Jul 17, 2020 - Blog, Franchise Articles by |

What are the Grounds for Initiating Franchise Litigation?

When you bought your franchise, you did not expect to end up with litigation with your franchisor. But, an issue has come up and there does not seem to be any other alternative, and you need to consider all of your options for protecting your investment.

In this Ultimate Guide to Franchise Litigation for Franchisees, attorney Jeffrey M. Goldstein provides an overview of what franchisees need to know when facing contentious disputes with their franchisors. Here in Part 1, Mr. Goldstein covers the types of issues that tend to lead to litigation, with insights based on his 30-plus years of experience as a franchise litigation attorney exclusively representing franchisees.

Common Issues in Franchise Litigation

While there are numerous issues that can lead to litigation between franchisors and franchisees, some issues tend to come up more frequently than others. This includes issues that cause franchisors to initiate litigation against their franchisees, as well as issues that force franchisees to take action in order to try to save their franchises—or at least recoup as much of their initial investment as possible.

On the franchisor side, some of the issues that most-commonly trigger the decision to take legal action against franchisees include:

  • Non-payment of royalties or advertising fund contributions
  • Non-payment of liquidated damages or “lost future royalties” post-termination
  • Repeatedly operating outside of a franchisee’s designated territory
  • Failing to adhere to system standards (either repeatedly or in a manner that represents a significant departure from the franchisor’s brand)
  • Breach of restrictive covenants or other post-termination obligations

As a franchisee, dealing with your franchisor may cause headaches on a near-daily basis. So, how do you decide when enough is enough? Some examples of potential grounds for filing a lawsuit against a franchisor include:

  • Violations of state franchise laws
  • Violations of the franchise agreement (i.e. failure to direct advertising fund expenditures to your territory)
  • Selectively enforcing franchisees’ obligations, including obligations to adhere to system standards and obligations not to encroach on other franchisees’ territories
  • Price fixing, supplier restrictions, and other antitrust violations
  • Wrongful termination of franchise rights

Deciding When to Take Legal Action

If you are involved in a dispute with your franchisor, when is it time to take legal action? Generally speaking, the sooner you take action, the better. Franchisor-franchisee disputes rarely resolve themselves on their own—particularly when one party is to the point of engaging legal counsel. By engaging legal counsel before the situation devolves even further, you may be able to minimize the costs involved in achieving a favorable result, and you may be able to improve your chances of saving your franchise.

Speak with Franchise Litigation Attorney Jeffrey M. Goldstein

In Part 2 of this Ultimate Guide to Franchise Litigation for Franchisees, we will cover the provisions of the franchise agreement that come into play during franchisor-franchisee disputes. In the meantime, if you are facing a dispute and need to speak with an attorney, you can call 202-293-3947 or contact us online to arrange a free consultation with Mr. Goldstein.

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