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Recovery of $5 Million in Future Earn-out of Franchise Sell-Back

Attorneys Involved: Neal A. Jacobs

Our clients, the owners of a franchise business, came to us seeking replacement counsel after their case already was in federal court.

The case centered around a franchise sell-back that had left our clients with a $7 million loss. Our clients had sold their business back to the franchisor under an agreement that provided for a future earn-out. However, the franchisor refused to pay the earn-out and the client was out $7 million.

Jacobs Law Group attorneys were brought in while the case already had been litigated for some time, and the parties were engaging in unproductive and expensive discovery disputes. Jacobs Law Group business divorce attorneys recognized that not only were the discovery issues difficult, but that the accounting issues would be very difficult for a jury to understand. We also quickly recognized that the parties’ positions were so far apart that no final resolution was likely: our client believed the entire earn-out had been earned, while the franchisor believed that none of the earn-out had been earned.

Jacobs Law Group attorneys proposed that the way to surmount this was for both sides to agree to a high/low arbitration proposal. The strategy would force the arbitrator to pick the number that he or she thought was most reasonable. It would also force both sides to be realistic about the strength of their cases and would move the parties to be more reasonable in their final proposals to the arbitrator.

The parties both agreed to a well-defined arbitration process, and Jacobs Law Group commercial lawyers prevailed in demonstrating that its damage number should be selected. The arbitrator awarded Jacobs Law Group's clients more than $5 million in damages.

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