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, […]

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Franchisee Bill of Rights Doesn’t Ensure Franchisor Competency By: Jeffrey M. Goldstein A recent suit in the United States District Court for the Western District of New York resulted in the denial of a franchisee’s motion for a preliminary injunction to prevent the franchisor from requiring the franchisee to install a new computer system. JDS Grp. Ltd. v. Metal Supermarkets Franchising Am., Inc., No. 17-CV-6293 (MAT), 2017 U.S. Dist. LEXIS 94779 (W.D.N.Y. 2017). In JDS, the franchisee JDS brought a suit against its franchisor Metal Supermarkets Franchising America (MSFA) for violation of the Washington State Franchise Investment Protection Act (FIPA), which includes a Franchisee Bill of Rights, as well as for breach of the implied covenant of good faith and fair dealing. The facts as found by the Court include the following. JDS owned two retail stores that sold metal components used in various industries. The stores were in Kent, Washington, and Portland, Oregon. JDS had been a franchisee of MSFA for approximately ten years. JDS used a software system called “Metal Magic,” that was provided by MSFA. In 2012, MSFA determined that Metal Magic was outdated, inefficient, and unable to accommodate anticipated growth and functionality changes. As a result, MSFA undertook development of a new, modern software system, called “MetalTech,” which cost over $1,000,000 and took three years to develop. In 2015, MSFA began installing MetalTech at its franchisee locations. JDS did not want to use MetalTech in its stores, but instead wanted to keep using Metal Magic. Plaintiff […]

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Subterfuge, Prevarication and Deception – Another Inefficient Franchise Territorial Dispute By: Jeffrey M. Goldstein, Esq. In a recent automobile dealer territorial dispute case, the United States District Court for the District of Colorado dismissed several claims against the manufacturer and allowed one claim to proceed. European Motorcars of Littleton, Inc. v. Mercedes-Benz USA, LLC, 2017 U.S. Dist. LEXIS 93857. The practice of dual assignment, or the appointment of competing dealers near existing auto dealers, seems to be getting more prevalent. Plaintiff Mercedes-Benz of Littleton (MBOL) has been a franchised Mercedes-Benz automobile dealership since 1996. Defendant Mercedes-Benz USA (MBUSA) is the North American distributor and manufacturer representative for the Mercedes-Benz brand of vehicles. In 2015, MBUSA invited Defendant Bobby Rahal Motorcar Company (BRMC) to establish a new Mercedes-Benz dealership less than nine miles from MBOL’s facility. MBUSA did not inform MBOL of its intent to establish a new dealership until July 2016, when an MBUSA employee traveled to Colorado and informally notified MBOL’s management of MBUSA’s plan. In October 2016, MBUSA sent MBOL a formal notice pursuant to Colo. Rev. Stat. § 12-6-120.3 (the Statute), which stated the exact location of the new dealership. The address for the new dealership is nine miles and two freeway exits north of MBOL’s dealership. The notice also identified the new dealer operator as BRMC. MBUSA and BRMC had taken material steps towards establishing the new dealership, such as executing a letter of intent. When MBUSA establishes a dealership, it enters into an agreement with the […]

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The High Court in Kuala Lumpur, in refusing to prohibit a former franchisee from operating independently after a termination, caused more damage to the Franchisor (Chatime Fusion Tea House) than a horde of Helopeltes. The Judge ruled that the Franchisor’s termination was in bad faith and that an injunction preventing the Franchisee from operating would “cause great injustice.” The Franchisee in the case was so angry that he filed a police report regarding the termination.  Too funny. The Goldstein Law Firm has recently been successful in seven straight injunctive cases even though these types of emergency actions are the most difficult to win for franchisees.  http://www.freemalaysiatoday.com/category/nation/2017/05/29/court-dismisses-chatimes-bid-for-injunction-against-ex-franchise-holder/      

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Beer Brewer’s Wrongful Termination of Dealer Turns Out to be Grist for the Mill for Beer Distributor By: Jeffrey M. Goldstein The U.S. District Court for the Western District of Washington recently ruled that a terminated beer franchisee could sue the beer manufacturer for non-statutory damages caused by the franchisor’s termination of the distribution contract without cause. Odom Corp. v. Pabst Brewing Co., No. C17-5279-RBL, 2017 U.S. Dist. LEXIS 81348 (W.D. Wash. May 26, 2017). As the Court phrased the issue: “This case concerns whether, when a beer supplier terminates its distributor’s contract without cause, Washington’s Wholesale Distributors and Suppliers of Spirits or Malt Beverages Act, chapter 19.126 RCW, provides the distributor with a single remedy: ‘compensation from the successor distributor for the laid-in cost of inventory and for the fair market value of the terminated distribution rights.’” The case is interesting for four reasons. First, even though almost every state has beer distribution relationship legislation, there is a dearth of reported decisions regarding beer franchise terminations; this is primarily because almost all replacements of beer distributors are negotiated and include the payment of agreed-upon fair market value. Second, Pabst’s defenses in the case were not traditional ‘good cause’ arguments usually asserted to justify a termination; instead, the beer franchisor embraced a troika of somewhat absurd schoolyard bully arguments, to wit: the rules in the statute (enacted to prevent unjust terminations by brewers) don’t apply to me (even though I’m a brewer); the rules in the beer franchisor act allow terminations […]

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We are proud to announce that the Goldstein Law Firm was recently named “Franchise Law Firm of the Year” in the 2017 edition of Finance Monthly’s Law Awards. According to a press release from Finance Monthly announcing this year’s award winners: “Every year[,] the Finance Monthly Law Awards recognise and celebrate law firms and legal professionals from all over the world who, over the past twelve months, have consistently excelled in all aspects of their work and set new standards of client service.” The nomination and review process for Finance Monthly’s Law Awards involves months of work by a “diligent research team and dedicated judging panel,” who are tasked with producing a list of winners that represents, “some of the most successful and trusted legal professionals and law firms from across the globe.” “[A] franchise law firm dedicated to you, the franchisee.” Law firms honored as recipients of the Law Awards are featured in a special edition of Finance Monthly. In announcing the Goldstein Law Firm as Franchise Law Firm of the Year, the Law Awards 2017 describe our firm as, “a franchise law firm dedicated to you, the franchisee.” Unlike other franchise law firms that represent both franchisees and franchisors (and which, in reality, predominantly represent franchisors), the Goldstein Law Firm is exclusively dedicated to representing the interests of active and prospective franchise owners. Another factor distinguishing the Goldstein Law Firm from other franchise law firms is our representation in both transactional and dispute-resolution matters. Founding attorney Jeffrey M. […]

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GLF Prevails on MTD in Case Against Bathtub Manufacturer Franchisor The definition of franchise is not always clear, as this case shows. A marketer/seller/installer of walk-in bathtubs in the New York and New Jersey area could qualify as a franchise with standing to assert counterclaims against Safe Step Walk In Tub Co. (Safe Step) under the franchising laws of those states and Connecticut and Rhode Island, the federal district court in New York City has ruled. Therefore, a motion by Safe Step for dismissal of these counterclaims was denied. Safe Step alleged that agreements between the parties constituted franchises under the Connecticut Franchise Act, New Jersey Franchise Practices Act, New York Franchise Act, and Rhode Island Franchise Investment Act. Given the basis of the allegations and the plain terms of the agreements, it was easy to find that the parties’ relationship could plausibly constitute a franchisor-franchisee relationship under the FTC Rule, the court noted. The FTC Rule had three main prongs in its definition of a franchise: (1) the use of the franchisor’s marks; (2) the franchisor’s provision of marketing assistance or control over the franchisee’s operations; and (3) the franchisor’s collection of a franchise fee as a condition of the franchisee’s commencing operation. Here, the first prong of the FTC Rule was undoubtedly met at because the installer distributes goods that are identified or associated with Safe Step’s trademarks. The second prong was also met, since the alleged involvement by Safe Step in the installer’s business operations could amount […]

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New Legal Gestalt Needed for Franchise Relationships in USA By: Jeffrey M. Goldstein  A recent franchise termination case involving a French franchisee of a French franchisor has many similarities to the prototypical wrongful franchise termination in the United States; the only real difference is that when the case was tried in France the franchisor was found guilty of an unfair franchise termination while if the case had been tried in the United States the franchisor would have walked scot-free. In this case, the French bakery brand Paul operated under a master franchise agreement that called for the opening of 18 outlets in the south of France over a five-year period. After opening, the franchisee found itself facing debilitating financial difficulties after having opened only five of the 18 required outlets. After the franchisor’s proposed onerous terms for settlement were rejected by the franchisee, the franchisor sent a default notice to the franchisee for failure to open the remaining locations in the franchise agreement. The franchisee was not able to build the new stores, and the franchisor terminated the franchisee. The franchisee’s primary defense was that the franchisor was liable for inaccuracies in the business plan for the opening of 18 outlets in five years and that the plan itself was unrealistic because it was based on overly optimistic and false financial data. On this basis, the franchisee argued that the termination was wrongful based on the franchisor’s pre-contractual duty of disclosure.             In affirming the lower Paris Court of Appeal’s […]

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  This food franchise dispute now in litigation in Florida has all of the expected allegations and markings of a prototypical franchisor-franchisee litigation battle in 2017: (1) a believable ulterior motive for termination (the franchisee store’s closure, according to the franchisee, was part of a scheme by the franchisor (B&B’s parent company) to oust the franchisee from the West Palm Beach dining center so the franchisor could do a competing deal with the franchisee’s competitor (Revolutions); (2) traditional ‘fraud and breach of contract’ claims by franchisee; (3) franchisee termination follows its alleged failure on a quality assurance inspection conducted by the franchisor; (4) ‘other hidden off-the-contract’ motivations for getting rid of the franchisee (franchisee was operating a gay bar on the second floor of the location, which had never before been objected to); (5) the franchisor allegedly failed to meet its contractual obligations (although the franchisee was assured 162 hours of classroom and on-the-job training, franchise claims it was provided with “zero training”; similarly, the franchisor’s “operations manual” allegedly wasn’t any help because it ‘was cut-and-pasted from manuals for sushi and Mexican restaurants’); (6) the franchisor, after the franchisee purchased the franchise, modified the entire strategic thrust of the franchise business (the franchisor allegedly moved the franchise company into the movie theater and bowling alley business — and away from a nationwide franchise roll-out, as promised); (7) the franchisor’s undisclosed strategic decision caused the franchisee to fail (according to the franchisee, with the company’s new direction, the franchisee was left […]

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Courts, Lawyers, Franchise Agreements, Right of First Refusal, Restrictive Covenant, Competing Franchisor all combine to Create the Efficient Free Market Outcome: “No Beer for Any Consumers at an Empty Restaurant.” Interestingly, from a law and economics point of view, the legal rules and process associated with this dispute have resulted in an inefficient outcome: unused restaurant space, unemployed workers, less beer being sold, and one fewer businesses paying taxes. http://www.heraldtribune.com/news/20170327/jdubs-dub-shack-beer-bar-closes  

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