Search Results: encroachment

May 23, 2018

As a franchisee, encroachment by the franchisor or another franchisee can be among the greatest risks to long-term sustainability. If would-be customers (most of whom do not understand independent franchise ownership) have access to your brand at a more-convenient location, they will have little incentive to visit your store or restaurant. As a result, territorial protections are among the most-important protections available to franchisees, and state franchise relationship laws often provide critical protections when disputes regarding encroachment arise. A recent successful lawsuit filed by El Pollo Loco franchisees in California state court illustrates the types of protections that are available to franchisees in cases of encroachment: California Jury Rules in Favor of Husband-and-Wife Franchisee The case involved a dispute between husband-and-wife franchisees Michael and Janice Bryman and restaurant franchisor El Pollo Loco Inc. According to news reports, the Brymans sued after their franchisor opened two new locations within their territory. El Pollo Loco Inc. apparently did so in reliance on a standard provision in their franchise agreement which stated that it had the right to place company-owned locations “in the immediate vicinity of or adjacent to” its franchisees’ outlets, the franchisee’s territorial rights notwithstanding. Critically, prior to the jury verdict on damages, the trial judge ruled that this provision of the franchise agreement was unconscionable as a matter of law. As such, it was unenforceable, and could not be used to justify the opening of two company-owned outlets that competed directly with the franchisees’ restaurants. Subsequently, the jury also found […]

Apr 8, 2018

Reasonable Franchise Growth or Unreasonable Encroachment? By: Jeffrey M. Goldstein New franchise openings are a lightning rod in the franchise world; while franchisor advocates see new location openings as a legitimate mode of franchise growth, franchisee advocates view such openings as unreasonable franchise encroachment. On a semantic level, one of the most exasperating problems hindering meaningful discussion of the franchise growth issue is the unsystematic and undisciplined use of the term encroachment. Very simply, encroachment is an outcome-determinative term; as used in the franchise context it includes both reasonable and unreasonable growth. Accordingly, because it includes any growth that could or does cause any negative impact on an existing franchisee, the term is descriptively, conceptually and analytically useless at best, and destructive at worst. Further, the term encroachment similarly fails to account for the crucial distinction between non-opportunistic and opportunistic growth. In this regard, opportunistic behavior may be found in both the reasonable and unreasonable growth scenarios. Making matters worse from a semantic perspective is that the term opportunism itself is uncertain, ambiguous and anecdotal. Although opportunism in the relevant law and economics literature possesses elements of selfishness and self-interest, there is no consensus on whether all forms of opportunism harm efficiency. Again, the literature has failed to provide a uniformly-accepted definition of opportunism in the world of contracts, economics and franchising. Whereas many types of conduct have been identified as opportunistic (e.g., shirking, free-riding, stealing), no uniform theoretical definition has been formulated or accepted. One common element of many […]

May 7, 2015

Franchisor Encroachment: Beware of Your Franchise Agreement As with most issues in franchise law that end up in litigation, your chances of prevailing in court against your franchisor on a claim that the franchisor has violated your exclusive territory may be wholly dependent on the specific language that you and your lawyer were successful in having included in your franchise agreement. Also, as you will see below, the legal analysis that must be undertaken to negotiate a franchise agreement to fully protect a franchisee from all types of potential encroachment is too complex and esoteric to be performed adequately without expert legal assistance. I have encountered prolific cases where the franchisee, whose business has been decimated by encroachment, has told me that he “thought” that the language he had personally negotiated and included in the franchise agreement granted him an exclusive territory. In many of these cases, contrary to the beliefs of these franchisees, the franchise agreements contained no language whatsoever regarding an exclusive territory. In other cases, even where the franchise agreement did contain some language relating to an exclusive territory, the language actually gave the franchisor explicit permission to open competing franchises anywhere that the franchisor chose to put them. Although the specific language in a franchise agreement addressing or relating to an exclusive territory often differs for each franchise brand (and many times even within the same brand), it is possible to categorize “exclusive territory” language into four general types: (1) language that grants a franchisee only […]

May 4, 2015

Our Franchise Attorneys Can Help With The Real And Momentous Danger That Is Franchisor Encroachment  Franchisees and dealers are frequently confronted with the real and momentous danger arising from supplier and franchisor encroachment. Franchise encroachment usually stems from the opening of new and competing franchises or distributors near the geographic territory of an existing franchise or dealership. Similarly, franchisors, suppliers or manufacturers’ newly-adopted marketing plans, whereby they distribute products and services directly to retail customers, present a threat to franchisees and dealers as they are cut out from the existing distribution and profit chain. Dealers and Franchisees are highly vulnerable to such territorial and sales encroachment given that the language in most franchise and distribution agreements explicitly permits it. From a historical perspective, at the time franchising initially began, franchisors, suppliers and manufacturers ordinarily, as a matter of course, granted franchisees and dealers some type of territorial exclusivity. Under market conditions at that time, such protection was expected and demanded by franchisees and dealers. Similarly, franchisees and dealers were protected from direct competition from their franchisors, suppliers and manufacturers through new distribution channels. As franchising matured as a distribution method, and as legal and economic power shifted precipitously toward franchisors and suppliers, the language in distribution and franchise agreements safeguarding franchisee or dealers’ territories and customers was intentionally abandoned by franchisors and suppliers when they drafted franchise or distribution agreements. As the pendulum of power continued to swing further away from franchisees and dealers, franchise and distribution agreements began to […]

Oct 3, 2019

As a prospective franchisee, one of the keys to success is making as informed a decision as possible about your choice of franchise opportunity. While all viable franchise systems have successful franchisees, in order for you to have a reasonable chance of success in your chosen system, you need to go in eyes wide open and with a clear understanding of the legal and financial risks involved. With this in mind, before you buy, you need to ask questions – lots of questions. Do not take anything the franchisor’s representatives say for granted, and make sure you are relying on multiple sources of information. Questions to Ask the Franchisor Some key questions to ask the franchisor’s sales representatives and operational managers include: What sets your franchise apart from the competing franchised brands? How has the franchise system changed and grown over the past five years? How much ongoing support can I expect once I open for business? Who will be my point of contact? How are you making use of franchisees’ advertising fund contributions? Are there any significant changes or developments on the horizon? Questions to Ask Current Franchisees In speaking with current franchisees within the franchise system, some of the questions you may want to have answered include: Would you buy the same franchise again if you could go back and do it over? Are you seeing any direct benefits from your marketing fund contribution? How accessible are the franchisor’s support staff? Do you frequently have issues with system […]

Aug 27, 2019

Not only does buying a franchise involve a making sizable financial investment, but it also involves entering into a long-term legal relationship that provides very limited opportunities to protect your investment if something goes wrong. As a result, in addition to working with your financial advisor, it is also important to work with an attorney who can help you assess the legal risks involved and, potentially, negotiate more-favorable terms into your franchise agreement. These legal services are commonly referred to as a franchise business review. As with all aspects of buying a franchise, when choosing a lawyer to perform your franchise business review, you need to make an informed decision. A lawyer who doesn’t focus his or her practice on franchise law won’t be able to provide you with the insights you need, although he or she may be able to provide general legal advice about the risks entailed by your franchise agreement. Likewise, a lawyer who primarily represents franchisors will lack the perspective needed to view the issues from your point of view and might even have interests that are in conflict with yours. So, what is the best option? When you need a franchise business review, you need a franchise lawyer who focuses exclusively on representing prospective and current franchisees. What Factors Should You Consider When Choosing a Lawyer for Your Franchise Business Review? While there aren’t many franchise lawyers in this category, there are more than one. So, what factors should you consider when choosing a lawyer […]

Jun 21, 2019

As a franchisee, many aspects of the franchise relationship can seem unfair. The longer you own your franchise, you are likely to realize how truly one-sided the relationship really is, and there is a good chance that you will grow increasingly frustrated with the power that your franchisor wields over your business. But, from a legal perspective, when are a franchisor’s practices considered “unfair”? Unfair franchise practices provide franchisees with a legal cause of action against their franchisors. However, the legal definition of an “unfair franchise practice” is limited, and not every complaint will justify arbitration or litigation. Examples of unfair franchise practices include: 1. Supplier and Sourcing Restrictions Franchisors are well within their rights to designate suppliers for products and services and impose other sourcing restrictions on their franchisees. After all, uniformity is one of the hallmarks of franchising. However, what franchisors cannot do is impose undue restrictions that harm franchisees to the franchisor’s financial gain. For example, if similar-quality products are available from multiple suppliers, it may be an unfair franchise practice for the franchisor to mandate that franchisees pay more to a supplier that offers a rebate to the franchisor. 2. Price Control Under state and federal antitrust laws, franchisors are prohibited from using their “market power” to dictate prices in individual markets. While proving that a franchisor has sufficient market power to control local prices can be a challenge, if your franchise is struggling because you cannot charge a reasonable price for your goods or services, […]

Apr 5, 2019

Problem: As discussed in more detail below, although it is possible to achieve some measure of success in furthering the short-run goals of franchisees through the formation of franchise associations, achievement of the long-run goals of franchisees will nevertheless remain elusive, as they have for the last 25 years. Until franchisee associations develop the ability to understand and use more correct, accurate and dynamic theories underlying franchise market forces, they will be nothing more than temporary dues-collection entities. To explain this pervasive misunderstanding more fully, below I briefly posit the existence of two prototypical market models. (Of course, the markets as defined below are not pure nor are they complete; I defined and created the two crossbreed models below only for illustrative purposes). Franchise Model with Inherent Conflicts and Distorted Incentives (“Conflicts Model”) The Conflicts Model is one that I argued previously covers the franchise context. To create this model for illustrative purposes I’ve chosen and combined certain elements of both the neoclassical and transaction cost economics (“TCE”) theories to identify myriad “inherent conflicts” in the franchise market (and between stakeholders). Again, the neoclassical model shows, inter alia, that there is an underlying inherent conflict between the two major stakeholders since they maximize different variables, sales and profits. The implication of this inherent conflict is that franchisors and franchisees, in naturally seeking to achieve and maximize different market goals, will calculate different optimization levels of the same market variables. I gave the example of how this shakes out in an […]

Mar 15, 2019

Hotel chains dominate the hospitality market, and some hotel chains are among the largest and most well-known franchised brands in the world. As a result, many prospective franchisees find the idea of owning a hotel to be a desirable one, and they believe that the substantial up-front investment will more than pay off in the long term. While this is certainly the case for some hotel franchisees, building and operating a successful hotel is a challenge even for the most-seasoned business owners. When you add in the costs and inherent challenges involved in operating under a franchised model, finding success as a hotel franchisee is far from certain. At the Goldstein Law Firm, in addition to representing prospective hotel franchise owners in franchise agreement negotiations, we also have extensive experience representing hotel franchisees in litigation with their franchisors. If you are thinking about buying a hotel franchise, here are some of the key risks to keep in mind: 1. Substantial Initial Investment Although many franchises can be launched with less than $100,000, building or renovating a hotel is generally a multi-million-dollar endeavor. While much of this initial investment is attributable to costs you would incur regardless of whether you were building a franchised or non-franchised hotel, you will still be required to pay a significant up-front initial franchise fee to the franchisor. In any case, before making such a significant investment, it is critical to ensure that you have taken appropriate legal measures to protect yourself as much as possible. […]

Sep 17, 2018

Philadelphia Franchise Attorney Whether you are thinking about buying a franchise or you are an active franchisee, protecting your business investment requires knowledgeable legal advice and representation. With more than 30 years’ experience representing new and existing franchisees in Philadelphia and nationwide, franchise attorney Jeffrey M. Goldstein has a strong record of securing favorable results in negotiations and dispute resolution proceedings. Franchise Attorney Jeffrey M. Goldstein Mr. Goldstein is widely recognized as one of the leading franchise lawyers in the United States. He has helped countless franchisees open for business in Philadelphia and other major cities around the country, and he has secured precedent-setting results in state and federal litigation. He also routinely represents franchisees in mandatory mediation and arbitration proceedings, and he is known for using his in-depth franchise law knowledge to secure unexpected results against large franchise systems and their big firm litigation teams. A Franchise Law Firm That Exclusively Represents Franchisees Unlike other law firms, at the Goldstein Law Firm, we exclusively represent franchisees and dealers. This is important, because it means that we do not have any conflicts of interest when it comes to advocating for our clients’ rights. If you are thinking about buying a franchise in Philadelphia or you are facing a dispute with your franchisor, we encourage you to schedule a free consultation to learn what we can do for you. We represent prospective and active franchisees in all Philadelphia neighborhoods and suburbs, including: Bridesburg-Kensington-Richmond Center City Germantown-Chestnut Hill North Philadelphia Northeast Philadelphia […]