WRONGFUL FRANCHISE DEFAULTS

Franchisees and dealers regularly receive default notices from their franchisors, suppliers and manufacturers for failing to meet their obligations under their agreements. Although dealership and franchise agreements specify and limit the conditions that will permit franchisors, suppliers and manufacturers to default a franchisee or dealer, many times they misuse the default process to unfairly discipline franchisees and dealers that have fallen out of favor.

Most modern franchise and distribution agreements separate the potential breaches of their agreements into those that are more serious and those that are less serious. The more serious violations usually allow a franchisor to automatically terminate the agreement upon service of a notice of default (and termination) to the franchisee or dealer; hence, the default and termination occur simultaneously. In contrast, the less serious infringements result in a default but not an immediate termination. These breaches normally require that the franchisor or supplier send a default notice providing the franchisee or dealer a certain established number of days during which to cure or fix the default identified in the default notice. Under the default process, if the franchisee or dealer, after receiving a default notice, fails to cure the alleged violation underlying the default within the time period, the franchisee or dealer may automatically be terminated.

Thus, the receipt of a default notice is incredibly serious in that it either triggers a short default period during which an alleged violation must be cured, or it provides notice of breach so serious that the violation itself is both a default and termination at once. When the concepts of franchisor motive and discretion are mixed into the default batch, there is a real potential for abuse of the default process; not only can the process be used improperly to harangue franchisees and dealers whom the franchisor or supplier believes is out of step with the pulse of the system, but it can be used to finally rid the franchisor or supplier of a franchisee or dealer whom they view to be a chronic complainer.

In addition, of course, the default process, even when used legitimately, will always threaten to destroy the businesses and personal resources of franchisees and dealers. Many times franchisees and dealers do not take seriously the receipt of a notice of default relying upon their own judgment that the relevant breach is not sufficiently serious, or upon oral assurances from franchisor personnel in the field that the franchisee or dealer doesn’t really have to worry about the default.

SUCCESS OF GOLDSTEIN LAW FIRM COMBATTING WRONGFUL DEFAULTS

Jeff Goldstein and the lawyers at the Goldstein Law Firm have over thirty years of experience and a proven track record in successfully representing only franchisees in wrongful dealer and franchise default cases in franchise litigation around the country. The success that Jeff Goldstein has obtained in battling franchise defaults is noteworthy. The most beneficial time to work through a default charge is at the time that a default notice is received, right when the default time-clock is triggered. If the default was legitimate and issued in good faith, there will be time to negotiate a written plan to cure it; if it was improper, there will also be sufficient time to negotiate with the franchisor, supplier or manufacturer to modify or withdraw the default notice to allow a prompt cure.

Meaningful intervention by an experienced franchisee lawyer will also prevent the dispute from cascading into a repeated default situation in which the initial default results in repeated follow-on defaults that, despite a cure, can result in termination. As with his successes in preventing wrongful terminations, Jeff Goldstein’s victories in preventing wrongful defaults avoid the application of post-termination restrictive covenants that can prevent a franchisee or dealer from working in his or her occupation of industry for several years following a termination. Further, Jeff Goldstein and the Goldstein Law Firm have been highly successful in obtaining significant compensation for franchisees and dealers that were wrongfully terminated based upon defective franchise defaults.

WHAT TO DO IF YOU SUSPECT YOU HAVE BEEN WRONGFULLY DEFAULTED

As with a wrongful termination, timing is almost everything in the face of a wrongful franchise default. A default notice triggers either an automatic default or a short time period for the franchisee or dealer to cure the default. Given that a default of your franchise or dealership agreement may arise without warning, you should immediately contact a franchise attorney who represents only franchisees. Legal negotiations with your franchisor or supplier must be implemented immediately based upon an analysis of whether the notice of default is procedurally defective, and whether the underlying breach is legally material in a way that would support a subsequent termination.

To effectively combat an actual or anticipated wrongful dealer or franchise default, you should contact Jeff Goldstein at the Goldstein Law Firm at 202-293-3947. Don’t let your franchisor or supplier’s improper default cause you to lose your franchise and all of the goodwill you have worked tirelessly to create.

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Goldstein Law Firm, PLLC

1629 K St. NW, Suite 300,
Washington, DC 20006

Phone: 202-293-3947
Fax: 202-315-2514

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