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The Area Agreement further provided that unless permitted by
Domino's, the Area Agreement would be nonassignable. However, a
corporation actively managed and wholly owned and controlled by
Pizza Park "conducting no business other than the operation of
stores" could be allowed to operate Domino's franchises. The
rights and responsibilities of a franchisee would be defined
under the terms of a standard franchise agreement (the Franchise
Agreements)4. The Franchise Agreements provided that each
franchisee was required to pay Domino's a royalty fee of 5.5
percent based on the store's weekly royalty sales.
Pursuant to the Area Agreement, Mr. Paul initiated the
development of the Domino's franchise in the San Diego area,
developing 31 franchise stores. Pizza Park owned 20 such
franchises. Petitioner, although not a wholly owned subsidiary
of Pizza Park, was allowed to own 11 franchise stores.
Petitioner's shareholders, Mr. Brown and Mr. Paul (as the sole
shareholder of Pizza Park) executed the franchise agreements for
the stores owned by petitioner.
During the years in issue, petitioner operated the franchise
store with the highest volume in royalty sales within the San
Diego area. For that store, petitioner paid 100 percent of the
4 There are no pertinent differences between the Franchise
Agreements here at issue. We therefore refer to the Franchise
Agreements in the collective.
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Last modified: May 25, 2011