It appears that no post-termination restrictions on smoking pot will be imposed on terminated former licensee. It would have been interesting to see how a court might have applied the doctrine of unclean hands in any injunctive action. What is also notable in this dispute is that the business relationship between the parties, even though it was based on a non-traditional product, was hindered by a very traditional point of conflict between franchisors and franchisees selling more traditional products — “a differing vision of what a traditional “Hempfest” event should be, so we have amicably dissolved the licensing relationship to allow the Las Vegas event to follow its vision unhindered by the contractual agreements.” http://mjnewsnetwork.com/events/seattle-hempfest-and-las-vegas-hemp-festival-end-franchise-agreement/  

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Instant Replay:  According to the franchisor, the franchisees are thieves and the franchisor is the good guy who is saving the community from corrupt people. Result: Massive investigations, terminations, and take-backs. The franchisor: (1) vows to stamp out underpayment of franchisee employees; (2) removes store owners who broke the rules from its system; (3) claims that “When a franchise is terminated, an independent valuation of the franchisee’s assets is undertaken and, in general, the franchisee is paid accordingly for their assets….The process for refranchising a site is also very costly and takes considerable time and corporate resources.”; (4) announced the outcome of an independent review that he said “confirmed our [franchise] model allows franchisees to draw a wage, make a profit and pay employees in accordance with lawful wage rates”. In contrast, the franchisees: (1) claim that when Caltex forces out an owner it does so without paying compensation beyond assets, which means it could gain back stations almost free and profit from their resale or merge them into its corporate-owned store network; (2) claim that “no site with weekly shop sale of about 30K to 35K … can be profitable in your current model by fulfilling its [workplace] obligation”; (3) explain that “The truth is they [the franchisor] want the stores back to make them into company stores and that is the best way to do it – they are going to get their stores back for free.” http://www.smh.com.au/business/caltex-denies-profiting-from-terminating-franchisees-for-wage-fraud-20170221-guhqd0.html

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In a recent franchise case the United States District Court of New Jersey (the “Court”) hammered another nail in the termination coffin of a former 7-Eleven franchisee Karamjeet Sodhi (“Franchisee Sodhi” or “Mr. Sodhi”), Manjinder Singh, and Karamjit Singh (collectively, “the Franchisees”), when it denied the Franchisees’ Motion for a stay of the Court’s Order granting judgment to Plaintiff 7-Eleven. In Sodhi, the Court found that the Franchisees failed to show that they were likely to succeed on the merits of their claims because they breached the franchise agreements by failing to pay payroll and income taxes and then subsequently failing to cure those breaches. 7-Eleven, Inc. v. Sodhi, Civil Action No. 13-3715 (MAS) (JS), 2017 U.S. Dist. LEXIS 14339 (D.N.J. Jan. 31, 2017) In refusing to grant the Franchisees’ Motion for Stay, the Court initially noted that “the standard for obtaining a stay pending appeal is essentially the same as that for obtaining a preliminary injunction, and that such a stay ‘should be granted only in limited circumstances.’” The Court explained that to obtain the stay, the Franchisees must show all four of the following factors, including; (1) the movant is likely to succeed on the merits; (2) denial will result in irreparable harm to the movant; (3) granting the injunction will not result in irreparable harm to the non-movant; and (4) granting the injunction is in the public interest. With regard to the first factor, the Franchisees argued that they were likely to succeed on the merits of their appeal […]

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Alternative Fact: “Franchisees are happy with existing laws governing franchise ownership.” Passing state franchise relationship laws, which aim to protect many of the basic rights of franchisees and dealers that have been stripped from by the language of their individual franchise agreements, is a contentious, arduous and lengthy process. Indeed, even today, many states still do not have legislative protection for franchise owners in their states. See State Franchise Law Protects Franchisees Florida is the most recent state to begin the process toward enacting such franchise legislation. The Protect Florida Small Business Act (the “Legislation”), sponsored by Florida State Senator Jack Latvala (SB 750), claims that it will bring fairness to the relationship between corporations and the Floridians who own and work in franchise establishments. The Legislation was filed in the Florida Senate on February 7, 2017. View Bill Info The Legislation states that its intent “is to promote fair business relations between franchisees and franchisors and to protect franchisees against unfair treatment by franchisors.” The Legislation generally focuses on three areas including protection from unfair terminations of franchises, protection from unfair restrictions on transfers and sales of franchises, and protection from non-renewals of franchise agreements. As soon as the Legislation was announced, the usual adversaries in the franchise world dusted off their muskets, ran to the front lines, and began shooting. One franchisee advocacy group, the Protect Florida Small Business (“PFSB”), pointed out that industry-specific franchises in Florida were treated better than non-industry-specific franchises: “Florida laws already provide safeguards for […]

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