Video Transcription

So, when cases come into my office and I realize that there’s gonna be some type of integration clause or merger clause problem, one thing I look for is a separate agreement. Is there a separate agreement, in addition to the franchise agreement, that we can latch onto and bring into the franchise relationship to show show additional obligations of the franchisor? And there are times that courts will examine this and say, “Yes, that separate agreement that you’re bringing in is a collateral agreement, and it won’t prevent the franchisee from showing an additional obligation.” And there’s always a dispute as to whether that other agreement was something that would be wiped out or foreclosed by the integration clause or the merger clause. And the argument, again, is gonna be that this is a collateral agreement, something different than the franchise agreement.

Also, subsequent agreements between the franchisor and the franchisee. Lawyers, many times, miss the concept of there being agreements after execution at the franchise agreement, believing that the parol evidence or integration clause sweeps temporally after the franchise agreement is signed, and that’s not the case. Franchisee lawyers should look for any agreements, oral or written, after the franchise agreement was executed. In addition, there are exceptions to those merger clause problems where there’s fraud or misrepresentations. Where there’s fraud or misrepresentations, it allows the franchisee to bring in a document shown to the franchisee during the negotiations, as well as comments made to the franchisee by the franchisor. And that’s also a great area for bringing in obligations that are set by those conversations. There’s also a question of interpretation of a clause in a franchise agreement. So, for instance, where the franchise agreement says the franchisor will assist with marketing, the question is, “How much assistance?” So even where a franchise agreement does create an obligation, in that half page that it sets out requirements for franchisors, it’s rendered somewhat useless by the fact that there’s no teeth, there’s no development of the requirements put on the franchisor.

Let me give you an example of looking at a useless obligation that’s created by a franchise agreement on a franchisor. There is a provision in the agreement I’m thinking about, which we looked at a couple weeks ago, that required the franchisee to advertise and participate in a cooperative advertising program, but there was an ambiguity in the sense that there was no dollar figure included, there was no time period included, and there was no requirement for how many other franchisees had to be a part of the co-op. There was no requirement indicating whether the franchisor had to participate, or establish the infrastructure or operate the cooperative. So, this ambiguity also allowed the court to go behind, or push to the side, the parole evidence in the integration clause in the franchise agreement. And part of the franchisee’s job, the franchisee’s lawyer’s job, in that case, is to try and find an ambiguity in the obligations owed by the franchisor. And there are cases where the franchise lawyer would also try and create an ambiguity in the part of an obligation owed by a franchisee, but we’re here looking at the franchise ability to impose additional obligations on a franchisor, or more rigid obligations that can be performed.

In that case that I was discussing, the court did allow parole evidence, and it allowed pro forma documents that were given to the franchisee before he signed the franchise agreement. And these showed that the franchisor had promised to provide a minimum level of dollars to the co-op, a minimum level of support to general marketing programs, and these weren’t in the franchise agreement. And because the court found that the general obligation of supporting marketing and cooperative advertising that was imposed on the franchisor was too ambiguous, the court did allow the franchisee to present evidence of conversations and documents that appeared in the negotiation stage, which, again, usually is not the case.

I wanted to thank you for taking your time today to listen to this video, and the other two in this series regarding franchisor competency. If you have any questions regarding this issue, issues raised by those videos or other franchise relationship matters, please give me a ring. My name’s Jeff Goldstein at the Goldstein Law Group, in Washington, D.C. Thank you.

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