As a franchisee, you will likely reach a point at which you are considering legal action against your franchisor. If you are fed up and ready to go to court, here’s what you need to know:
5 Preliminary Considerations for Pursuing a Claim Against Your Franchisor
5. Do You Have a Claim for Breach?
In order to file a claim in arbitration or litigation, you need to have more than a general grievance. You need to have a legal cause of action, and this could be a breach of your franchise agreement. Although franchisors’ contractual obligations are usually limited, franchisees will usually still have several potential grounds to sue their franchisors for breach of contract. Some examples of common breach allegations in franchisee-initiated litigation include:
- Imposition of improper obligations or restrictions
- Failure to enforce territorial restrictions on other franchisees (territory encroachment)
- Breach of representations and warranties
- Improper refusal to renew or approve a transfer
- Improper use of advertising fund contributions
4. Do You Have a Statutory Cause of Action?
If you don’t have a cause of action for breach, do you have a claim based on state or federal law. Franchise litigation often involves statutory claims such as:
- Antitrust violations
- State franchise law violations
- Discriminatory franchise practices
- Franchisor fraud
- Wrongful termination
3. What Does Your Franchise Agreement Say about Dispute Resolution?
If you have a claim, your next step is to understand the implications of your franchise agreement’s dispute resolution clause. Does your agreement require mediation or arbitration; and, if so, is this requirement legally enforceable?
Also, where will you need to go in order to assert your legal rights? Your franchisor has likely chosen exclusive jurisdiction in the city where its headquarters are located; and, while much of the process can be handled remotely, at some point you (and your attorney) may need to travel. Your franchise agreement’s governing law provision could have significant implications for asserting your legal rights as well.
2. What are the Potential Costs and Risks of Litigation?
If you sue your franchisor, are you likely to be counter-sued? If so, what is your potential exposure? Will you be able to manage the costs of litigation if the scope of the dispute expands beyond your initial claim? These are important practical considerations that you need to consider.
1. Is Legal Action Your Best Option?
Finally, what alternatives (if any) do you have available? While formal dispute resolution proceedings will sometimes be necessary, generally speaking, they should be evaluated as a means of last resort. Can you get your franchisor’s attention without going to court? Can you leverage the power of your franchisee association? If you can get creative, you may be able to protect your franchise without exposing yourself to the burdens of arbitration or litigation.
Speak with Franchise Litigation Attorney Jeffrey M. Goldstein
If you would like more information about your options for pursuing legal action against your franchisor, you can contact the Goldstein Law Firm for a free initial consultation. To speak with franchise litigation attorney Jeffrey M. Goldstein in confidence, please call (202) 293-3947 or tell us about your situation online today.