In California, the following Dealer/Franchise Termination and Non-Renewal Laws, Fraud, and Franchise Industry-Specific Franchise Laws exist:
- California Has a Disclosure/Registration Franchise Law
- California Has a Relationship/Termination Franchise Law
- California Has a General Business Opportunity Franchise Law
- California Has an Alcoholic Beverage Wholesaler/Franchise Law
- California Has an Equipment Dealer/Franchise Law
- California Has a Gasoline Dealer/Franchise Law
- California Does Not Have a Marine Dealer/Franchise Law
- California Has a Motor Vehicle Dealer/Franchise Law
- California Does Not Have a Motorcycle Dealer/Franchise Law; covered partially by Motor Vehicle Dealer/Franchise Law
- California Does Not Have a Recreational and Power Sports Vehicle Dealer/Franchise Law; covered partially by – Motor Vehicle Dealer/Franchise Law
- California Does Have a Restaurant Liability Law
California has a franchise relationship act and it is called the California Franchise Relations Act (“CFRA”). The CFRA covers, inter alia, franchise terminations, renewals and transfers.
Sec. 20020 of the CFRA defines “good cause” as including, but not be limited to, “the failure of the franchisee to comply with any lawful requirement of the franchise agreement after being given notice thereof and a reasonable opportunity, which in no event need be more than 30 days, to cure the failure.” In turn, this section explicitly governs franchise terminations, stating that “no franchisor may terminate a franchise prior to the expiration of its term, except for good cause.”
The CFRA, in Sec. 20021, also carves out instances where a franchisor, by definition, will have reasonable grounds for a termination. Specifically, the CFRA allows for immediate notice of termination, without an opportunity to cure, under the following circumstances, all deemed reasonable: (a) The franchisee or the business to which the franchise relates suffers severe financial distress, including, for instance, where the franchisee declares bankruptcy or becomes insolvent; (b) The franchisee, due to circumstances not under the franchisee’s control, abandons the franchise by failing to operate the business for five consecutive days during which the franchisee is required to operate the business under the terms of the franchise, or any shorter period after which it is not unreasonable under the facts and circumstances for the franchisor to conclude that the franchisee does not intend to continue to operate the franchise; (c) The franchisor and franchisee agree in writing to terminate the franchise; (d) The franchisee makes any material misrepresentations relating to the acquisition of the franchise business or the franchisee engages in conduct which reflects materially and unfavorably upon the operation and reputation of the franchise business or system; (e) The franchisee fails, for a period of 10 days after notification of noncompliance, to comply with any federal, state or local law or regulation applicable to the operation of the franchise; (f) The franchisee, after curing any failure in accordance with Section 20020 engages in the same noncompliance whether or not such noncompliance is corrected after notice; (g) The franchisee repeatedly fails to comply with one or more requirements of the franchise, whether or not corrected after notice; (h) The franchised business or business premises of the franchise are seized, taken over or foreclosed by a government official in the exercise of his duties, or seized, taken over, or foreclosed by a creditor, lienholder or lessor, provided that a final judgment against the franchisee remains unsatisfied for 30 days (unless a supersedeas or other appeal bond has been filed); or a levy of execution has been made upon the license granted by the franchise agreement or upon any property used in the franchised business, and it is not discharged within five days of such levy; (i) The franchisee is convicted of a felony or any other criminal misconduct which is relevant to the operation of the franchise; (j) The franchisee fails to pay any franchise fees or other amounts due to the franchisor or its affiliate within five days after receiving written notice that such fees are overdue; or (k) The franchisor makes a reasonable determination that continued operation of the franchise by the franchisee will result in an imminent danger to public health or safety.
California, Sec. 20025 addresses grounds for non-renewal. Specifically, the CFRA states that no franchisor may fail to renew a franchise unless such franchisor provides the franchisee at least 180 days prior written notice of its intention not to renew; and (a) During the 180 days prior to expiration of the franchise the franchisor permits the franchisee to sell his business to a purchaser meeting the franchisor's then current requirements for granting new franchises, or if the franchisor is not granting a significant number of new franchises, the then current requirements for granting renewal franchises; or (b)(1) The refusal to renew is not for the purpose of converting the franchisee's business premises to operation by employees or agents of the franchisor for such franchisor's own account, provided, that nothing in this paragraph shall prohibit a franchisor from exercising a right of first refusal to purchase the franchisee's business; and (2) Upon expiration of the franchise, the franchisor agrees not to seek to enforce any covenant of the non-renewed franchisee not to compete with the franchisor or franchisees of the franchisor; or (c) Termination would be permitted pursuant to Section 20020 or 20021; or (d) The franchisee and the franchisor agree not to renew the franchise; or (e) The franchisor withdraws from distributing its products or services through franchises in the geographic market served by the franchisee, provided that: (1) Upon expiration of the franchise, the franchisor agrees not to seek to enforce any covenant of the non-renewed franchisee not to compete with the franchisor or franchisees of the franchisor; and (2) The failure to renew is not for the purpose of converting the business conducted by the franchisee pursuant to the franchise agreement to operation by employees or agents of the franchisor for such franchisor's own account; and (3) Where the franchisor determines to sell, transfer, or assign its interest in a marketing premises occupied by a franchisee whose franchise agreement is not renewed pursuant to this paragraph: (A) The franchisor, during the 180-day period after giving notice offers such franchisee a right of first refusal of at least 30 days' duration of a bona fide offer, made by another to purchase such franchisor's interest in such premises; or (B) In the case of the sale, transfer, or assignment to another person of the franchisor's interest in one or more other controlled marketing premises, such other person in good faith offers the franchisee a franchise on substantially the same terms and conditions currently being offered by such other person to other franchisees; or (f) The franchisor and the franchisee fail to agree to changes or additions to the terms and conditions of the franchise agreement, if such changes or additions would result in renewal of the franchise agreement on substantially the same terms and conditions on which the franchisor is then customarily granting renewal franchises, or if the franchisor is not then granting a significant number of renewal franchises, the terms and conditions on which the franchisor is then customarily granting original franchises.
The franchisor may give the franchisee written notice of a date which is at least 30 days from the date of such notice, on or before which a proposed written agreement of the terms and conditions of the renewal franchise shall be accepted in writing by the franchisee. Such notice, when given not less than 180 days before the end of the franchise term, may state that in the event of failure of such acceptance by the franchisee, the notice shall be deemed a notice of intention not to renew at the end of the franchise term.
Sec. 20030 of the CFRA regards notices of Termination or Non-renewal. Under this provision, all notices of termination or nonrenewal required by this chapter: (a) Shall be in writing; (b) Shall be posted by registered, certified or other receipted mail, delivered by telegram or personally delivered to the franchisee; and (c) Shall contain a statement of intent to terminate or not renew the franchise: (1) Together with the reasons therefor, and (2) The effective date of such termination or nonrenewal or expiration.
Sec. 20035 of the CFRA regulates the statutory Requirement of Offer to Repurchase Inventory. Under this provision, in the event a franchisor terminates or fails to renew a franchise other than in accordance with the provisions of this chapter, the franchisor shall offer to repurchase from the franchisee the franchisee's resalable current inventory meeting the franchisor's present standards that is required by the franchise agreement or commercial practice and held for use or sale in the franchised business at the lower of the fair wholesale market value or the price paid by the franchisee. Further, under the CFRA, the franchisor shall not be liable for offering to purchase personalized items which have no value to the franchisor in the business which it franchises.
In California, the following Dealer/Franchise Termination, Fraud and Non-Renewal Laws, and Franchise Industry-Specific Laws, are identified as follows:
California State Disclosure/Registration Laws
Franchise Investment Law
California Corporations Code, Title 4, Division 5, Parts 1 through 6, Sections 31000 through 31516
California State Relationship/Termination Laws
Franchise Relations Act
California Corporations Code, Division 8, Chap. 5.5, Sec. 20000 through 20043
California State Business Opportunity Laws
Contracts for Seller Assisted Marketing Plans Law
California Civil Code, Division 3, Part 4, Sections 1812.200 through 1812.221
California Alcoholic Beverage Franchise Wholesaler Laws
California beer law
Cal. Bus. And Prof. Code, Division 9, Chap. 12
California Equipment Franchise/Dealer Laws
California equipment Franchise/Dealer law
Cal. Bus. And Prof. Code, Division 8, Chap. 28
California Gasoline Franchise/Dealer Laws
California gasoline Franchise/Dealer law
Cal. Bus. And Prof. Code, Division 8, Chapters 7.5, 7.8, 7.9, and 8
California Marine Franchise/Dealer Laws
No California Law Applicable to this Category
California Motor Vehicle Franchise/Dealer Laws
Cal. Bus. And Prof. Code, Division 8, Chap. 1;, Cal. Vehicle Code, Division 5, Chap. 4;, Cal. Vehicle Code, Division 2, Chap. 6
California Motorcycle Franchise/Dealer Laws
No California Law Applicable to this Category
California Recreational and Powersports Vehicle Franchise/Dealer Laws
No California Law Applicable to this Category
California General Uniform Retail Food Facilities Law
Cal. Health and Safety Code, Division 104, Part 7, Chap. 4, Article 8 §114094
California mobile homes law
Cal. Health and Safety Code, Division 13, Part 2, Chap. 7, Article 3, §18062.5 to §18062.8
7-Eleven, Inc. v. DhaliwalEyeglasses, United States District Court, E.D. California.November 21, 2012 (“To show that Dhaliwal is infringing 7–Eleven's registered trademarks in violation of the Lanham Act, 7–Eleven must show that Dhaliwal's use of its protected marks is both unauthorized and likely to cause confusion. See Applied Info. Sciences Corp. v. eBay, Inc., 511 F.3d 966, 969–71 (9th Cir.2007); Wetzel's Pretzels, LLC v. Johnson, 797 F.Supp.2d 1020, 1025 (C.D.Cal.2011).
A franchisee's use of the franchisor's marks is unauthorized if the franchisor properly terminated the franchise agreement. McDonald's Corp., 147 F.3d at 1308; Wetzel's Pretzels, 797 F.Supp.2d at 1025. California Business and Professions Code Section 20020 provides that a franchisor may terminate a franchise agreement for good cause, which includes “the failure of the franchisee to comply with any lawful requirement of the franchise agreement after being given notice thereof and a reasonable opportunity, which in no event need be more than 30 days, to cure the failure.” Based on the court's determination that 7–Eleven is likely to succeed on its claim that Dhaliwal breached the Rocklin Franchise Agreement, along with 7–Eleven's repeated notices and opportunities for Dhaliwal to cure the breach, 7–Eleven properly terminated the Rocklin Franchise Agreement.”)
United States District Court, E.D. California, January 24, 2011 (“Section 16.2.3 of the agreements provided that Century 21 could terminate the agreement for good cause, which included curable and non-curable defaults. Section 16.2.4, governing termination for curable defaults, provided that Century 21 could terminate the agreement with 30 days notice of the “proposed termination and the opportunity to cure the breach during the entire notice period, or such longer or shorter notice as is required or permitted by the law of the state where the Office is located,” if the curable breach was the failure to pay financial obligations. The CFRA, which the agreements incorporated by reference, prohibits a franchisor from terminating a franchise agreement absent good cause.
Good cause includes failure to comply with the franchise agreement “after being given notice thereof and a reasonable opportunity, which in no event need be more than 30 days, to cure the failure.” Id. Immediate notice of termination without opportunity to cure is permitted when the “franchisee fails to pay any franchise fees or other amounts due to the franchisor or its affiliate within five days after receiving written notice that such fees are overdue.” Id. § 20021(j). Here, it appears from the evidence that Century 21 properly terminated the franchise agreements under the terms of the franchise agreements and the CFRA. Century 21 notified All Professional of its intent to terminate the franchise agreements and the opportunity to cure in April 5, 2010, letters, following prior informal notices of failure to pay amounts due that All Professional had ignored. Having not received payment of even the undisputed fees, Century 21 terminated the Sacramento office agreements effective July 9, 2010. It was unequivocally clear from the testimony of the Wrights that the only reason they did not pay the franchise fees owed by them to Century 21 was that they did not have the money. It was not because All Professional did not know the amount to pay; nor was it because Century 21 had defaulted on its obligations. Considering the economy at that time, particularly in the business of home sales, the court can sympathize with the Wrights' predicament, but it was simply no excuse for their failure to pay the fees lawfully owed to Century 21 under the agreements. The testimony was that over the period of the franchise relationship, All Professional paid over $2 million in fees to Century 21. Considering that All Professional paid approximately eight percent of its income in fees, this means that All Professional made approximately $20 million in income over that period. The Wrights knew how important it was to be a Century 21 franchisee. Each one testified to how crucial it was to be a Century 21 dealer. Just to use the trademarks was of immeasurable value to them, but that was only part of the benefit. Century 21 also granted them access to Century 21's server, e-mail, databases, and the Preferred Client Club. All Professional chose not to prioritize the amount it owed to Century 21 to maintain that privilege. When the Wrights elected to pay their other debts ahead of the relatively small percentage of their income it would have taken to maintain their Century 21 franchise, they made the decision that got them into this situation.”)
Mahroom v. Best Western Intern., Inc., United States District Court, N.D. California, San Jose Division, July 22, 2009 (“b. BWI's Violation of the CFRA -- Pursuant to the statute, “no franchisor may terminate a franchise prior to the expiration of its term, except for good cause. Good cause shall include, but not be limited to, the failure of the franchisee to comply with any lawful requirement of the franchise agreement after being given notice thereof and a reasonable opportunity, which in no event need be more than 30 days, to cure the failure.” Cal. Bus. & Prof.Code § 20020. BWI complied with this provision of the CFRA, as it had good cause to terminate the Mahrooms under the Membership Agreement, and notice of the deficiencies in the Mahrooms' performance was provided in August 2006, approximately ten weeks prior to the termination hearing. At least some deficiencies still existed at the time of the hearing, in particular the outdated guest rooms. *7 BWI informed the Mahrooms of the termination decision by letter on November 8, 2006. Pursuant to the CFRA, a termination notice: (a) Shall be in writing; (b) Shall be posted by registered, certified or other receipted mail, delivered by telegram or personally delivered to the franchisee; and (c) Shall contain a statement of intent to terminate or not renew the franchise: (1) Together with the reasons therefor, and The effective date of such termination or nonrenewal or expiration. Cal. Bus. & Prof Code § 20030. The termination letter appears to have been sent by express mail, and it stated that the termination was “effective immediately.” Pl.Ex. 70. With respect to the reasons for termination, the letter merely recited that “[a]fter full and complete consideration of the information provided, it was the decision [of the board] to cancel all aspects of the property's membership effective immediately. Pl.Ex. 70 at 1. This letter did not state with adequate specificity the reasons for the termination. At trial, BWI's witness admitted that the termination notice was a “form letter.” Tr. Trans. 833. Accordingly, the notice of termination did not meet the requirements of § 20030. “In the event a franchisor terminates or fails to renew a franchise other than in accordance with the provisions of this chapter, the franchisor shall offer to repurchase from the franchisee the franchisee's resalable current inventory meeting the franchisor's present standards that is required by the franchise agreement or commercial practice and held for use or sale in the franchised business at the lower of the fair wholesale market value or the price paid by the franchisee.” Cal. Bus. & Prof.Code § 20035. Interpreting California law, the Ninth Circuit has held that the repurchase remedy is the sole civil remedy available to an aggrieved franchisee under the CFRA. See Boat & Motor Mart v. Sea Ray Boats, Inc., 825 F.2d 1285, 1291 (9th Cir.1987). The CFRA itself does not provide for an award of damages. See id. (“The legislature has known how to give damage actions to injured franchisees. In the California Franchise Relations Act it has not accorded such protection.”).
Mahroom v. Best Western Intern., Inc., United States District Court, N.D. California, San Jose Division, July 22, 2009 (“A franchisee still may recover damages through other claims for relief. See Cal. Bus. & Prof.Code § 20037 (“nothing in this article shall abrogate the right of a franchisee to sue under any other law.”); JRS Prods., Inc. v. Matsushita Elec. Corp. of Am., 115 Cal.App.4th 168, 174, 8 Cal.Rptr.3d 840 (2004) (“[§ 20037] provides that a franchisee may seek any common law or statutory remedy for wrongful termination of the franchise, including a breach of contract action.”). However, as discussed above, the Mahrooms are not entitled to any remedy with respect to their breach of contract claim for reasons entirely separate from BWI's failure to comply with the procedural requirements of the CFRA. Accordingly, while BWI's termination notice did not comply with the CFRA, the Mahrooms are not entitled to any damages or injunctive relief as a result of that violation.”)
JRS Products, Inc. v. Matsushita Elec. Corp. of America, Court of Appeal, Third District, California, January 26, 2004, 115 Cal.App.4th 1688 (“The Act prohibits a franchisor from terminating a franchise without good cause and requires the franchisor to give a franchisee notice to cure any transgressions. (§ 20020.) On appeal, Panasonic does not assert that it had good cause or that it gave JRS adequate notice; in fact, it concedes the termination was wrongful under the Act and under the unfair competition law. Rather, it contends that the repurchase of inventory is the exclusive remedy **845 for wrongful termination of a franchise pursuant to section 20035. We disagree. Panasonic's argument disregards both the letter and the spirit of the law. Section 20035 does, as Panasonic suggests, compel a franchisor to repurchase the franchisee's inventory if it terminates the franchise or fails to renew the franchise agreement. Section 20035 provides: “In the event a franchisor terminates or fails to renew a franchise other than in accordance with the provisions of this chapter, the franchisor shall offer to repurchase from the franchisee the franchisee's resalable current inventory meeting the franchisor's present standards that is required by the franchise agreement....” There is nothing in this provision, however, or in any other part of the Act to indicate that this remedy is exclusive. It is not. Section 20037 plainly states: “Except as expressly provided herein, nothing in this article shall abrogate the right of a franchisee to sue under any other law.” This statute provides that a franchisee may seek any common law or statutory remedy for wrongful termination of the franchise, including a breach of contract action. By expressly affording franchisees the right to pursue their remedies under any other law, the Legislature did not restrict a franchisee's remedy to reimbursement for inventory, as Panasonic insists. Section 20037 expressly qualifies the applicability of section 20035. If the Legislature had intended for section 20035 to provide the exclusive measure of damages, it certainly would not have qualified the section with the wholesale availability of remedies accorded by section 20037. Interpreting section 20035 to provide the sole remedy for a wrongful termination, as Panasonic insists we must do, would render section 20037 a nullity. Because the language of section 20037 is plain, we need not consider the legislative history of the Act.4 (Kavanaugh v. West Sonoma County Union High School Dist. (2003) 29 Cal.4th 911, 919, 129 Cal.Rptr.2d 811, 62 P.3d 54.) Moreover, our interpretation is consistent with the purpose of the Act to protect franchisees. The Legislature could not possibly have intended to allow franchisors to wrongfully terminate franchises simply if the franchisors are willing to repurchase inventory and at the same time divest franchisees of their common law remedies. If repurchase of inventory is construed as an exclusive remedy, franchisors would have no incentive to refrain from wrongfully terminating franchises and taking over the businesses with the very inventory they need to continue the franchisee's business. We cannot accept such an absurd result in the face of legislation designed to expand, not retract, a franchisee's remedies.”)
Dale Carnegie & Associates, Inc. v. King, United States District Court, S.D. New York, December 30, 199831 F.Supp.2d 359 (“Section 20030 states that: “All notices of termination or non-renewal required by this chapter: “(a) Shall be in writing; * * * * * * “(c) Shall contain a statement of intent to terminate or not renew the franchise: “(1) Together with a statement of reasons therefor ...” Defendants contend that DCA's notice of non-renewal did not contain a statement of reasons and that the notice therefore violated CFRA and was ineffective. Accordingly, in their view, the franchise has renewed for another year because a new notice declining to renew could not become effective under the terms of the Sponsor's Agreement until December 31, 1999. Plaintiffs, for their part, argue that DCA's notice was effective, even assuming arguendo that CFRA applies here,24 because (a) its requirement of a statement of reasons is inapplicable to this notice of non-renewal, (b) the statute in any case was satisfied by DCA's notice, and (c) the non-renewal was effective even if the notice failed to comply with Section 20030 of CFRA. Defendants' contention that DCA's notice of non-renewal failed to comply with Section 20030 depends in the first instance on the proposition that Section 20030 required a statement of reasons in this notice. While Section 20030, if read in isolation, seems to do so, that is an overly simplistic view of the statute because Section 20030 cannot be read apart from the rest of CFRA. Article 3 of CFRA sets forth permissible grounds for termination of a franchisee prior to expiration of the franchise term as well as the circumstances in which the franchisor may terminate without affording the franchisee an opportunity to cure any breach.25 Broadly speaking, it forbids termination prior to the expiration of the franchise term absent good cause, bankruptcy, abandonment or fraud.26 Article 4 governs non-renewal, which does not necessarily require cause. And Article 5, which consists of Section 20030, prescribes the contents of notices required under CFRA. The critical provision for purposes of this case is Section 20025, which relates to non-renewal. It provides in part that: “No franchisor may fail to renew a franchise unless such franchisor provides the franchisee at least 180 days prior written notice of its intention not to renew; and “(a) During the 180 days prior to expiration of the franchise the franchisor permits the franchisee to sell his business to a purchaser meeting the franchisor's then current requirements for granting new franchises, or if the franchisor is not granting a significant number of new franchises, the then current requirements for granting renewal franchises; or (b)(1) The refusal to renew is not for the purpose of converting the franchisee's business premises to operation by employees or agents of the franchisor for such franchisor's own account ...; and (2) Upon expiration of the franchise, the franchisor agrees not to seek to enforce any covenant of the non-renewed franchisee not to compete with the franchisor or franchisee's of the franchisor; or (c) Termination would be permitted pursuant to Section 20020 or 20021 ...” Thus, non-renewal pursuant to Sections 20025(a) and (b) is permissible without cause. The only constraint under (a) is that the franchisor afford the franchise an appropriate opportunity to sell its business. The only constraints under (b) are that the non-renewal not be for the forbidden purpose of conversion of the franchisee's business premises and that the franchisor agree not to enforce any restrictive covenant. Non-renewal pursuant to Section 20025(c), on the other hand, is quite a different matter. It is permissible only in circumstances in which termination prior to the end of the franchise term would be permitted by Sections 20020 and 20021, which typically require good cause and that the franchisee be given the opportunity to cure.
This is quite significant for the construction of Section 20030, the notice requirement upon which defendants rely. Section 20030 applies generally to notices of termination and non-renewal. The requirement of a statement of reasons is entirely understandable as applied to notices of termination, as the franchisor ordinarily must have good cause and the franchisee often must be given an opportunity to cure, which of course requires that it know what to cure. It makes perfect sense as applied to notices of non-renewal pursuant to Section 20025(c) because that section applies exactly the same criteria for such non-renewals as govern terminations prior to expiration of term. But a statement of reasons would serve no purpose at all as applied to non-renewal pursuant, for example, to Section 20025(a) and (b), as neither of those provisions requires that the franchisor have cause for the non-renewal and there is no deficiency curable by the franchisee that would forestall non-renewal.”)
Dale Carnegie & Associates, Inc. v. King, United States District Court, S.D. New York, December 30, 199831 F.Supp.2d 359 (“In construing California legislation, generally, courts are obliged to view statutes as a whole and to harmonize their provisions.28 They must assume that the legislature intended to reach reasonable results consistent with its manifest purpose, and they must interpret statutes to avoid idle acts.29 A construction of Section 20030 that would require a franchisor to give a statement of reasons for non-renewal in circumstances in which the California legislature has determined that it may decline to renew without having good or legal cause would be to ascribe to the legislature an intention to prescribe the doing of a useless act—the performance of a ritual serving no purpose. The Court declines so to construe it. It holds that Section 20030 requires that a notice of non-renewal contain a statement of reasons only where the non-renewal is permissible if and only if (a) there is good cause or (b) some other condition curable by the franchisee allegedly exists and its cure would remove the basis for non-renewal. As it is undisputed that the non-renewal of the Sponsor's *365 Agreement was permissible under both Section 20025(a) and 20025(b),30 assuming that CFRA applies at all, no statement of reasons was required in the notice of non-renewal. Even if the Court were to exalt form over substance by construing Section 20030 as requiring a statement of reasons in this case, plaintiffs nevertheless would be entitled to judgment because the notice of non-renewal satisfied Section 20030. The notice, addressed to King, stated that “[t]his is to notify you and [Associates] that pursuant to paragraph 61 of the [Sponsor's] Agreement, the Licensor–Sponsor relation between [DCA], on the one hand, and you and [Associates], on the other hand, is to cease at the close of business on December 31, 1998.”31 Where, as here, there is no statutory or contractual requirement of good or legal cause for non-renewal, this statement that the non-renewal was pursuant to a stated clause of the parties' contract was a sufficient statement of reason for the DCA's action. Finally, even if it be assumed that CFRA applies and that the notice was insufficient under its terms, it does not necessarily follow that the notice of termination was ineffective. Quite the contrary. Section 20035 of CFRA provides that a franchisee's remedy in the event of a non-renewal that does not conform to the statute is quite limited: the franchisor must offer to repurchase from the franchisee its resalable current inventory at the lower of the fair wholesale market value or the price paid by the franchisee.32 As the Ninth Circuit has held, this is a franchisee's exclusive remedy under the statute where the franchise is not renewed other than in accordance with CFRA. Nor are defendants aided by Section 20037 of the statute, which provides that “[e]xcept as expressly provided herein, nothing in this article [Article 6. Offers to Repurchase Inventory] shall abrogate the right of a franchisee to sue under any other law.”34 “Any other law” refers to something other than CFRA.35 Hence, CFRA itself provides defendants with no remedy except repurchase.36 Certainly there is nothing in the statute that renders the non-renewal ineffective. Accordingly, assuming arguendo that the relationship between DCA and defendants was a “franchise” and that CFRA otherwise applies, the Court nevertheless holds that the notice of non-renewal was not required to contain a statement of reasons, that it nevertheless contained a statement of reasons sufficient in the circumstances, and in any event that the notice of non-renewal was effective in accordance with its terms.”)
Carlock v. Pillsbury Co., United States District Court, D. Minnesota, Fourth Division, October 13, 1988 (“IX. California Franchise Law -- In Count IX of the Carlock complaint, plaintiffs state a claim for wrongful termination and/or nonrenewal of their franchises pursuant to Cal.Bus. and Prof.Code §§ 20020 and 20025. Defendants argue that no valid cause of action has been pleaded since no actual termination or nonrenewal has taken place. The Court agrees with defendants' argument and will dismiss plaintiffs' claim under the California Franchise Law. Although the California courts provide little guidance on this topic, it is apparent from a reading of the applicable statutory provisions that actual termination or nonrenewal is meant to be redressed. Sections 20020 and 20025 contemplate an actual stripping of franchise rights from affected franchisees and do not discuss detrimental activities short of complete franchise destruction. Unlike the Minnesota Franchise Law, the California law cited by plaintiffs does not generally proscribe unfair practices against franchisees. Sections 20020 and 20025 deal only with termination and nonrenewal. Accordingly, because plaintiffs do not allege actual termination or nonrenewal, the Court will dismiss Count IX of the Carlock complaint.”)
Shieh v. Kumon North America, Inc., United States District Court, N.D. California, San Jose Division, January 6, 2006 (“Shieh asserts a single claim for declaratory relief, requesting an adjudication that Kumon is obligated to allow Shieh to transfer his franchises to his wife or, alternatively, to give Shieh a reasonable time to find a third party buyer. While the franchise agreements do provide that a franchisee may transfer a franchise if the transferee meets specified requirements and Kumon consents to the transfer, the franchise agreements do not provide an absolute right to transfer the franchises as argued by Shieh. See Franchise Agmts ¶ 18. Moreover, the franchise agreements expressly provide for automatic termination of the franchises without notice or right to cure in the event that Shieh pleads no contest to a crime against a child under the age of eighteen. Franchise Agmts ¶ 15.3(c). It is undisputed that Shieh in fact pled no contest to battery of a child under the age of eighteen. Based upon this record, the Court concludes that Shieh has not demonstrated a likelihood of success on his declaratory relief claim or serious questions going to the merits of that claim. During oral argument, Shieh's counsel argued that Kumon waived its contractual right to terminate Shieh's franchises by delaying for several months after receiving Shieh's September 2 email.3 When the Court clarified that Shieh's email indicated that the criminal charges had been resolved in his favor, and that Kumon had no actual knowledge of the conviction until December 2005, Shieh's counsel argued that Kumon was on inquiry notice as of receipt of Shieh's email and thus should have discovered the conviction at that time. This argument is not persuasive, nor is it supported by any legal authorities cited in Shieh's brief. Shieh's counsel also argued that under California Business & Professions Code § 20021(i), Kumon was required to give notice of the termination notwithstanding the contractual provision for automatic termination without notice. It is unclear whether California law applies, because the franchise agreements specify application of New Jersey law, although the agreements also permit application of the law of the state in which the franchise is located under certain circumstances. Franchise Agmts ¶ 21.1.4 Even assuming that California law applies, § 20021 provides for “immediate notice of termination without an opportunity to cure” in the event that the franchisee “is convicted of a felony or any other criminal misconduct which is relevant to the operation of the franchise.” Cal. Bus. & Prof.Code § 20021(i). Kumon in fact did give notice of the termination to Shieh almost immediately upon discovering that he had been convicted of battery upon a child.”)