May 15, 2017 - Blog by |

GLF Prevails on MTD in Case Against Bathtub Manufacturer Franchisor

The definition of franchise is not always clear, as this case shows. A marketer/seller/installer of walk-in bathtubs in the New York and New Jersey area could qualify as a franchise with standing to assert counterclaims against Safe Step Walk In Tub Co. (Safe Step) under the franchising laws of those states and Connecticut and Rhode Island, the federal district court in New York City has ruled. Therefore, a motion by Safe Step for dismissal of these counterclaims was denied. Safe Step alleged that agreements between the parties constituted franchises under the Connecticut Franchise Act, New Jersey Franchise Practices Act, New York Franchise Act, and Rhode Island Franchise Investment Act. Given the basis of the allegations and the plain terms of the agreements, it was easy to find that the parties’ relationship could plausibly constitute a franchisor-franchisee relationship under the FTC Rule, the court noted. The FTC Rule had three main prongs in its definition of a franchise: (1) the use of the franchisor’s marks; (2) the franchisor’s provision of marketing assistance or control over the franchisee’s operations; and (3) the franchisor’s collection of a franchise fee as a condition of the franchisee’s commencing operation. Here, the first prong of the FTC Rule was undoubtedly met at because the installer distributes goods that are identified or associated with Safe Step’s trademarks. The second prong was also met, since the alleged involvement by Safe Step in the installer’s business operations could amount to the authority to exert a significant degree of control or provide significant assistance in the installer’s method of operation. And, the third prong was satisfied based on CKH’s alleged payment of a non-nominal fee as a condition of obtaining or commencing its Safe Step related operations. However, that finding and accepting the allegations that Safe Step did not provide CKH was the disclosures required under the FTC Act did not provide CKH with an actionable claim. For that, the installer had to have a franchise under the state laws. The installer’s operations with Safe Step qualified as franchises under the laws of each of the four states, the court found. Although Tennessee law governed the action, the court said, “Tennessee would honor the protections available under the franchise acts of states where [the installer] allegedly ha[d] franchises.” The definition of a franchise under each state’s scheme was comparable to the FTC definition with only minor differences, in the court’s view. CKH satisfied this standard by virtue of its allegations of a substantial association with Safe Step’s marks, a marketing plan prescribed in substantial part by the manufacturer, a community of interest between the companies in the marketing of the products, and CKH’s establishment of business operations in each of the states. Thus, it was entitled to pursue the additional protections of the franchise laws, and those causes of action.A marketer/seller/installer of walk-in bathtubs in the New York and New Jersey area could qualify as a franchise with standing to assert counterclaims against Safe Step Walk In Tub Co. (Safe Step) under the franchising laws of those states and Connecticut and Rhode Island, the federal district court in New York City has ruled. Therefore, a motion by Safe Step for dismissal of these counterclaims was denied. Safe Step alleged that agreements between the parties constituted franchises under the Connecticut Franchise Act, New Jersey Franchise Practices Act, New York Franchise Act, and Rhode Island Franchise Investment Act. Given the basis of the allegations and the plain terms of the agreements, it was easy to find that the parties’ relationship could plausibly constitute a franchisor-franchisee relationship under the FTC Rule, the court noted. The FTC Rule had three main prongs in its definition of a franchise: (1) the use of the franchisor’s marks; (2) the franchisor’s provision of marketing assistance or control over the franchisee’s operations; and (3) the franchisor’s collection of a franchise fee as a condition of the franchisee’s commencing operation. Here, the first prong of the FTC Rule was undoubtedly met at because the installer distributes goods that are identified or associated with Safe Step’s trademarks. The second prong was also met, since the alleged involvement by Safe Step in the installer’s business operations could amount to the authority to exert a significant degree of control or provide significant assistance in the installer’s method of operation. And, the third prong was satisfied based on CKH’s alleged payment of a non-nominal fee as a condition of obtaining or commencing its Safe Step related operations. However, that finding and accepting the allegations that Safe Step did not provide CKH was the disclosures required under the FTC Act did not provide CKH with an actionable claim. For that, the installer had to have a franchise under the state laws. The installer’s operations with Safe Step qualified as franchises under the laws of each of the four states, the court found. Although Tennessee law governed the action, the court said, “Tennessee would honor the protections available under the franchise acts of states where [the installer] allegedly ha[d] franchises.” The definition of a franchise under each state’s scheme was comparable to the FTC definition with only minor differences, in the court’s view. CKH satisfied this standard by virtue of its allegations of a substantial association with Safe Step’s marks, a marketing plan prescribed in substantial part by the manufacturer, a community of interest between the companies in the marketing of the products, and CKH’s establishment of business operations in each of the states. Thus, it was entitled to pursue the additional protections of the franchise laws, and those causes of action.

Case facts from http://www.internationallawoffice.com/Newsletters/Franchising/France/Aramis-Law-Firm/Franchisors-duty-of-loyalty-and-unfair-termination

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