Monthly Archives: November 2017
Own ’em all or franchise ’em out? Or, do some of each, and dual-distribute? According to famous Economist Ronald Coase, firms exist to minimize transaction costs. On its face, this theory, even though it is from 1937, generally explains whether particular brands or firms decide to operate as a chain or franchise. In essence, the fewer transaction costs the more likely a firm will contract for distribution services with third parties in the market (thru franchise contracts, for instance) versus doing the distribution functions in-house. Coase’s theory can also explain to some extent the proportion of company-owned stores in any given system that has chosen to offer franchises. However, the empirical evidence regarding such franchise integration decisions does not always dovetail with the theory. Indeed, a recent debate between two CEOs of two smaller pizza chains shows that decisions regarding whether to franchise, or the degree of dual-distribution in a particular franchise system, can derive from individual personality predisposition, and not explicit economic theory. Blaze, &Pizza CEO’s Square Off in Franchise Debate. For instance, Mizes, who explained that he wanted “to expand as fast as possible”, grew his company through franchising. In contrast, Lastoria, who felt that “the goal was to embellish the uniqueness of each restaurant” developed his business through company-owned stores. Interestingly, both Mizes and Lastoria felt that “it would be difficult” to ‘have it both ways” by employing both strategies simultaneously.
Franchisee Waves Goodbye to Car Dealership due to Ineffective Waiver By: Jeffrey M. Goldstein A recent decision by the United States District Court for the Sixth Circuit affirmed a lower federal court’s ruling that Chrysler (“Chrysler” or “Franchisor”) had legally terminated one of its car dealers in Riverhead, NY, (“Eagle Auto-Mall”, “Dealer” or “Franchisee”) for the Dealer’s failure to have built new dealership facilities within the contractually specified time period set out in the parties’ Letter of Intent (“LOI”). FCA US LLC v. Eagle Auto-Mall Corp., No. 16-2375, 2017 U.S. App. LEXIS 13232 (6th Cir. July 20, 2017). Finding that the time deadline terms had not been waived or modified, the Court of Appeals (“Court”) held that Eagle committed a material breach of the agreement by failing to complete its renovations within the LOI’s eight-month window. The facts as related by the Court are as follows. Eagle had been a long-time car dealer selling Chrysler and Jeep vehicles out of a single facility that also housed its Mazda-Kia-Volvo dealership. After Chrysler filed for bankruptcy in 2009, it attempted to cancel its dealership agreement with Eagle; however, Eagle resisted, and Eagle obtained a court order requiring Chrysler to enter into a Letter of Intent (“LOI”) with Eagle for a new dealership. Under the LOI, Eagle was required to complete the construction of a dealer facility before it had a right to obtain a franchise agreement. Specifically, the LOI established three ways in which Eagle could provide for a legally compliant facility, […]