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FRANCHISOR 101: NEW CALIFORNIA FRANCHISE LEGISLATION
The California Assembly will soon hold committee hearings on new franchise legislation that could, if passed, dramatically effect franchising relationships in California. AB 2305, the Level Playing Field for Small Businesses Act of 2012 (the Act), proposed by Assemblyman Huffman (D-San Rafael), would revise California's Franchise Investment Law and Franchise Relations Act to provide, among other things, for:
* Automatic renewal of franchise agreements absent material breach;
* Restrictions on changes of terms of Franchise Agreements
at renewal;
* Extended notice and cure periods for franchisee defaults;
* A bar against the enforcement of covenants not to compete;
* Limits on a franchisor's ability to open new stores near those of existing franchisees; and
* Additional penalties for false or deceptive claims relating to franchise sales.
In addition, the Act would declare void any provision in a franchise agreement requiring the application of the law of another state.
Groups representing franchisors, including the International Franchise Association (IFA), and even some franchisee advocates, oppose the new legislation as bad for both franchisors and franchisees alike. They believe it will hurt consumers, negatively impact franchise sales and impede growth in an already tough economy. Additionally, opponents say, the Act, if adopted, could reduce job opportunities, particularly for woman and minorities, increase legal costs relating to franchising and drive franchisors away from California to other states with less onerous laws and regulations.
The Act has its supporters, though, including small business associations and some attorneys who specialize in representing franchisees. Supporters argue the Act's additional restrictions are needed to protect franchisees from what they characterize as one-sided negotiations and contracts and abusive franchising practices by franchisors.
While it is too early to predict what might come of this proposed legislation, the debate should be fiery. We will monitor it and keep you informed. To see the proposed Act in its current form, click here. |
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FRANCHISEE 101: JUSTIFIABLE RELIANCE NOT DEFEATED BY DISCLAIMERS
Franchisors may not be insulated from liability for untruthful claims made to their franchisees simply by wrapping their claims with standard franchisor disclaimers. So says the California Court of Appeal in the recently decided D.T. Woodard, Inc. v. Mail Boxes Etc.
After United Parcel Services (UPS) acquired Mail Boxes Etc. USA (MBE), UPS executives worked to persuade MBE franchisees to sign Gold Shield Amendments to their existing MBE Franchise Agreements. Franchisees that signed the Amendment agreed, among other things, to convert their MBE branded stores to UPS branded stores and to certain pricing restrictions.
The executives' presentation and summary of the Gold Shield program included the results of an apparently flawed, small-scale UPS field test that showed that MBE franchisees that converted to the UPS brand outperformed those that had not. In addition, argued the converted MBE franchisees, the UPS executives appeared to emphasize the reliability of these results in their presentation, despite evidence they had to the contrary.
The executives' presentation and summary of the Gold Shield program also included performance disclaimers, including one indicating another field test was needed "...to help determine whether actual results, on a small but reliable scale, supported the hypotheses that were the Foundation for the Gold Shield Program" and another that said "Neither MBE nor UPS makes any forecast, projection, or representation that your center will achieve any increases in [] revenue [or] profits [] if you voluntarily join the Gold Shield Program. To the contrary: (1) your results are likely to differ substantially...." These disclaimers, argued UPS, warned MBE franchisees not to predict the future performance of their stores based on past results for previously converted MBE stores, and prevented the MBE franchisees from justifiably relying on the UPS presentation, which is an essential element of any claim for fraud.
The court rejected the UPS argument and found that the UPS disclaimers were not sufficient to defeat the franchisees' claim that they had [justifiably] relied on the misrepresentations and omissions in the test results when deciding to rebrand. This is food for thought for franchisees that believe they were persuaded to take action by their franchisor's disclaimed, but untruthful, representations. To see the entire case, click here.
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BARRY KURTZ FEATURED IN APRIL 2012 VALLEY LAWYER
Barry's article, "The Accidental Franchisor" was published in the April 2012 issue of Valley Lawyer, the magazine of the San Fernando Valley Bar Association [www.sfvba.org]. To see the article, click here. |
WE'VE OPENED A SECOND OFFICE IN SANTA BARBARA
Candice, Bryan and I are pleased to announce that we have opened a second office in Santa Barbara, California, to better serve our clients in that area and to expand the reach of our franchise law practice. The Santa Barbara address and telephone number are:
735 State Street, Suite 211
Santa Barbara, California 93101
Telephone: 805-357-0029 |
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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 2012
All Rights Reserved.
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Contributing Expert
Layton Pace, Esq.
Layton Pace, Esq. advises sophisticated business and real estate clients, law firms and accountants on tax and tax-related matters. |
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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.
Visit our website for more articles
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