Insurance Entrepreneurs Wanted for Franchise Industry in Face of Joint Employer Risk​   January 20, 2016 http://www.insurancejournal.com/magazines/coverstory/2016/01/11/394052.htm Okay; maybe I’m missing something. The underlying purpose of insurance is to assess and manage risk. And, altho insurance companies many times prefer to establish insurance programs for situations in which there is there is little to no risk, creative, aggressive and successful underwriters are capable of building profitable programs in the face of tangible heightened risk. That’s how they made and make money, and that’s how the insurance industry historically evolved and competes. But, according to Mr. Betterley, this rule doesn’t apply to the franchise industry? As he states: “The reality is that insurers are becoming cautious because the exposure [due to joint employer franchisor liability] has changed,” Betterley said. “In the past if there was a request to add the franchise the underwriting assessment would be presumably that the risk is minimal and yes probably they would. Now they have to look at it and say, ‘No, wait a minute there’s real exposure here.' Well, can’t somebody re-assess the risks, cost it out, and build a program to reflect these new franchise industry realities and risks? Not according to Mr. Taffae who, in the article, stated “There’s just no way to underwrite it …” Hard to believe.  http://www.insurancejournal.com/magazines/coverstory/2016/01/11/394052.htm

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Franchise Fraud and the Wizard of Oz — Minnesota Franchise Lawyers Watch Out   1/20/16 The United States District Court for the District of Minnesota on January 12, 2016, in In Moxie Venture L.L.C., et al. v. The UPS Store, Inc., 2016 U.S. Dist. LEXIS 3603, hammered the final nail in the coffin of franchisee fraud claims under the Minnesota Franchise Act by ruling that as a matter of law a franchisee could not argue that it was misled by a franchisor’s fraudulent representations since the franchise agreement contained a franchise fraud disclaimer. Minnesota franchise lawyers should take notice; Minnesota franchise law is under attack.  https://www.linkedin.com/pulse/article/franchise-fraud-wizard-oz-jeffrey-m-goldstein/edit

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Franchisee’s Wrongful Termination Claim Rejected for Failure to Obtain Franchisor Consent to its Franchise Purchase By: Jeffrey M. Goldstein Goldstein Law Firm, PLLC (202) 293 3947   In a recent case in the United States District Court for the Eastern District of Wisconsin, a federal court reversed its own initial decision in which it had upheld a franchisee’s wrongful termination claim against its franchisor. Tex. Ujoints, LLC v. Dana Holding Corp., 2015 U.S. Dist. LEXIS 70468 (E.D. Wis., May 30, 2015). Granting a motion for reconsideration, the District Court held that the plaintiff was not a “franchisee’ under the relevant franchise law because, although the plaintiff had purchased the ‘franchise rights to distribute’ from a former franchisee, it had done so without first obtaining the consent of the franchisor for the purchase. The Court's reconsideration decision focused on an asset purchase agreement (APA) under which an entity created by Daniel Zahn and Martin Brown, called DanMar Holdings LLC, acquired substantially all of the assets of a Texas company, called Automotive Industrial Supply Co., Inc. (AISCO). The purpose of the transaction was for Zahn and Brown's entity to acquire AISCO's purported right, based on an alleged oral agreement, to distribute Dana's "GWB" product line, which consisted of heavy duty industrial drive lines and universal joints used in the fracking industry. After the APA transaction, the distribution assets acquired were then transferred from DanMar Holdings to Texas Ujoints LLC in a second separate deal. There was no dispute in the case that Dana […]

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Federal Court in Michigan Becomes One Stop Shop for Constructing Coffin for Terminated Franchisee   1/5/2016   By: Jeffrey M. Goldstein (202) 293-3947             Many times a terminated franchisee fails or refuses to attend court proceedings initiated by its franchisor or distributor. The main reasons invoked by franchisees for failing to attend such proceedings vary, including (1) having no money; (2) believing that the franchisor is limited by law regarding how much or the type of relief that can be awarded against it where the franchisee fails or refuses to defend; or (3) imagining that the franchisee or dealer has no real defenses to the claims. A case decided in federal court on New Year’s Eve, 2015, Domino's Pizza Franchising, LLC, Plaintiff, v. VTM Pizza, Inc., and Terrence M. Williams, Defendants, shows just how far an aggressive franchisor and a motivated court can go ‘in just one court hearing’ in deciding against an absent franchisee.           Generally, when a dealer or franchisee defendant fails to answer or reply to a Complaint, the Court will enter a default, meaning that the franchisee has a judgment entered against it for all of the substantive claims asserted by the franchisor in its Complaint. The next, and related step, is where the franchisor requests that the Court award it money damages for the franchisee’s alleged misconduct underlying the Complaint; claims for such monetary damages are asserted via a motion for default judgment. These two steps usually are separated by a period of weeks, with the latter award […]

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Child Care Franchisee Thwarts the Impact of its Franchise Termination by Confusing Everyone By: Jeffrey M. Goldstein (202) 359-0441 In The Art of War, Sun Tzu states, inter alia, that “The whole secret lies in confusing the enemy, so that he cannot fathom our real intent.” Sometimes, but not often, this strategy, if used by a franchisee, works in combatting the enforcement of a post term restrictive covenant following a franchise termination. As an attorney representing only franchisees and dealers, I’ve historically been repeatedly accosted by potential franchisee and dealer clients demanding that I provide them with a certifiable blueprint for how to ‘get around’ the post term restrictive covenants in their franchise and dealership agreements. These provisions in essence prevent a terminated franchisee from operating an ongoing or future business similar to that of the former franchise business for a period of time after the termination of the franchise, thereby, in some cases, preventing the terminated franchisee from earning a living. I usually tell them that, although in the old days it was possible to devise a ‘work around’ to this legal road block, today it is exceedingly difficult to do so.  Very simply, most franchise and dealer agreements nowadays do not contain many of the old-style loopholes (e.g., sales to wife, child, brother, mother-in-law, close friends, etc.) Further, in today’s legal system, courts have become much more adept at factually piercing the corporate veils and trails associated with secret transfers and sales. Accordingly, after reading a recent decision […]

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Perpetual Termination Jockeying In the Hotel Franchise World   Jan. 2016 By: Jeffrey M. Goldstein 202 293-3947 Seemingly, more than in other franchise niches, hotel franchises seem to be signed-up and then discarded by schisophrenic hotel franchisors. On any given day any particular hotel can be a ‘perfect fit’ for the brand, and, then, 6 months later, after initial fees have been paid to the franchisor, and after another newer or larger potential replacement property coincidentallybecomes available in that market, the initial hotel is deemed a ‘terrible fit.’ Usually observers justifiably focus on the negative financial impact of questionable terminations on the hotel owners (franchisees) themselves, without too much consideration regarding the impact on the hotel brands. Below, however, it is difficult, after reading the article, to come away with a good view of the franchisor, Ramada. Further, it looks like Ramada is having to get into the weeds itself to deal with the unhappy guests whose vacations have been scuttled by the termination. Why was the owner of the hotel allowed initially to purchase the brand? How realistic (financially and temporally) was the list of repairs demanded by the franchisor on the hotel owner? What assistance did Ramada directly provide to the owner to help it meet the chalenges? How swiftly did Ramada meet the requests for assistance that were made by the franchisee for assistance?   Resort ‘not up to scratch’ The Gold Coast Bulletin (Australia) December 9, 2015 Wednesday, GoldCoast Edition Copyright 2015 Nationwide News Pty Limited All Rights Reserved Section: NEWS; Pg. 3 Length: 432 words Byline: JENNY […]

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Three Common Franchise Myths A myth is an invented story, idea or concept. Sometimes myths are used to support and justify particular ideas, institutions, and traditions. In two recent columns I’ve identified and discussed three pervasive franchise myths, including: “If you buy this franchise, you’ll be our partner.” “If you buy this franchise, you’ll be rich.” “If you buy this franchise, you’ll benefit from our experience and expertise in successfully operating franchises.” As I previously noted, the first two myths are existentially mysterious in that, one would have thought that, over the course of history, as these myths were passed from one generation to the next, they would have been exposed and debunked. They have not been. And, with regard to the latter myth, incredibly, legal standards have evolved that allow and incentivize franchisors to perpetuate it. In essence, courts have refused to recognize a claim for franchisor malpractice. In this regard, given the force and nature of the “economic loss rule”, it is not likely that this myth will be discredited in the near future. Given the longevity and vitality of these myths, it is not surprising to learn that they cause incredible damage to franchisees, sometimes entirely destroying franchisees’ families, savings, and futures. If you believe that you’ve fallen for one or more of these myths, time is not in your favor. You should promptly seek the advice of an experienced franchisee lawyer who will be able to accurately devise a legal strategy to protect you and your […]

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Arbitration Clause in Subway Franchise Agreement Booted by Court of Appeals  9/24/15 By: Jeffrey M. Goldstein Goldstein Law Firm, PLLC goldlawgroup.com 202 293-3947 Doctor’s Associates Inc. v. Jose Luis Carbonell, et al., New Mexico, 2015 WL 4380284 (June 29, 2015), addressing an arbitration clause in a Subway franchise agreement.  My view is that Arbitration clauses in franchise agreements are on balance more helpful than not to franchisees and dealers, and this position has remained consistent throughout my career representing exclusively franchisees and dealers as a franchise lawyer. That is not to say, however, that during my frequent, ongoing and methodical reassessments of the benefit of Arbitration clauses I have always reached the same net value on the balancing scale. To the contrary; over time, my positive assessments have been veering downward. Is it possible to explain this notable downhill secular trend against the benefits of Arbitrations for franchisees and dealers? Yes. The unadorned answer is that large franchisors, especially those with forum selection clauses in their franchise agreements, have over time become increasingly adept at obtaining biased Arbitrators during the Arbitrator selection process. This obviously does not mean that every arbitrator is intentionally biased. Nor does it mean that every arbitration association despises franchisees. It does mean, though, that the arbitrator selection process itself is inherently biased.  Understandably, this observation will be attacked by many who regularly serve and make money as ‘Arbitrators.’ Despite their anticipated sincere objections, these critics cannot show that they are immune from the forces of human […]

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The Unintended Consequences to Franchising of the NLRB’s New Joint Employer Test Like all other government regulation, the new NLRB joint employer test has unavoidable unintended consequences. The Browning-Ferris joint-employer decision will likely send many franchisors back to the drawing board to find aspects of their systems about which they can relinquish legal and operational control and responsibility to their franchisees. Unfortunately, the increased costs that the new standard will impose on franchisors will be passed along, in large measure, to franchisees, some of which will be unable to maintain a profitable business. Of these, some will simply shut their doors, and others will be terminated. Last week, the National Labor Relations Board (NLRB) decided the Browning-Ferris decision, one that was long-awaited by the franchise industry. Although the case did not directly involve franchise industry parties, the decision did establish a new standard for determining whether an entity is an employer subject to the statutory obligation to engage in good faith collective bargaining with workers. Under the new standard, franchisors can be found to be employers, along with their franchisees, of their franchisees’ workers. The NLRB, in jettisoning the established test of “direct control” (e.g., hands-on efforts regarding hiring and firing), embraced a far more expansive test of “indirect control.” In so doing, the NLRB has exposed franchisors, which, although not the actual employers of their franchisees’ workers, nevertheless exert indirect control of their franchisees’ workers. As the dissent in the Browning-Ferris decision pointed out, for many years the NLRB did not […]

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Court Closes Dairy Queen Franchise in Franchise Termination   By: Jeffrey M. Goldstein Goldstein Law Firm, PLLC jgoldstein@goldlawgroup.com (202) 293-3947 goldlawgroup.com   American Dairy Queen Corporation v. Wardlow, 2015 WL 5178454, United States District Court, D. South Dakota (September 4, 2015)   When a Dairy Queen franchisee failed to show up in federal court to defend against its franchisor’s (ADQ or Dairy Queen) emergency motion to enforce the franchisee termination by getting a court order to shut it down, the Judge, embracing a very traditional legal analysis, ordered that the franchisee cease operations. Not surprisingly, preliminary injunctions arising out of disputes in the fast food franchise industry are prolific.  The traditional test for determining whether to grant emergency relief to shut down a franchisee normally, in some fashion, encompasses four equitable issues, including: (1) the threat of irreparable harm to the movant; (2) the state of the balance between this harm and the injury that granting the injunction will inflict on other parties litigant; (3) the probability that movant will succeed on the merits; and (4) the public interest. Regarding the first point, the Court pointed out that irreparable harm occurs when a party has no adequate remedy at law, typically because its injuries cannot be fully compensated through an award of damages. Interestingly, rather than ruling that the franchisor would suffer per se damages as a result of the trademark infringement, the Court examined the factual basis underlying this claim. In so doing, the Court ironically further solidified the jurisprudential principle that […]

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