The U.S. Small Business Administration (SBA) reinstated its Franchise Directory earlier this year. Its decision to discontinue the Franchise Directory in 2023 as part of a broader effort to streamline its lending programs was largely decried within the franchise industry, with the International Franchise Association (IFA) noting at the time that about 20 percent of all SBA loans go to franchisees, and that franchising had played a significant role in the United States’ post-pandemic economic recovery. Now that the SBA Franchise Directory is back, what do you need to know? National franchise attorney Jeffrey M. Goldstein explains.

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Author Victor P. Goldberg, Columbia Law School Document Type Article Publication Date 1979   SUMMARY OF HOW THE ARTICLE’S ECONOMIC THOUGHTS IMPACT ON FRANCHISING Insights and Discussions on Franchising, Franchisees, and Franchisors: Roles, Relationships, and Legal/Economic Implications Definitions and Nature of the Franchise Relationship Franchising encompasses various retail arrangements, including “business format franchising,” where a trademarked product, service, or method is licensed to a franchisee (e.g., fast food, muffler shops, convenience stores), and “traditional franchising,” which involves specialized retail services (e.g., automobile dealerships, service stations) where dealers often specialize in a single brand’s products, making the franchisee’s business identity heavily reliant on the franchisor relationship. Conversely, “franchise” agreements can also be extremely casual, resembling routine retailer-manufacturer transactions, such that the label “franchise agreement” may be attached to loose or minor arrangements. The franchise relationship is best understood as a long-term “relational exchange,” not as a discrete, one-off transaction; it involves parties entering an ongoing arrangement, partially insulated from market forces, with behavior within the relationship (not just market outcomes) being a key concern. Roles and Interests of Franchisors and Franchisees The franchisor typically designs the franchise agreement and presents it to franchisees, often on a take-it-or-leave-it basis. While franchisee interests may be considered to some extent, the franchisee plays a relatively passive role in the formation and structuring process. Franchisees invest in inventories, signage, promotion, and otherwise become closely tied to the franchisor’s business, sometimes making relationship-specific investments that lack value outside the franchise arrangement. Franchisors provide initial and ongoing training, […]

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Credible Commitments: Using Hostages to Support Exchange Oliver E. Williamson The American Economic Review Vol. 73, No. 4 (Sep., 1983)   Another Entry in the Goldstein Law Firm’s Series Entitled: Summaries of Great Academic Articles on Law, Economics, and Philosophy in Franchising, Distribution and Life In franchising, credible commitments are created to address the risk of opportunism—e.g., franchisees may be tempted to reduce quality after signing the contract, exploiting the overall reputation of the franchise system. Economic Theories of Credible Commitments and Their Applicability in Distribution and Franchise Contexts General Theory of Credible Commitments Williamson distinguishes between credible commitments and credible threats, both of which are relevant primarily in the context of irreversible, specialized investments. Credible commitments are reciprocal actions undertaken to support alliances and promote exchange, serving efficiency by safeguarding relationships where opportunism and incomplete contracting may undermine cooperation. Such commitments are especially vital when parties make transaction-specific investments that are difficult to protect through simple contractual or legal mechanisms alone. The study of credible commitments otherwise receives less attention than credible threats, largely due to the assumption that courts efficiently enforce contracts—an assumption Williamson challenges. Williamson emphasizes “private ordering,” where parties to exchange relationships develop their own governance structures (such as self-enforcing agreements, use of “hostages,” and bonding mechanisms) to manage the risk that one party will act opportunistically after the other commits irreversible assets. The creation of credible commitments is central to such governance structures, as it deters actions contrary to the mutual interest and substitutes for, […]

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Hiring an experienced franchise lawyer to conduct a franchise business review gives you an opportunity to ensure that you are making an informed decision about your investment. While you certainly aren’t required to hire a franchise lawyer to review your franchise opportunity, there are several important reasons to do so. 

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Pasture Gate Holdings, Inc. v. Gruzd, Bus. Franchise Guide (CCH) ¶ 17,731 (S.D. Cal. May 19, 2025). Case Summary In the case of Pasture Gate Holdings, Inc. v. Nadia Gruzd, the U.S. District Court for the Southern District of California addressed claims brought by Pasture Gate Holdings, Inc. (“Plaintiff”) against Nadia Gruzd (“Defendant”) concerning alleged violations of the California Franchise Investment Law (CFIL) and the California Unfair Competition Law (UCL). The Plaintiff, a North Carolina corporation, purchased a franchise business from Gruzd, who was associated with the “AllMed Search” brand, a healthcare recruiting service. The Plaintiff alleged that Gruzd provided incomplete and misleading information in the Franchise Disclosure Document (FDD) and made unlawful financial performance representations, which induced the Plaintiff to purchase the franchise. Court Decision The court denied Gruzd’s motion to dismiss the Plaintiff’s claims. The court found that the Plaintiff had adequately pleaded claims under both the CFIL and UCL, and that the Defendant’s objections, including the statute of limitations defense, were not sufficient to warrant dismissal at this stage. Legal Analysis CFIL Claims The Plaintiff’s CFIL claims were based on alleged statutory violations related to disclosures in the MSC-FDD. The Plaintiff argued that Gruzd failed to disclose the existence of a predecessor entity, Unlimited Med Search Franchise System, Inc. (UMFS), which was relevant under Item 1 of the FDD. The court found that the Plaintiff’s allegations were sufficient to support a reasonable inference that UMFS was a predecessor to MSC, thus supporting the claim of inadequate disclosure. Additionally, the Plaintiff […]

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News Business Franchise Guide – Report Letter No 550 BUSINESS Subway Franchise Termination in Russia Subway International B.V. (“SIBV”), the international franchising arm of Subway, entered into a series of master franchise agreements (MFAs) with Subway Russia Franchising Company, LLC (“Subway Russia”) beginning in 1993, granting Subway Russia exclusive rights to develop and operate Subway® restaurants throughout Russia, with the initial MFA allowing for unlimited renewals provided timely notice and full compliance with the contract’s terms. The final MFA, executed in 2015 for five years, mandated compliance with a development schedule, “McDonalds clause” (requiring as many locations as Russia’s largest fast-food chain), achievement of specified average unit volumes (AUVs), and included an arbitration clause. Subway Russia was persistently in default of one or more MFA requirements, but previous SIBV management had repeatedly negotiated renewals, citing challenging Russian political and economic circumstances. In 2019, a new, less tolerant SIBV management team opted not to renew the MFA and later terminated it based on Subway Russia’s chronic noncompliance; Subway Russia contended this was improper, arguing that SIBV’s pre-nonrenewal pronouncements constituted a counteroffer, which Subway Russia claimed to have accepted, creating a new MFA. Arbitration followed, resulting in an award that Subway Russia lacked a right to automatic renewal because of its defaults. SIBV successfully petitioned a federal district court for confirmation, and after a remand to assess Subway Russia’s counteroffer argument, the arbitrator rejected the existence of any renewed agreement. The district court confirmed both awards, and Subway Russia appealed, arguing (1) […]

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Monjazeb v. Jaguar Land Rover N. Am., LLC, 2025 U.S. Dist. LEXIS 171623. Case Background In the case of Monjazeb v. Jaguar Land Rover North America, LLC, the plaintiffs, Arastou Monjazeb, J&L Holdings, Inc., and Jaguar-Land Rover Bellevue, Inc., owned two authorized Jaguar Land Rover dealerships in Lynnwood and Bellevue, Washington. They entered into negotiations to sell these dealerships to Go Auto Dealership, Inc. for a combined goodwill purchase price of $75 million. However, during the negotiations, JLRNA’s president, Mr. Eberhardt, allegedly made false statements about the awarding of a new dealership point in the Seattle market, which led Go Auto to reduce its offer to $50 million. Eventually, JLRNA exercised its right of first refusal and assigned the purchase to Fields PAG, Inc., resulting in the sale of the dealerships at the reduced price. Court Decision The United States District Court for the Western District of Washington, presided over by Judge Richard A. Jones, denied JLRNA’s motion to dismiss the case. The court found that the plaintiffs adequately pleaded the elements of fraudulent misrepresentation, negligent misrepresentation, breach of the implied covenant of good faith and fair dealing, and tortious interference with business expectancy. Legal Analysis Fraudulent Misrepresentation The court analyzed the elements of fraudulent misrepresentation under Washington law, which include a representation of existing fact, its materiality, falsity, the speaker’s knowledge of its falsity, intent, ignorance of its falsity by the person to whom it is made, reliance, the right to rely, and consequent damage. The court found that the plaintiffs […]

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Burke Automotive Group, Inc. v. FCA US, LLC, No. 1:24-cv-12263 (N.D. Ill. Apr. 25, 2025). Facts Burke Automotive Group, Inc. (“Burke Auto”) was an automobile dealership that sold vehicles and parts from FCA US LLC, which included the Chrysler, Jeep, Dodge, and RAM brands. The dealership alleged that FCA’s conduct forced it to sell its assets, leading to this lawsuit under the Federal Automobile Dealers’ Day in Court Act (ADDCA), the Illinois Motor Vehicle Franchise Act (IMVFA), and for breach of contract and the covenant of good faith and fair dealing under Illinois common law. Burke Auto claimed that FCA manipulated its “turn and earn” vehicle allocation system, which was supposed to align vehicle allocations with dealership productivity, to deprive Burke Auto of sufficient inventory, thereby pushing it into a “death spiral.” Burke Auto alleged that FCA favored other dealers by providing them with more vehicles, even when Burke Auto had a higher turnover rate. As a result, Burke Auto was forced to sell its assets in the summer of 2022, and the new dealer had significantly more vehicles in stock shortly after the sale. Court Decision The U.S. District Court for the Northern District of Illinois granted in part and denied in part FCA’s motion to dismiss. The court denied the motion to dismiss Burke Auto’s ADDCA claim, finding that Burke Auto plausibly alleged that FCA manipulated the allocation system to starve Burke Auto of inventory, which could constitute coercion under the ADDCA. The court also denied the motion to […]

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Hameed v. Syed, 2025 Cal. App. Unpub. LEXIS 5562. Factual Background In 2018, Rashid Hameed, Gurmit Singh, and Kaleem Syed purchased four Burger King restaurants in Alaska, forming HS&S Restaurants, Inc. to manage the venture. Syed, with prior experience in the fast-food industry, was appointed to manage the day-to-day operations. However, disputes arose over financial management and renovation plans, leading to a breakdown in their business relationship. Burger King Corporation (BKC) issued an ultimatum to sell the restaurants or face termination of the franchise agreement, resulting in a “fire sale” of the restaurants. Procedural History Hameed and Singh filed cross-claims against Syed for breach of fiduciary duty, among other causes of action. The trial court ruled in favor of Hameed and Singh, awarding them compensatory and punitive damages. Syed appealed, arguing that the respondents lacked standing to pursue damages incurred by HS&S directly. Court Decision The trial court found Syed liable for breach of fiduciary duty, awarding Hameed and Singh $210,000 each in compensatory damages and $20,000 each in punitive damages. HS&S was awarded $121,000 against Syed for unauthorized payroll payments. The court denied Syed’s motion for a new trial, and his appeal was rejected. Legal Analysis The court determined that Hameed and Singh had standing to pursue individual claims against Syed, as his actions caused harm to them personally, not just to the corporation. The court found that Syed’s mismanagement and breach of fiduciary duty led to a toxic environment and the rushed sale of the franchise. The damages were […]

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Lead-Off Mgmt., Inc. v. Congo Brands Holding Co., Inc., No. RDB-24-2060 (D. Md. Mar. 31, 2025). Facts Lead-Off Management, Inc., a beverage distributor based in Maryland, filed a lawsuit against Congo Brands Holding Co., Inc., a beverage producer and supplier, alleging promissory estoppel and fraud. The dispute arose when Congo approached Lead-Off in late 2020 to expand its brand presence in the region and gain access to Giant supermarkets. Lead-Off claimed that Congo repeatedly promised to sign a standard distribution agreement, which was never executed. Despite assurances, Lead-Off signed a Brokerage Agreement in March 2021, which it claimed did not establish relevant compensation terms. Congo products were delivered to Giant stores in April 2021, but Congo severed the relationship with Lead-Off in March 2022. Lead-Off alleged that Congo reapproached them for guidance and again promised to sign the Distribution Agreement, leading Lead-Off to continue its efforts until October 2023. Lead-Off claimed to have spent $1,499,700 on product and distribution based on Congo’s misrepresentations. Court Decision The U.S. District Court for the District of Maryland granted Congo’s Motion to Dismiss both claims. The court dismissed the promissory estoppel claim without prejudice, allowing Lead-Off to amend the complaint. The fraud claim was dismissed with prejudice, as the court found that Lead-Off failed to meet the heightened pleading standard required for fraud under Rule 9(b). Legal Analysis For the promissory estoppel claim, the court found that Lead-Off did not establish a “clear and definite promise” from Congo to sign the Distribution Agreement, which […]

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