In Hawaii, the following Dealer/Franchise Termination and Non-Renewal Laws, Fraud, and Franchise Industry-Specific Laws exist:
- Hawaii Has a Disclosure/Registration Franchise Law
- Hawaii Has a Relationship/Termination Franchise Law
- Hawaii Does Not Have a General Business Opportunity Franchise Law
- Hawaii Does Not Have an Alcoholic Beverage Wholesaler/Franchise Law
- Hawaii Does Not Have an Equipment Dealer/Franchise Law
- Hawaii Has a Gasoline Dealer/Franchise Law
- Hawaii Does Not Have a Marine Dealer/Franchise Law
- Hawaii Has a Motor Vehicle Dealer/Franchise Law
- Hawaii Does Not Have a Motorcycle Dealer/Franchise Law
- Hawaii Does Not Have a Recreational and Power Sports Vehicle Dealer/Franchise Law
- Hawaii Does Not Have a Restaurant Liability Law
- Hawaii Does Have an Office Machines Franchise Law
Hawaii regulates the relationship between franchisors and franchisees in Section 482E-6 of the Hawaii Franchise Investment Law (“HFIL”), which sets out explicitly certain rights and prohibitions regarding terminations and non-renewals. Specifically, the HFA directs how franchisees and franchisors must act with each other on certain defined issues. First, the parties must deal with each other in “good faith.” Second, it shall be an unfair or deceptive act or practice or an unfair method of competition for a franchisor to:
(A) Restrict the right of the franchisees to join an association of franchisees;
(B) Require a franchisee to purchase or lease goods or services of the franchisor or from designated sources of supply unless such restrictive purchasing agreements are reasonably necessary for a lawful purpose justified on business grounds. This section exempts suppliers suggested or approved by a franchisor as meeting its standards and requirements from the status of “designated sources of supply”; (C) Discriminate between franchisees in the charges offered or made for royalties, goods, services, equipment, rentals, advertising services, or in any other business dealing. Nevertheless, the Act allows such discrimination to the extent that any classification of or discrimination between franchisees is: (i) Based on franchises granted at materially different times, and such discrimination is reasonably related to such differences in time; (ii) Is related to one or more programs for making franchises available to persons with insufficient capital, training, business experience, education or lacking other qualifications; (iii) Is related to local or regional experimentation with or variations in product or service lines or business formats or designs; (iv) Is related to efforts by one or more franchisees to cure deficiencies in the operation of franchise businesses or defaults in franchise agreements; or (v) Is based on other reasonable distinctions considering the purposes of this chapter and is not arbitrary.
(D) Obtain money, goods, services, anything of value, or any other benefit from any other person with whom the franchisee does business on account of such business unless the franchisor advises the franchisee in advance of the franchisor's intention to receive such benefit.
(E) Establish a similar business or to grant a franchise for the establishment of a similar business at a location within a geographical area specifically designated as the exclusive territory in a franchise previously granted to another franchisee in a currently effective agreement, except under the circumstances or conditions prescribed in such agreement. Interestingly, the HFIL permits other franchisees or the franchisor to solicit business or sell goods or services to people residing in such a specifically-designated geographical territory in that the Act states that such solicitation does not constitute the establishment of a similar business within the exclusive territory.
(F) Require a franchisee at the time of entering into a franchise to assent to a release, assignment, novation, or waiver which would relieve any person from liability imposed by this chapter. Any condition, stipulation or provision binding any person acquiring any franchise to waive compliance with any provision of this chapter or a rule promulgated hereunder shall be void.
(G) Impose on a franchisee by contract, rule, or regulation, whether written or oral, any unreasonable and arbitrary standard of conduct.
(H) Terminate or refuse to renew a franchise except for good cause, or in accordance with the current terms and standards established by the franchisor then equally applicable to all franchisees, unless and to the extent that the franchisor satisfies the burden of proving that any classification of or discrimination between franchisees is reasonable, is based on proper and justifiable distinctions considering the purposes of this chapter, and is not arbitrary. The HFIL then goes on to define “good cause” in a termination case including, but not limited to, the failure of the franchisee to comply with any lawful, material provision of the franchise agreement after having been given written notice thereof and an opportunity to cure the failure within a reasonable period of time.
(I) Refuse to permit a transfer of ownership of a franchise, or of a proprietorship, partnership, corporation or other business entity that is a franchisee except for “good cause.” In turn, the HFIL defines “good cause” as including, but not limited to: (i) The failure of a proposed transferee to meet any of the franchisor's reasonable qualifications or standards then in effect for a franchisee; (ii) The fact that the proposed transferee or any affiliated person of the proposed transferee is a competitor of the franchisor; (iii) The inability or unwillingness of the proposed transferee to agree in writing to comply with and be bound by all lawful obligations imposed by the franchise, including without limitation all instruction and training obligations, and to sign the current form of franchise agreement used by the franchisor; and (iv) The failure of the franchisee or proposed transferee to pay any sums owing to the franchisor and to cure any default in the franchise agreement or other agreements with the franchisor existing at the time of the proposed transfer. Further, a franchisor has thirty days after being notified in writing of a proposed transfer to approve or disapprove in writing a proposed transfer of ownership or control of a franchise, stating its reason for disapproval. If a franchisor fails to approve or disapprove a proposed transfer in writing within such period, the franchisor, under the HFIL is deemed to have approved such transfer.
Third, upon termination or refusal to renew the franchise the franchisee must under the HFIL be compensated for the fair market value, at the time of the termination or expiration of the franchise, of the franchisee's inventory, supplies, equipment and furnishings purchased from the franchisor or a supplier designated by the franchisor. The HFIL notes an exception to the repurchase requirement regarding personalized materials which have no value to the franchisor. If the franchisor refuses to renew a franchise for the purpose of converting the franchisee's business to one owned and operated by the franchisor, the franchisor, in addition to the remedies provided in this paragraph, shall compensate the franchisee for the loss of goodwill. The franchisor may deduct from such compensation reasonable costs incurred in removing, transporting and disposing of the franchisee's inventory, supplies, equipment, and furnishings pursuant to this requirement, and may offset from such compensation any moneys due the franchisor.
Fourth, the HFIL makes application of the franchise relations provisions mandatory to all written or oral arrangements with the franchisee including but not limited to the franchise offering, the franchise agreement, sales of goods or services, leases and mortgages of real or personal property, promises to pay, security interest, pledges, insurance contracts, advertising contracts, construction or installation contracts, servicing contracts, and all other such arrangements in which the franchisor has any direct or indirect interest.
Last, interestingly, the HFIL states that in any case for violation of the relations provisions damages may be based on reasonable approximations but not on speculation.
In Hawaii, the following Dealer/Franchise Termination, Fraud and Non-Renewal Laws, and Franchise Industry-Specific Laws, are identified as follows:
Hawaii State Disclosure/Registration Laws
Franchise Investment Law
Hawaii Revised Statutes, Title 26, Chap. 482E, Sec. 482E-1 through 482E-5, 482E-8, 482E-9, 482E-11, and 482E12
Hawaii State Relationship/Termination Laws
Franchise Rights and Prohibitions Law
Hawaii Revised Statutes, Title 26, Chap. 482E, Sec. 482E-6
Hawaii State Business Opportunity Laws
No statute of general applicability
Seller of Business Opportunities must comply with the FTC business opportunity rule
Hawaii Alcoholic Beverage Franchise/Wholesaler Laws
No Hawaii Franchise Law in this Market Niche
Hawaii Equipment Franchise/Dealer Laws
No Hawaii Franchise Law in this Market Niche
Hawaii Gasoline Franchise/Dealer Laws
Hawaii gasoline Franchise/Dealer law
Haw. Rev. Stat. Ann. Tit. 26, Chap. 486H
Hawaii Marine Franchise/Dealer Laws
No Hawaii Franchise Law in this Market Niche
Hawaii Motor Vehicle Franchise/Dealer Laws
Hawaii motor vehicle Franchise/Dealer law
Haw. Rev. Stat. Ann. Tit. 25, Chap. 437
Hawaii Motorcycle Franchise/Dealer Laws
No Hawaii Franchise Law in this Market Niche
Hawaii Recreational and Powersports Vehicle Franchise/Dealer Laws
No Hawaii Franchise Law in this Market Niche
No Hawaii Franchise Law in this Market Niche
Hawaii office machines Franchise/Dealer law
Haw. Rev. Stat. Ann. Div. 2, Tit. 26, Chap. 481G
West v. International House of Pancakes, LLC, United States District Court, D. Hawaii, June 30, 2011, 2011 WL 2607173 (“Plaintiffs argue that such discovery is relevant to their franchise law and unfair competition claims. Appeal at 14. In particular, they contend that the discovery could: (1) “show evidence of [IHOP's] motives and plan to terminate Plaintiffs' franchise even before the deadline for opening the store arose”; (2) “show discriminatory conduct by [IHOP]” in favor of the Espinos; (3) “prove that IHOP imposed an unreasonable and arbitrary standard of conduct upon Plaintiffs ... by requiring Plaintiffs to do the legally impossible, to wit, build a restaurant without a permit”; and (4) “show that Plaintiffs' [franchise agreement] was terminated without good cause and prior notice.” Id. at 15–17. Plaintiffs further argue that the information sought “has a tendency to show whether [IHOP] acted in good faith towards Plaintiffs” and “has a tendency to prove” Plaintiffs' unfair competition claims. Id. at 17. *8 Hawaii's Franchise Investment Law requires franchisors and its franchisees to “deal with each other in good faith.” H.R.S. § 482E–6(1). Further, § 482E–6 makes it unlawful for a franchisor: to “[d]iscriminate between franchisees ... in any ... business dealing,” unless certain exceptions apply;7 to “[i]mpose on a franchisee by contract, rule, or regulation, whether written or oral, any unreasonable and arbitrary standard of conduct”; or to terminate a franchise without good cause and without providing a franchisee written notice of a breach and an opportunity to cure the breach.8 Id. § 482E–6(2)(C), (G), (H); see also Lui Ciro, Inc. v. Ciro, Inc., 895 F.Supp. 1365, 1388–89 (D.Haw.1995) (holding that an allegation that a defendant violated § 482E–6(2)(C) “stated a claim for liability under H.R.S. § 482E–9”). A violation of § 482E–6 also supports an unfair competition claim under H.R.S. §§ 480–2 and 480–13. See Lui Ciro, 895 F.Supp. at 1388. A. Paragraphs 4(d), 10, 11, and 14 of Exhibit A to Plaintiffs' Deposition Notice The Court finds that the magistrate judge did not clearly err in finding overbroad the requests in paragraphs 4(d), 10, 11, and 14 of Exhibit A to Plaintiffs' Deposition Notice. First, paragraph 4(d) of Exhibit A is plainly overbroad and unduly burdensome because it relates to IHOP's policies, practices, customs and/or procedures in determining whether to grant extensions for the opening of IHOP franchises anywhere. Although the legislative history of Hawaii's Franchise Investment Law sheds little light on the issue, and there are few cases even considering this statute, there is a strong argument that discrimination claims under H.R.S. § 482E–6 need to be based on discrimination between franchises within Hawai‘i. See Robert W. Emerson, Franchise Selection and Retention: Discrimination Claims and Affirmative Action Programs, 40 Ariz. L.Rev. 511, 524 & n. 52 (1998) (“[S]tate [franchise] statutes are probably limited to prohibiting discrimination only between franchises within the same state.”). And even assuming § 482E–6 discrimination claims may be based on the allegedly preferential treatment of franchises outside of Hawai‘i, paragraph 4(d) is plainly overbroad and unduly burdensome. It would likely require IHOP to testify about—and, pursuant to paragraph 4 of Exhibit B, produce documents referring or relating to—the practices and customs regarding opening extensions for hundreds of IHOP franchises in locations with business climates (and other relevant bases of comparison) nothing like Hawaii's. See H.R.S. § 482E–6 (C)(i)-(v); supra note 6.9 Second, paragraphs 10 and 11 of Exhibit A to Plaintiffs' Deposition Notice are overbroad and unduly burdensome not only because they relate to any IHOP franchise, and not just the Windward Mall IHOP, but also because they are not adequately limited with regard to time and subject matter.10 Plaintiffs' request for testimony concerning “[a]ll dealings and agreements between IHOP and Union Mak Corporation and any of [its] employees, officers and/or agents” and between “IHOP and VSE Kaneohe, [LLC] and any of [its] employees, officers and/or agents” relating to the Windward Mall IHOP would require IHOP to testify about an enormous range of matters relating to this franchise, which has been in operation for more than four years. *9 Much of the information sought by paragraphs 10 and 11 would have no bearing on Plaintiffs' claims that IHOP improperly terminated Plaintiffs' franchise agreement, discriminated against Plaintiffs in favor of the Espinos and their corporate entities, imposed an unreasonable and arbitrary standard of conduct upon Plaintiffs, and/or failed to deal with Plaintiffs in good faith. These claims are based on IHOP's conduct in terminating Plaintiffs' franchise agreement and granting a franchise agreement to VSE Kaneohe for the Windward Mall IHOP, and also IHOP's treatment of the Espinos and their corporate entities—and to some extent, its treatment of Plaintiffs—through the Windward Mall IHOP's opening in April 2007. Third, paragraph 14 of Exhibit A to Plaintiffs' Deposition Notice is overbroad and unduly burdensome for the same reasons paragraphs 10 and 11 are overbroad. Plaintiffs' request that IHOP testify about communications between IHOP and Union Mak and/or VSE Kaneohe regarding West, James West (West's former husband, with whom West sought to open the Windward Mall IHOP), and/or JRW is not adequately limited with regard to subject matter. In short, regardless of whether some portions of the information sought by paragraphs 4(d), 10, 11, and 14 are relevant, the magistrate judge correctly found that these discovery requests are overbroad and unduly burdensome. B. Paragraphs 4(a), 4(b), 4(c), 4(e), 12, and 13 of Exhibit A and Paragraph 4 of Exhibit B to Plaintiffs' Deposition Notice On the other hand, the Court finds that the magistrate judge clearly erred in finding: (1) that paragraphs 4(a), 4(b), 4(c), 4(e), 12, and 13 of Exhibit A and paragraph 4 of Exhibit B to Plaintiffs' Deposition Notice are overbroad, and (2) that the information sought by these requests is irrelevant.11 Unlike the discovery requests discussed in the previous section, these other categories are specifically limited with regard to time and subject matter. They seek information regarding the opening of the Windward Mall IHOP, including extension decisions and permitting issues related thereto, and a narrow range of other documents concerning this franchise. In particular, these discovery requests seek to determine, among other things, whether evidence supports Plaintiffs' arguments that the Espinos were given more leeway than Plaintiffs in opening the Windward Mall IHOP (e.g., by being given more time to open the franchise and being allowed to begin construction without a permit). In turn, such evidence might Plaintiffs' claims that IHOP violated Ch. 482E–6 and § 480–13 by discriminating between Plaintiffs and the Espinos (and their corporate entities). Such evidence might support Plaintiffs' arguments that IHOP failed to deal with Plaintiffs in good faith and imposed an unreasonable and arbitrary standard of conduct on Plaintiffs. Accordingly, the information sought by these categories is relevant. Also, these categories are narrowly circumscribed, and neither overbroad nor unduly burdensome on IHOP. Moreover, with respect to paragraphs 4(a), 4(b), 4(c), 4(e), 12, and 13 of Exhibit A and paragraph 4 of Exhibit B to Plaintiffs' Deposition Notice, the Court agrees with Plaintiffs, at least with respect to some of their requests, that the magistrate judge's May 10, 2011, “denial of Defendant's Motion for a Protective Order regarding Plaintiffs' request for documents and testimony directly from the Espinos demonstrates that the Plaintiffs have met the standard of relevance under Fed.R.Civ.P. 26(b) for discovery and that the same is not overbroad.” Appeal at 15. If Plaintiffs may obtain the discovery requested by these categories from the Espinos, who are not a party to this lawsuit, it is unclear why the defendant in this case “should not bear the burden” of testifying about the matters in these categories and “searching for and producing” documents covered by such categories. See 5/10/11 Order at 5–6; see also Doc. No. 150 at 6–7 (discussing the documents that Plaintiffs requested the Espinos bring to their deposition). And as Plaintiffs further point out, “IHOP—unlike the Espinos—had a legal duty to maintain such records and documents.” Appeal at 5 (citing the regulation governing record keeping under Hawaii's Franchise Investment Law). This suggests that the burden on IHOP is somewhat reduced both as a general matter and relative to the Espinos. Finally, the Court is unpersuaded by IHOP's arguments in opposition to the Appeal. See Opp'n to Appeal at 22–30. None of the cases IHOP cites for the proposition that “discovery into IHOP's relationship with other franchisees, including the Espinos, is irrelevant” addressed a franchise discrimination claim. See Original Great America Chocolate Chip Cookie Co., Inc. v. River Valley, 970 F.2d 273, 275, 279 (7th Cir.1992) (discussing a breach of contract claim); I'mnaedaft, Ltd. v. The Intelligent Office System, LLC, No. 08–cv–01804–LTB–KLM, 2009 WL 1537975, *6 & n. 1 (D.Colo. May 29, 2009) (contract-based claims); Dunkin Donuts, Inc. v. Romanias, No. Civ.A.00–1886, 2002 WL 32955492 at *1 (W.D.Pa. May 29, 2002) (breach of duty of good faith and fair dealing). And IHOP's arguments regarding its interactions with Plaintiffs vís a vís its interactions with the Espinos go to the merits of Plaintiffs' claims. The same goes for IHOP's argument that “Plaintiffs seek discovery contrary to existing evidence.” These arguments, while strong, do not “diminish Plaintiffs' right to discover facts supporting [their] claim of discrimination.” Appeal at 18.”)
United States District Court, D. Hawaii, July 26, 1995, 895 F.Supp. 1365 (“(D. Covenant of Good Faith and Fair Dealing -- Count XX alleges that Gold breached the covenant of good faith and fair dealing. The court implies such a covenant as between the franchisor, Ciro, and its franchisee, Lui Ciro. See Conoco, Inc. v. Inman Oil Co., Inc., 774 F.2d 895, 908 (8th Cir.1985); see also H.R.S. § 482E–6(1) (parties to franchise relationship “shall deal with each other in good faith.”). Gold argues that as he was not a party to the franchise agreement, he may not be held liable for a breach of the covenant of good faith and fair dealing. The Luis attempt to argue that the same rationale which supports their claim for breach of fiduciary duty as against Gold applies to the claim for breach of the covenant of good faith and fair dealing. The key difference, however, is that a claim for breach of the implied covenant sounds in contract, not in tort. Because Gold was not a party to the franchise agreements, there was no covenant as between Gold and the Luis. *1387 The court therefore dismisses with prejudice Count XX. … However, Plaintiffs have also claimed unfair competition in violation of H.R.S. ch. 480. Amended Complaint at ¶ 223. The limitation on standing in H.R.S. § 480–2(d) does not apply to a corporation's claims for unfair competition. Rather, the general grant of standing in H.R.S. § 480–13 applies to such claims. See Paulson, Inc. v. Bromar, Inc., 775 F.Supp. 1329, 1338 (D.Haw.1991) (notwithstanding limitation of standing to “consumers” for deceptive practices actions, business may still maintain an action for unfair competition claims under H.R.S. §§ 480–2(a), 480–13); Robert's Waikiki U–Drive, Inc. v. Budget Rent–A–Car Systems, 491 F.Supp. 1199 (D.Haw.1980), aff'd, 732 F.2d 1403 (9th Cir.1984) (H.R.S. § 480–13 creates private right of action for unfair competition); but see Dash v. Wayne, 700 F.Supp. 1056 (D.Haw.1988) (no private right of action for unfair competition). 62 The court reads the allegations as to discrimination as falling within H.R.S. § 482E–6(2)(C)'s definition of unfair methods of competition: “... it shall be an unfair or deceptive act or practice or an unfair method of competition for a franchisor or subfranchisor to ... [d]iscriminate between franchisees in the charges offered or made for royalties, goods, services, equipment, rentals, advertising services, or in any other business dealing.” Id. (emphasis added). Therefore, Plaintiffs have stated a claim for unfair competition. Accordingly, the court dismisses with prejudice Plaintiffs' claim for deceptive practices, but denies dismissal of their claim for unfair competition. 3. H.R.S. Ch. 482E Gold blandly states that the Amended Complaint does not indicate any participation by Gold in activities prohibited by H.R.S. Ch. 482E. Count XVII, however, clearly alleges that Gold caused Ciro to intentionally discriminate against the three resort stores owned by Plaintiffs in the supplying of inventory. *1389 As noted, supra, this activity falls within the scope of H.R.S. § 482E–6(2)(C). Accordingly, Plaintiffs have stated a claim for liability under H.R.S. § 482E–9.”)