A federal district court in Illinois ruled that a choice of law provision in a franchise agreement was voided by the Illinois Franchise Disclosure Act. The agreement between a Chicago television station and its franchisee selected California as the exclusive forum for adjudicating disputes. Applying the reasoning of the Seventh Circuit in the case of Wright-Moore Corp. v. Ricoh Corp., 908 F.2d 128 (7th Cir. 1990), the court noted that public policy favors the application of Illinois law in disputes involving Illinois franchisees, and thus denied the defendant’s motion to dismiss for improper venue. Korean American Broadcasting Co., Inc. v…. Read more

A federal district court in Missouri ruled that Hardee’s Food Systems, Inc., a fast food franchisor, did not breach the implied covenant of good faith and fair dealing in its agreement with a franchisee. The franchisee had alleged that two of the franchisor’s television ads were “lewd” and had resulted in lost profits and other damages to the franchisee. As evidence, the franchisee cited numerous complaints from its “predominantly agricultural and union-oriented community, about the unacceptable nature of these ads.” The relevant provision in the franchisee’s agreement stated, in part, that Hardee’s would “direct all advertising, marketing, and public relations… Read more

A federal appellate court declined to apply Missouri franchise law to an oral business relationship between a supplier and a liquor wholesaler. Shelton Brothers, Inc., a beer supplier based in Massachusetts, entered into an oral agreement with MoBev, a Missouri liquor wholesaler, giving MoBev the option to buy and sell Shelton’s beer. MoBev sued when Shelton declined to continue the relationship, but the Eighth Circuit Court of Appeals held that MoBev was not a franchisee of Shelton under Missouri law. Specifically, MoBev could not establish that Shelton had granted them an exclusive license to use its trademark, and that Shelton… Read more

Legislation introduced to the California State Assembly on February 24, 2012 would provide strong protection to franchisees by significantly amending California’s existing Franchise Relations Act. Among other changes, the “Level Playing Field for Small Businesses Act” would: provide franchisees with 60 days to settle overdue fees; absent “substantial and material” breach by the franchisee, provide for the automatic renewal of franchise agreements under, at the franchisee’s election, either the original terms of the agreement or the franchise terms then being offered to new franchisees; provide a 60-day cure period for breaching franchisees; prohibit franchisors from seeking to enforce non-compete covenants… Read more

Vermont legislators have proposed a new franchising relationship and termination law. Among other things, House Bill 694 would: 1) prohibit a franchisor from terminating a franchise prior to the expiration of its term except for “good cause”; 2) impose a duty of good faith on parties to a franchise agreement; 3) and prohibit restrictions on a franchisee’s right to associate with other franchisees. The legislation also includes provisions regulating the transfer and sale of franchises, encroachment, and sources of goods or services. The bill’s definition of a “franchise” is similar to the definition found in other state statutes. Among other… Read more

A Washington appellate court affirmed a lower court’s decision refusing to enforce the venue and governing law provision of a franchise agreement’s arbitration clause. The ruling arose from a dispute between a Subway franchisor and a Washington-area franchisee over alleged violations of their franchise agreement. After the franchisor moved to compel arbitration of their dispute in Connecticut, the franchisee filed suit in Washington state court arguing that arbitration was improper. While the trial court agreed to compel arbitration, it found that the venue and governing law requirements in the franchise agreement’s arbitration clause were unconscionable, and instead ordered arbitration to… Read more

Legislation currently working its way through the Georgia General Assembly provides that franchisees may not be considered employees for purposes of Georgia’s workers’ compensation laws. House Bill 548, sponsored by Rep. Chuck Martin, amends the definition of “employee” in Georgia’s workers’ compensation statute by clarifying that “[i]ndividuals who are parties to a franchise agreement as set out by the Federal Trade Commission franchise disclosure rule…shall not be deemed employees for purposes of this chapter.” The bill was likely introduced in response, at least in part, to the Massachusetts Supreme Court’s controversial decision in Coverall N. Am., Inc. v. Commissioner of… Read more

A California appellate court found that the former franchisor of Mail Boxes, Etc. (MBE) stores and its parent company, United Parcel Service (UPS), did not breach the renewal provision in a franchise agreement by requiring the franchisee to renew its MBE franchise on the same terms and conditions as contained in the current franchise agreement for the sale of The UPS Store franchises. While the provision at issue specifically provided for renewal of the agreement “on the same terms and conditions as are contained in the then current Franchise Agreement for the sale of new MBE Centers,” the court refused… Read more

A bipartisan group of lawmakers are pressing for the passage of the Business Activity Tax Simplification Act (“BATSA”). The federal legislation would prohibit states and localities from levying certain taxes, including franchise taxes, on businesses that do not keep employees or property in that jurisdiction for more than two weeks during the year. In a recent op-ed in support of the legislation, Reps. Goodlatte and Scott noted that a growing number of state and local governments have adopted standards to tax out-of-state businesses that may conflict with the Supreme Court’s interpretations of the Commerce Clause. The aim of BATSA is… Read more

The Federal Trade Commission (“FTC”) has released its final amended Business Opportunity Rule, which regulates the offer and sale of business opportunity ventures. Examples of such business opportunities include vending machines and rack displays. The rule, which is similar to the FTC’s Amended Franchise Rule, imposes disclosure and sales method requirements for such business ventures. Unlike franchises, business opportunity ventures often do not involve the license of a trademark. Furthermore, business opportunity ventures are typically less expensive and involve simpler contractual agreements, resulting in less financial risk to purchasers. Thus, since 2007, business opportunities have been regulated separately from franchises…. Read more