Follow up to Rock Music Franchising Decision- Significant Reward in Favor of Franchisor

by Ed Teixeira

In a previous article on the FranchiseKnowHow web site, Craig Tractenberg of Nixon Peabody reported on a favorable ruling on behalf of the NP client, Paul Green School of Rock Music Franchising (PGSORM).

To Summarize:

The case involved disputes between School of Rock and two of its franchisees—Smith and the Giammarrusco’s, who collectively acted to repudiate their franchise agreements to start a competitor, Rock Nation (the “Smith” and “Rock Nation” cases respectively). The cases had similar facts. Each involved California franchisees, breach of the respective franchise agreements, and similar claims including non-payment of royalties to School of Rock. Both cases involved franchise agreements that contained arbitration and non-compete clauses. The fundamental difference between them is that the franchise agreement in Smith provided for arbitration in Pennsylvania pursuant to Pennsylvania law, while the franchise agreement of the Giammarrusco’s in Rock Nation required arbitration in California under California law.

Moreover the defendants used typosquatting against the competitive Rock Nation site. Typically, a typosquatter will register several possible input errors for a domain or brand name Web to generate accidental traffic to these sites. The ruling was in favor of PGSORM.

The Award:

Rock Skool LLC, Rock Nation LLC, John Giammarrusco, Cindy Giammarrusco, Binh Hoang, and each of them, are required to pay PGSORM the sum of $100,000.00 in compensatory damages resulting from their having engaged in unfair competition against PGSORM.

In addition, attorney’s fees in the sum of $183,550.50 were awarded to PGSORM against Rock Skool, Inc., John Giammarrusco, Cindy Giammarrusco, and each of them, jointly and severally, pursuant to the terms of the Franchise Agreement and the Guaranty, Indemnification and Acknowledgement Agreement. Further, out of pocket expenses incurred in connection with this Arbitration in the sum of $9,871.76 were awarded to PGSORM against Rock Skool, Inc., John Giammarrusco, Cindy Giammarrusco, and each of them, jointly and severally, pursuant to the terms of the Franchise Agreement and the Guaranty, Indemnification and Acknowledgement Agreement. The award was ordered by Alan P. Ribakoff, Arbitrator dated October 13, 2010.