Maryland Franchise Laws

Maryland has a relationship act known as the Maryland Fair Distributorship Act (“MFDA”), Sec. 11-1302, et seq., but it applies to only to commercial goods, not to franchisors regulated under the Maryland Franchise Disclosure Act. However, it is nevertheless interesting to explore the MFDA, as in certain limited circumstances, it might have relevancy to the a distribution relationship.

The MFDA directly addresses notices of default or deficieny, stating that “when notifying a distributor of a proposed cancellation or nonrenewal of any agreement, a grantor shall provide a notice of the distributor’s failure to comply with a reasonable requirement of the agreement and an opportunity to cure or dispute the asserted deficiency.” And, with certain identified exceptions (Subsections (d) and © of this Section), a grantor must notify a distributor not less than 60 days before: (1) The proposed date of cancellation of an agreement that has not expired according to its terms; or (2) For agreements that contemplate renewal options exercisable by either party, the expiration date of an agreement that the grantor does not intend to renew.

Moreover, the 60 days notice requirement must be in writing and be sent by certified mail, return receipt requested; and contain: (i) A statement that the grantor intends to cancel or not renew the agreement; (ii) A list of reasons for the proposed cancellation or nonrenewal, including any deficiencies on the part of the distributor; (iii) A statement of the effective date of the proposed cancellation or nonrenewal; and (iv) If deficiencies are identified by the grantor under subparagraph (ii) of this paragraph, a statement that the distributor may attempt to cure deficiencies that are identified as a basis for the cancellation or nonrenewal, as provided in §11-1305 of this subtitle.

Interestingly, the Maryland franchise law prohibits a canceling franchisor from altering payment, credit, or delivery terms affecting the distributor during the period between the notice required under the Act, and the proposed date of cancellation or nonrenewal, or during the period of cure described in §11-1305 of the MFDA.

Moreover, a franchisor is not required to comply with the notice provisions if the reason for the cancellation or non-renewal includes any of the following: (1) For any items that are not in dispute, the failure of the distributor to pay the grantor for commercial goods received; (2) The actual or pending insolvency, the occurrence of an assignment for the benefit of creditors, or the bankruptcy of the distributor or affiliated entity; (3) A danger to the public health or safety caused by the distributor or any affiliated entity over which it has control;(4) Abandonment of the agreement by the distributor or any other matter which a court finds to be justification for a premature cancellation or nonrenewal; (5) Conduct by the distributor expressly prohibited under a written agreement that materially affects the relationship between the distributor and grantor; (6) Conduct by the distributor that materially alters the commercial viability of the grantor’s commercial goods in the marketplace; or (7) Affirmative bad faith, dishonest, fraudulent, or illegal acts by the distributor.

Importantly, the statute itself forecloses any confusion that might otherwise have resulted regarding the necessary conduct of the parties at the conclusion of a franchise agreement, by stating that “The notice and cure provisions of this subtitle do not apply to a termination of a distributorship at the natural expiration of the specified term of a written contract that does not contemplate renewal options exercisable by either party.”

Sec. 11-1304 of the MFDA also creates a repurchase obligation on the franchisor when it states that “Except as provided in subsection © of this section, on cancellation or nonrenewal of an agreement by a grantor for any reason, including a distributor’s failure to cure under §11-1305 of this subtitle, the grantor shall have the right to, and must at the option of the distributor, repurchase all merchandise sold by the grantor to the distributor, and the distributor must sell the merchandise to the grantor, at a price equal to: (1) An amount agreed on by the parties; or (2)(i) With respect to merchandise that is still in its original condition, is part of the grantor’s current product line, and was shipped within 6 months of the cancellation or nonrenewal, the purchase price paid by the distributor; (ii) With respect to all other merchandise, including samples, display models, and damaged merchandise, the wholesale fair market value of the merchandise less depreciation, or the purchase price paid by the distributor, whichever is less, and (iii) With respect to special tools, accessories, display equipment, and other similar items, the purchase price paid by the distributor, less depreciation, or an amount agreed upon by the parties.”

These repurchase requirements must be completed within 30 days after the effective date of cancellation or nonrenewal, unless the parties agree otherwise. The distributor’s option to repurchase does not apply if the reason for the cancellation or non-renewal includes any of the reasons listed in §11-1303(d) of the Maryland Act.

Sec. 11-1305. Of the MFDA imposes a statutory cure period when it directs that “If the grantor identified deficiencies on the part of the distributor in the notice under §11-1303(b)(2)(ii), and if a distributor opposes the cancellation or nonrenewal of an agreement, the distributor shall be permitted to attempt to resolve its differences with the grantor by: (1) Within 30 days after the receipt of the notice of cancellation or nonrenewal, filing with the grantor a notice of intention to oppose the cancellation or nonrenewal; and (2) Implementing a plan, as approved by the grantor, for the correction of the deficiencies described by the grantor as constituting the reasons for the cancellation or nonrenewal.

In turn, the statute directs that franchisor and franchisee (the grantor and distributor) to make good faith efforts to mutually adopt the plan to cure the deficiencies just described. Unless otherwise agreed, the cure plan must be implemented within 60 days of its acceptance by the grantor.Most important, the MFDA statutorily voids a notice of cancellation or non-renewal if the distributor implements the plan described in subsection (a)(2) of this section. Conversely, a cancellation or nonrenewal shall be effective immediately upon the expiration of the period provided in subsection (c) of this section if the distributor fails to implement the plan described in subsection (a)(2) of this section. And, the Act further directs that nothing in this section shall permit a distributor to attempt to cure if the only reasons identified by the grantor in the notice required under §11-1303(b)(2)(ii) of this subtitle are reasons that are not curable by the distributor.

In the Definitional Section, Section 11-1301, the MFDA defines certain operative terms including, but not limited to, “Cancel” means to terminate an agreement prior to the natural expiration date of its term. Further, “Cancel” includes a de facto cancellation.

The MFDA goes to the limits of dissecting the types of termination by defining a “De facto cancellation” as meaning actions taken by the grantor that: (1) Materially alter the competitive business and economic conditions of a distributor; (2) Are not applicable to similarly situated distributors of that grantor’s products; and (3) Are intended to be discriminatory and detrimental to the distributor.

Another crucial definition for purposes of justification for franchisor conduct is that of “Deficiency,” means the failure of a distributor to comply substantially with the fair, reasonable, and material requirements imposed or sought to be imposed on the distributor by the grantor.

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• 11-1302. Application

Currentness

(a) This subtitle applies to any agreement under which a grantor's commercial goods are distributed or sold in this State.

(b) Notwithstanding any other provision of this subtitle, this subtitle does not apply to:

(1) A seller of business opportunities regulated under the Maryland Business Opportunity Sales Act, Title 14, Subtitle 1 of the Business Regulation Article;

(2) A franchisor regulated under the Maryland Franchise Registration and Disclosure Law,1 Title 14, Subtitle 2 of the Business Regulation Article;

(3) A supplier regulated under the Equipment Dealer Contract Act, Title 19 of this article;

(4) A manufacturer, producer, or refiner of petroleum products that are motor fuels regulated under Title 10 of the Business Regulation Article;

(5) A franchisor regulated under the Beer Franchise Fair Dealing Act;2 or

(6) A manufacturer, producer, or supplier of wine or distilled spirits.

In Maryland, the following Dealer/Franchise Termination, Fraud and Non-Renewal Laws, and Franchise Industry-Specific Laws, are identified as follows:

Maryland State Disclosure/Registration Laws
Franchise Registration and Disclosure Law
Annotated Code of Maryland, Article Business Regulation, Title 14, Sec. 14-201 through 14-233

Maryland State Relationship/Termination Laws
Fair Distributorship Act
Annotated Code of Maryland, Article Commercial Law, Title 11, Sec. 11-301 through 11-307

Maryland State Business Opportunity Laws
Business Opportunity Sales Act
Annotated Code of Maryland, Article Business Regulation, Title 14, Sec. 14-101 through 14-129

Maryland Alcoholic Beverage Franchise/Wholesaler Laws
Maryland Beer Franchise Fair Dealing Act
Md. Code Ann. Art. 2B, Tit. 17,Md. Code Ann. Art. 2B, §21-103.

Maryland Equipment Franchise/Dealer Laws
Maryland farm, industrial, or construction equipment Franchise/Dealer law
Md. Code Ann. Comm. Law, Tit. 19

Maryland Gasoline Franchise/Dealer Laws
Maryland gasohol and gasoline products marketing Act
Maryland motor fuel law
Md. Code Ann. Comm. Law, Tit. 11, Subtit. 3,Md. Code Ann. Bus. Reg., Tit. 10, §10-311 to §10-313

Maryland Marine Franchise/Dealer Laws
No Specific Maryland Statute Applicable

Maryland Motor Vehicle Franchise/Dealer Laws
Maryland motor vehicle Franchise/Dealer law
Md. Code Ann. Trans., Title 15, Subtitle 2

Maryland Motorcycle Franchise/Dealer Laws
No Specific Maryland Statute Applicable

Maryland Recreational and Powersports Vehicle Franchise/Dealer Laws
No Specific Maryland Statute Applicable
See Maryland equipment Franchise/Dealer law.

Maryland Restaurants
No Specific Maryland Statute Applicable

NO RELEVANT MARYLAND FRANCHISE LAW CASES REPORTED re: State Franchise Relationship Statutes