Barry Kurtz dark logoFranchise First and Foremost
July 2011
 

21650 Oxnard Street

Suite 500
Woodland Hills, CA 91367
818-827-9229

 FRANCHISOR 101:  TERMINATION UPHELD 

 

In a recent decision by the U. S. District Court for the Central District of California, Wetzel's Pretzel's, LLC v. Tito Johnson, the Court upheld the termination of a Franchise Agreement for failure to follow system standards.

 

The franchisee argued that termination of the Franchise Agreement was wrongful because it was based on "unfounded, inconsistent and arbitrary" grounds and that the issuance of an injunction against the franchisee's continued operation of the store under the franchisor's trademark was improper because the franchisor permitted the franchisee to continue to operate the franchise for one year after the termination date.

 

The franchisor countered, and the Court concluded, that the termination was proper because the franchisor complied with the notice requirements in the Franchise Agreement, and that the injunction was appropriate despite the one year gap because the franchise agreement called for mediation before litigation and the franchisor and franchisee were involved in good faith settlement discussions during that period of time.

 

The facts were overwhelmingly favorable for the franchisor. Before termination, the franchisor inspected the store on 4 separate occasions, followed up each inspection with a written notice of deficiencies to the franchisee, granted the franchisee 30 days to cure after the last inspection and gave the franchisee additional warnings, which went unheeded, prior to the termination.

 

Precision in complying with the notice and dispute resolution requirements of a Franchise Agreement is paramount for the enforcement of a termination of a Franchise Agreement. For the full decision, click here  .


FRANCHISEE 101: POTENTIALLY WEAK FRANCHISORS ALERT 

 

A compilation of loan performance data of over 500 franchise brands listing the failure rate of franchisee-borrowers in paying back SBA-backed loans was recently made public. The list discloses how many SBA loans were dispersed to franchisees in the 500 chains and how many franchise owners in each system did not repay their SBA loans.

 

Although the study was limited to SBA guaranteed loans to borrowers with arguably limited abilities to obtain more conventional financing, franchise candidates should recognize that high default rates for any particular system is a serious warning sign that all is not well and that the system in question might best be avoided. Most importantly, franchise candidates should always conduct extensive due diligence before the purchase of a franchise, especially with the current and former franchisees listed in a franchisor's Franchise Disclosure Document (FDD), for a more complete picture on day-to-day life in a particular system. Since each franchisor, selling franchisee and lender have economic interests in closing sales and loans, independent industry research and consultation with a trusted advisor - a franchise attorney, an accountant or a reputable franchise consultant, is also mandatory. See the entire list at [http://www.bluemaumau.org/franchise_brands_franchisee_failure_pay_back_sba_loans].   

 
BARRY KURTZ FEATURED ON THE ACKERT ADVISORY BLOG

 

Barry Kurtz was featured on the June 30, 2011 posting of The Ackert Advisory ™ blog, "The Smartest Way to Get More Clients". See http://www.ackertadvisory.com/how-unforgettable-are-you/ .

 

The Ackert Advisory is a highly respect business development blog for lawyers, CPA's and other service professionals authored by David Ackert, who has developed and implemented business development programs for national legal, accounting and financial services firms. 

IN CASE YOU MISSED IT, WE'VE MOVED!

 

Our new address and telephone numbers are:

 

21650 Oxnard Street, Suite 500

Woodland Hills, CA  91367

Telephone:  818-827-9229

Fax:  818-986-4474

This communication published by Barry Kurtz, APC is intended as general information and may not be relied upon as legal advice, which can only be given by a lawyer based upon all the relevant facts and circumstances of a particular situation.

Copyright Barry Kurtz, A Professional Corporation 2010 
All Rights Reserved.

 
In This Issue
Franchisor 101: Termination Upheld
Franchisee 101: Potentially Weak Franchisors Alert
Barry Kurtz Featured on The Ackert Advisory Blog
Contributing Expert -Richard Rosenberg

Contributing Expert

 

Richard Rosenberg

Rosenberg, 

Ballard Rosenberg Golpert & Savitt 

 

COURT APPROVES DAILY MEAL/REST PERIOD PENALTY OF TWO HOURS

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Barry Kurtz
Barry Kurtz is a prolific writer on the subject of franchise law. From due diligence to franchise appraisal, his articles are a valuable resource to any franchisee and franchisor.  He has been named a Certified Specialist in Franchise and Distribution Law by the State Bar of California Board of Legal Specialization.



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21650 Oxnard Street, Suite 500
Woodland Hills, CA 91367
818-827-9229
www.barrykurtzpc.com
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