defendants have obtained and are obtaining money, revenue, benefits and emoluments from the wrongful exploitation of the name and marks “Weddingpages” and “The Knot” in Plaintiffs' exclusive franchised territories, the amount of which Plaintiffs cannot know without an examination and accounting. Accordingly, Plaintiffs respectfully request that the arbitrators order the Defendants to submit to an accounting of the revenues and profits they have derived from the wrongful exploitation of “The Knot” name and mark in their territories.
102. Plaintiffs respectfully request an award of damages in the amount that the Plaintiffs have actually suffered as a result of Defendants' wrongful conduct.
COUNT IX
(Breach of Contract--Wrongful Termination)
103. Plaintiffs repeat and reallege each and every allegation set forth in the preceding paragraphs as though set forth here in full.
104. The actions of the franchisors, Weddingpages and The Knot, as set forth above, constitute a de facto or constructive termination of Plaintiffs' franchises without notice and without good cause, in violation of their contracts and other applicable law.
105. Plaintiffs are entitled to preliminary and permanent injunctive relief against Defendants and all those in active concert or participation with them from committing any acts, practices or conduct that directly, indirectly, actually or constructively will or may terminate their franchises or diminish their franchise rights as well as an award of damages for all injuries sustained by Plaintiffs to date.
COUNT X
(Violation of the Nebraska Franchise Act)
106. Plaintiffs repeat and reallege each and every allegation set forth in the preceding paragraphs as though set forth here in full.
107. The relationship between each of the franchisees and Weddingpages and The Knot is a “franchise” within the meaning of the Nebraska Franchise Practices Act, Neb. Rev. Stat. § 87-401 through § 87-410, by reason of the choice of law provisions in the franchise agreements.
108. Under the Nebraska Franchise Practices Act it is a violation for any franchisor to terminate, cancel or fail to renew a franchise without having first given written notice setting forth all the reasons for such termination, cancellation or intent not to renew at least 60 days in advance of such termination and without good cause therefore.
109. It is also a violation of the Nebraska Franchise Practices Act for franchisor to provide any term or condition in any agreement ancillary or collateral to a franchise that directly or indirectly violates the Act.
110. Respondent's actions constitute a de facto or constructive terminations of Plaintiffs' franchises in violation of the Nebraska Franchise Practices Act. In addition, the insistence by Defendants that Plaintiffs execute new agreements and become sales agents constitute terms or conditions collateral to a franchise that indirectly violates these provisions.
111. Plaintiffs are entitled to an injunction, pursuant to the Nebraska Franchise Practices Act, Neb. Rev. Stat. § 87-409 against the de facto termination of their franchises and any act to diminish their franchise rights together with an award of damages for injuries that they have sustained and an award of attorneys' fees.
COUNT XI
(Breach of the Implied Covenant of Good Faith and Fair Dealing)
112. Plaintiffs repeat and reallege each and every allegation set forth in the preceding paragraphs as though set forth here in full.
113. In every contract, including in every contract between the Plaintiffs and the franchisors Weddingpages and The Knot, there is an implied covenant of good faith and fair dealing pursuant to which neither party
(a) shall deprive or attempt to deprive the other party of the fruits of the agreement;
(b) shall attempt to remake the bargain struck between the parties so as to arrogate and claim for themselves opportunities that they have already forgone; or
(c) use bad faith, malice, ill will, misrepresentation or other wrongful acts to evade the letter or spirit of the bargain between them.
114. Weddingpages and The Knot have violated the implied covenant of good faith and fair dealing in at least the following ways:
(a) they have attempted to and have in fact deprived franchisees of their reasonable expectations and benefit of the bargain by the following acts: (i) failure and refusal to make The Knot's trademarks, trade names and affiliated systems and programs readily and exclusively available to franchisees for use and promotion in their territories in connection with their Weddingpages publications; (ii) threatening to use “The Knot” mark systems and programs in competition with the franchisees' even though the franchisees have exclusive rights to that mark; (iii) failing to develop, use and control the marks for the benefit of the franchisees; (iv) otherwise failing to protect the franchisees' exclusive area by insisting that they enter into agreements pursuant to which they would give up their exclusive rights; (v) failing to maintain the confidentiality of the system, by disclosing trade secrets and other confidential information from the Weddingpages to The Knot; (vi) failing and refusing to provide ongoing research and development of new products and materials that are made available to franchisees and instead diverting such research and development to The Knot and to its web site; (vii) attempting to exercise dominion and control over the franchisee and direct its expenditure of funds and pricing in violation of the express provisions of the agreement that allow the franchisee to set its own prices and providing that it is an independent contractor; (viii) failing to provide reasonable assistance to franchisees; and (ix) competing with franchisees.
(b) they have attempted to remake the bargain struck between the parties by usurping the franchisees business in their territories; invading their exclusive territories with sales on the Internet and otherwise; confusing the market place through the creation of two competing wedding planners, both of which Defendants control; soliciting business from advertisers in Plaintiffs' area; and other acts; and
(c) embarking on a program to eliminate and eviscerate the rights of franchisees carried out through disinformation, misinformation, misrepresentations, wrongful offers of franchises, fraudulent omissions and other costs, as set forth above.
115. Plaintiffs have been and continue to be injured by Defendants' breaches of the implied duty of good faith and fair dealing.
116. Plaintiffs are entitled to preliminary and permanent injunctive relief against any acts, practices or conduct by Defendants or those in active concert or participation with them that would diminish or derogate from Plaintiffs' rights. Plaintiffs were also entitled to an award of damages for the injuries inflicted by Defendants.
COUNT XII
(Unfair Competition)
117. Plaintiffs repeat and reallege each and every allegation set forth in the preceding paragraphs as though set forth here in full.
118. Defendants have a duty at both common law and because of their position as franchisors of Plaintiffs not to engage in any acts that would be unfair or constitute unfair competition against the Plaintiffs.
119. Defendants' acts, as set forth in detail above, but including, in general, Defendants' invasion of Plaintiffs' territories; Defendants' misrepresentations of the facts; Defendants' use of competing wedding planners and media against Plaintiffs; Defendants' grant and then withdrawal of trademark rights to Plaintiffs all constitute acts and practices of unfair competition against Plaintiffs.
120. As a result of Defendants' actions, Plaintiffs are entitled to preliminary and permanent injunctive relief against any acts that constitute or would constitute unfair competition and are entitled to an award of damages for injuries sustained by them to date.
COUNT XIII
(Violation of California Franchise Relations Act)
121. Plaintiffs repeat and reallege each and every allegation set forth in the preceding paragraphs as though set forth here in full.
122. The relationship between and Weddingpages and The Knot on the one hand and the “California Franchisees” on the other, is a “franchise” within the meaning of the California Franchise Relations Act Cal. Bus. & Prof. Code § 20000 through § 200430.
123. Under the California Franchise Relations Act, it is a violation for any franchisor to terminate or cancel a franchise without having first given written notice setting forth all the reasons for such termination or cancellation least 30 days in advance and without good cause therefore.
124. Defendants' actions constitute a de facto or constructive termination of Plaintiffs' franchises in violation of the California Franchise Relations Act.
125. Plaintiffs are entitled to an injunction, pursuant to the Franchise Practices Act against the de facto termination of their franchises and any act to diminish their franchise rights together with an award of damages for injuries that they have sustained and an award of attorneys' fees.
COUNT XIV
(Violation of the Illinois Franchise Act)
126. Plaintiffs repeat and reallege each and every allegation set forth in the preceding paragraphs as though set forth here in full.
127. The relationship between Chambers on the one hand and Weddingpages and The Knot on the other is a “franchise” within the meaning of the Illinois Franchise Disclosure Act.
128. Under the Illinois Franchise Disclosure Act, it is a violation for any franchisor to terminate or cancel a franchise without having first given written notice setting forth all the reasons for such termination or cancellation at least 30 days in advance of such termination and without good cause therefore.
129. Respondent's actions constitute a de facto or constructive termination of Chambers' franchise in violation of the Illinois Franchise Disclosure Act.
130. Chambers is entitled to an injunction, pursuant to the Illinois Franchise Disclosure Act against the de facto termination of its franchise and any act to diminish its franchise rights together with an award of damages for injuries that it has sustained and an award of attorneys' fees.
COUNT XV
(Violation of the Texas Deceptive Trade Practices Act)
131. Plaintiffs repeat and reallege each and every allegation set forth in the preceding paragraphs as though set forth here in full.
132. At all times material to this cause of action, Kabes, Nowakowski and Day (the “Texas Franchisees”) were consumers as that term is defined in the Texas Deceptive Trade Practices--Consumer Protection Act.
133. All of the conduct of the Weddingpages, Inc. and The Knot, Inc. relevant to this Count was committed by it in connection with the offer and sale of property, goods and services as those terms are defined in the Texas Deceptive Trade Practices--Consumer Protection Act. Further, Weddingpages, Inc. and The Knot, Inc. committed their acts in the furtherance of “trade” and “commerce” as those terms are defined in said Act.
134. Weddingpages, Inc. and The Knot, Inc.'s conduct described in the foregoing paragraphs constitutes false, misleading or deceptive acts or practices in the conduct of a trade or commerce. Such conduct constitutes a violation of the Texas Deceptive Trade Practices--Consumer Protection Act.
135. Weddingpages, Inc. and The Knot, Inc. made false representations and failed to disclose information concerning property, goods and services which was known to them at the time they were inducing the Texas franchisees to become franchisees of The Knot. The Texas
Franchisees would not have become franchisees of The Knot if Defendants had disclosed all of the information known to them concerning The Knot and had they not misrepresented The Knot.
136. The false, misleading or deceptive acts or practices described above were each a producing cause of each of Plaintiffs' damages.
137. The conduct of Weddingpages, Inc. and The Knot, Inc. described in the foregoing paragraphs constituted unconscionable actions or course of action which was a producing cause of The Texas Franchisees' damages.
138. The false, misleading or deceptive practices or acts and the unconscionable action or course of action was committed by Weddingpages, Inc. and The Knot, Inc. knowingly, and The Texas Franchisees request that their damages be trebled by the trier of fact.
139. In accordance with the Texas Deceptive Trade Practices--Consumer Protection Act, Plaintiffs seek to recover reasonable and necessary attorneys' fees and all court costs.
COUNT XVI
(Tortious Interference With Contract Prospective Contractual Relations)
140. Plaintiffs repeat and reallege each and every allegation set forth in the preceding paragraphs as though set forth here in full.
141. Each of the Plaintiffs has and has had actual contractual relations with its vendors and advertisers; prospective contractual relations with them.
142. Defendants have known of these relationships, have known that they are valuable and have known that these relationships were essential to Plaintiffs' continued viability and survival.
143. Defendants have deliberately and intentionally interfered with and sought to disrupt and have in fact disrupted and interfered with Plaintiffs' contractual relations and prospective contractual relations.
144. Defendants have undertaken these actions through the conduct and misconduct described above with the intention of injuring Plaintiffs and driving them out of business. Defendants have taken these actions through the wrongful conduct described above.
145. Plaintiffs have been injured as a result of Defendants' wrongful interference with their contractual relations and are entitled actual and punitive damages as a result.
COUNT XVII
(Unjust Enrichment)
146. Plaintiffs repeat and reallege each and every allegation set forth in the preceding paragraphs as though set forth here in full.
147. Plaintiffs have developed within their territories valuable goodwill, contacts, relationships, customers and networks of business.
148. Defendants have arrogated these relations to themselves. Defendants' actions in taking over Plaintiffs territories, arrogating the Plaintiffs' relationships and business to themselves constitutes unjust enrichment, that in equity and good conscience Defendants should not be permitted to have. As a result, Plaintiffs should be entitled to recover from Defendants the amount that they have obtained unjustly.
WHEREFORE, Plaintiffs seek judgment as follows:
(A) a declaration that Defendants have breached their contractual obligations to Plaintiffs and that such breach is material and excuses Plaintiffs from their obligations under the franchise agreements;
(B) preliminary and permanent injunctive relief as follows:
- a preliminary and permanent injunction against any further act constituting an offer to sell a franchise, including the offering of so-called commission sales agent contracts by Defendants until Defendants have either registered such offering with the appropriate States or obtained an exemption from registration;

- a preliminary and permanent injunction against Defendants and all those in active concert or participation with them from continuing or undertaking any of the following conduct:

(a) using, displaying or advertising the name or mark “The Knot,” “Weddingpages” or other affiliated or confusingly similar marks or names within any franchisees' exclusive territory by way of the Internet or otherwise without the express written consent of the affected franchisee;

(b) selling, offering for sale or attempting to market any products, services or advice under the mark or names “Weddingpages,” “The Knot” or other affiliated marks or names to any customer or vendor within any Plaintiffs' exclusive territory;

(c) making any representation to the public, to securities analysts or to any government agency that the Defendants have nationwide rights to use or sell under the name “The Knot” or “Weddingpages.”

- an injunction against the de facto termination of Plaintiffs' franchises and any act to diminish their franchise rights.

(C) actual damages incurred by Plaintiffs as a result of Defendants' breaches and violations of law;
(D) multiple damages pursuant to the Texas Deceptive Trade Practices Act;
(E) punitive damages for Defendants' tortious conduct; and
(F) an award of attorneys' fees, costs, interest and such other and further relief as the Court deems just and proper.
DATED: , 2000 DADY & GARNER, P.A.


By
W. Michael Garner
237 Park Avenue, 21 Floor
New York, New York 10017
(212) 551-1432

4000 IDS Center
80 South Eighth Street
Minneapolis, MN 55402
(612) 359-9000

ATTORNEYS FOR PLAINTIFFS
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Great post - thanks. I had called KNOT this morning but they couldn't say much either (the lady was friendly, at least). Hope that complaint was entirely downloaded - imagine having to type THAT in (whew!). I'd bet on a settlement also. Still watching and waiting.

gp
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