Kurtz Law Group logoFranchise First and Foremost
May 2012 

bkurtz@kurtzfranchiselaw.com

clee@kurtzfranchiselaw.com

bclements@kurtzfranchiselaw.com

pkaravanich@kurtzsfranchiselaw.com

NEW-NEW-NEW:  CHANGES AT THE FIRM

 

The firm, known as Barry Kurtz, A Professional Corporation, for over 25 years, became Kurtz Law Group last month. Our website is now www.kurtzfranchiselaw.com and our e-mail addresses are now

 

bkurtz@kurtzfranchiselaw.com,

clee@kurtzfranchiselaw.com,

bclements@kurtzfranchiselaw.com

pkaravanich@kurtzfranchiselaw.com

MAYBE NEXT YEAR-ASSEMBLY BILL 2305 FAILS TO ADVANCE

 

On April 24, 2012, Assembly Bill 2305, The Level Playing Field for Small Businesses Act of 2012 (the "Act"),came before the California Assembly's Professions and Consumer Protections Committee. The testimony of 75 franchisees was countered by the arguments of many franchisors, business groups and experts who argued that the Act's language was nebulous and unenforceable and that the Act was bad for business in California. Five votes were needed to move the Act forward, but the Act was shelved for the time being on a vote of 4-3 with 2 abstentions.

FRANCHISOR 101:  CLEARLY STATED:  THE PITFALLS OF AMBIGUITY!

 

Franchisors typically enjoy an advantage in franchise relationships-they draft the franchise documents. Reward never comes without responsibility, though, and the franchisor, as drafter, must clearly state the terms of the agreement. Ambiguous language in franchise documents can be dangerous because courts will generally interpret the meaning of ambiguous provisions against the drafter.

 

In Husain v. McDonald's Corporation, McDonald's agreed to allow an existing franchisee (the "Assignor") to assign its franchise agreements for 7 restaurants to another McDonald's franchisee (the "Husains"). Three of the franchise agreements (the "Expiring Agreements") had less than 5 years remaining on their terms, and McDonald's usually agreed to renew similar, soon-to-expire franchise agreements for 20 years at expiration (a "Rewrite").

 

McDonald's Assignment and Consent Agreement read: "In consideration of McDonald's consent to this Assignment and the issuance of a [R]ewrite to [the Husains], Assignor waives, releases, and disclaims any claim for a [R]ewrite of the Corte Madre . . . location." Despite this language, McDonald's denied the Husains a Rewrite because the Husains were delinquent in paying fees to McDonald's and had failed to renovate the 3 locations. The Husains claimed McDonald's agreed to Rewrite the 3 Expiring Agreements. McDonald's claimed the quoted language only applied to Corte Madre, a fourth location not at issue in the case because it had already been rewritten.

 

The California Court of Appeal ruled that the Husains could operate the 3 restaurants through trial, even though the 3 franchise agreements had expired, and found the Assignment and Consent "ambiguous as to whether "a [R]ewrite" refers to . . . [the] Corte Madre franchise or [all three] soon-to-expire franchises." The Court scolded McDonald's, saying it "would have been easy [for McDonald's] to make [its] intention clear" by defining the term Rewrite or inserting "of the Corte Madre location" after the word Rewrite.

 

As a franchisor, know what you want to say, and then, be sure to say it! Use clear language and defined terms. Don't leave it up to the courts to decide what you meant. You may review the entire case here.

FRANCHISEE 101:  PAIN AT THE PUMP

 

Read the Franchise Disclosure Document and Franchise Agreement carefully and understand the risks of early termination, before signing up! That is the lesson to be learned from 2 United Oil, et al. v. BP West Coast Products, LLC, et al.

 

BP West Coast Products, LLC ("BP") leased 261 gasoline station sites under a Master Lease with Thrifty Oil Co. ("Thrifty"), and then entered into franchise agreements and subleases with independent gas station operators (the "Franchisees"). BP elected not to renew the Master Lease in 2010, but did not notify the Franchisees for at least a year that it was losing its Master Lease. Thrifty entered into a new Master Lease with Tesoro, knowing that Tesoro intended to replace the Franchisees with its own operators in 2012.

 

When BP finally sent out notices of termination/non-renewal, the Franchisees made a "Hail Mary" attempt to keep their stations by filing suit against BP and Thrifty under the federal Petroleum Marketing Practices Act (the "PMPA") and asked the Court to "[compel] the continuation of [the] franchise relationship." The PMPA, however, only applies to oil refiners or motor fuel distributer franchisors and permits franchisors that lose their ground leases to terminate franchise agreements early.

 

The Court noted that Thrifty was neither a refiner nor a motor fuel distributor franchisor, and held that the Franchisees had no claim under the PMPA against Thrifty, even though many of the stations operated under the "Thrifty" name. In an interesting twist, though, the Court stated that since the PMPA did not apply to Thrifty, the Court was "powerless" to rule against BP to prevent the Franchisees from losing their stations since doing so would improperly interfere with Thrifty's new contract with Tesoro.

 

Franchisees should understand the risks of becoming part of a system before entering into franchise agreements. If the risks aren't clear, ASK QUESTIONS! Click here to see the Court's order.

BARRY KURTZ FEATURED in May 11-17 PACIFIC COAST BUSINESS TIMES

 

Barry's article, "Franchisee or Independent: The Choice is Yours" was published in the May 11-17 issue of the Pacific Coast Business Times, the weekly business journal for Santa Barbara, Ventura and San Luis Obispo Counties. To see the article, click here.

This communication published by Kurtz Law Group 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  Kurtz Law Group 2012
All Rights Reserved.

 
In This Issue
New-New-New: Changes at the Firm
Maybe Next Year-Assembly Bill 2305 Fails to Advance
Franchisor 101: Clearly Stated: The Pitfalls of Ambiguity!
Franchisee 101: Pain at the Pump
Contributing Expert - Tom Leaper
Contributing Expert

 

Tom Leaper

 

 

Tom Leaper is an attest Partner at RBZ, LLP and is the practice leader of RBZ's Franchising Group and Sarbanes-Oxley Internal Audit service function.

Prior
Newsletters


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.



Visit our website for more articles
21650 Oxnard Street, Suite 500
Woodland Hills, CA 91367
818-827-9229

735 State Street, Suite 211 

Santa Barbara, California 93101

Telephone: 805-357-0029

www.kurtzfranchiselaw.com