2. I’ve been defrauded in the purchase of a
franchise- now what?
3. I
think I’ve been harmed by the conduct of my franchisor, what steps do I take?
4. What can I expect
in a franchise lawsuit?
5. What do you mean
by the term “Franchise Laws”?
6. My franchisor has asked
me to sign a release, is that a good idea?
7. My franchise agreement contains an
arbitration clause, what are my options?
8. What is the statute of limitations in
a franchise case?
9. How much is my case
worth?
10. How would bankruptcy affect my case?
11. Can I join my case with other
franchisees?
12. What should I bring to (or send in
advance of) my first meeting with you?
13. What does it mean for a California
lawyer to be certified as a legal specialist in Franchise and Distribution Law?
1. My franchisor has breached its
agreement with me- now what?
If you feel that your franchisor has breached the
agreement, it is important to obtain legal advice from an experienced franchise
attorney promptly. Many franchise agreements contain shortened statutes of
limitations which may be bar the bringing of a lawsuit if such a suit has not
been filed within the permitted period of time. For example, if your contract
says that any and all claims must be filed within one year of the date of
discovering the breach, if you file one year and one day beyond that period, a
franchisor will try to argue that you have “missed” the statute of limitations.
And that your claim should now be dismissed.
Consulting an experienced franchise attorney will also allow you to determine the
significance of the breach involved and plan the appropriate course. It may be,
considering the nature of the breach involved, better to negotiate with the
franchisor as opposed to filing a lawsuit. This is primarily a business decision
but can be informed by the legal aspects of the dispute. The first thing to
review is whether the breach is significant or insignificant. Significant
breaches have the ability to detrimentally affect the operation and/or continued
success or vitality of the business. Insignificant breaches, are breached that
may inconvenience you or create headaches but are not likely to be detrimental
to the business as a whole. An experienced franchise attorney can assist you in
determining which category the alleged breach of contract falls into.
Once you
have consulted with your franchise attorney with regard to breaches, then
certain decisions have to be made. Depending upon the reasonableness and working
relationship the franchisee has had with the franchisor, a decision about filing
a lawsuit or trying to negotiate can be arrived at with adequate information.
Often times, franchisors will negotiate and matters can be settled quickly and
without a need for a lawsuit. In other cases, franchisors may play hard ball and
not negotiate even over the slightest issues involving a breach of contract. In
these cases, your franchise attorney can advise you best on how to proceed.
2. I’ve been defrauded in the purchase of a
franchise- now what?
If you feel that you have been defrauded in the purchase of a
franchise, it is important to contact an experienced franchise attorney that is
well versed in franchise lawsuits to determine what options are available to
you. An experienced franchise attorney, can help you determine what laws would
be available to assist you in the recovery of your investment and/or damages.
Significantly, a number of states have enacted franchise laws which prohibit the
misrepresenting of material facts or the concealment of material facts in
connection with the offer and sale of the franchise and permit private rights of
action for violations. In addition, the federal trade commission has promulgated
a number of franchise protections in the form of the franchise disclosure rule.
While the federal franchise disclosure rule does not provide for a “private”
right of action, many states have adopted consumer protection laws that allow a
violation of the franchise disclosure rule to serve as a predicate for violation
of that consumer protection law. Other states have permitted certain common law
claims to be grounded in violations of the franchise disclosure law. In addition
to statutory remedies, you may have claims for what are known as common law
causes of action. These types of actions are generally known as: fraud,
negligent misrepresentation, fraud by concealment or omission. As noted above in
the breach of contract action, it is very important to examine your contract for
statute of limitations issues. Franchisors often take the opportunity to insert
very one- sided provisions in their franchise agreements that are designed to
limit and/or eliminate any claims by the franchisees. Such provisions may
include a drastic shortening of the otherwise applicable statute of limitations
permissible. It is important for you to contact a franchise attorney immediately
when you suspect that the franchisor has misrepresented information or concealed
material information from you.
3. I
think I’ve been harmed by the conduct of my franchisor, what steps do I take?
If
you think you’ve been injured by the conduct of your franchisor, you may be
wondering what to steps to take. Here are some things to keep in mind:
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Don’t give any recorded statements to the franchisor or sign anything you don’t
understand. Talk to an experienced franchise attorney about anything that the
franchisor is demanding. Ideally, show any documents you have been provided for
signature to an experienced franchise attorney before you sign.
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Do not destroy any documents related to your franchise, these documents may be
extremely helpful in proving whatever case you may have.
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Keep thorough records of everything that happens. Keep copies of every form you
have submitted or signed and keep a diary of everything that happens and write
down anything that you were told by any franchisor representatives.
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Create a file with all of your relevant information involved in your case. This
would include your franchise agreement, any other agreements with the
franchisor, your lease agreements, any letters or documents you received from
your franchisor prior to or subsequent to becoming a franchisee that is relevant
to the issues at hand, a list of witnesses, and anything else you have that is
related to your case. Be prepared to describe the who, what, how, where, when,
and why of circumstance surrounding your case.
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Contact an experienced franchise attorney immediately so that you may begin to
evaluate and ultimately prepare your case. Not all lawyers regularly handle
franchise cases, so it is important that you find an attorney or law firm with
actual experience in litigating franchise cases. This step will be valuable even
if you do not intend to file a lawsuit but are considering negotiating with your
franchisor. While you may not benefit for certain by hiring an attorney, you
won’t know until you talk to one.
Our experienced franchise attorneys are always available to talk to you about
your case at no cost of obligation. Please contact Lagarias & Boulter, LLP, at
1-415-460-0100.
4. What can I expect
in a franchise lawsuit?
Franchise lawsuits, like any other lawsuit, can be time
consuming and expensive to prosecute. However, there are certain aspects of
franchise lawsuits that render them vulnerable to more attorney time and costs
than in ordinary cases. Franchise lawsuits can involve a number of different
areas of the law and require the assertion of different alternative theories of
liability in order to “cover your bases.” Depending upon the nature of the
dispute involved, different common law and statutory claims can be utilized.
Most franchise disputes involve a breach of contract or a breach of good faith
and fair dealing implied in all contracts. However, franchise lawsuits can also
implicate anti-trust claims which may be predicated on state and/or federal
anti-trust laws. Franchise lawsuits can involve violations of franchise
disclosure laws or franchise relationship laws. Disclosure laws generally cover
the manner in which the franchise was sold to the franchisee and the information
that was presented to the franchisee. Franchise relationship laws generally
cover the termination and/or nonrenewal of franchises and the reasons therefore.
Many states in addition have consumer protection laws and/or unfair trade
practice laws that would extend protections to franchisees. These statutes
typically prohibit a broad range of what are determined unlawful, unfair, or
fraudulent business practices.
Once you have determined the parameters of your
dispute with an experienced franchise attorney, the decision needs to be made
about where to file a lawsuit. Often times, a franchisor will require in its
contract that suit be brought in its home state. Such provisions may or may not
be enforceable. Further, the enforceability of such provisions may depend very
well on what court is deciding the enforceability of those provisions. Thus, for
example, if a franchise agreement contains a provision that any and all claims
arising out of or relating to the franchise agreement will be brought in the
home state of the franchisor, it is more likely that a court in that home state
would enforce such a provision. But, if for example, you are a franchisee
located in California, then by filing your suit first in a California court, you
may have increased the likelihood of keeping the lawsuit in California.
California courts may be more favorably disposed to setting aside a foreign
forum and choice of law based upon California statutory and/or public policy
provisions. An experienced franchise attorney can assist you in making strategic
decisions that will benefit your case in the long run and help determine the
most favorable court in which to litigate your dispute.
Once your lawsuit has been started, the parties enter a phase called “discovery”.
Discovery is a process whereby the parties are entitled to demand the production
of documents, things, admissions, and testimony from the opposing parties.
Testimony may be taken under oath in the form of a “deposition” or
interrogatories. Depositions are used for two general purposes. One is to
discover information that the other side possesses including the identity and
location of witnesses, the existence of documents, and to generally pin down the
other side in terms of the facts to which they will testify in trial.
Depositions are also used to secure testimony for trial of witnesses that are
beyond the subpoena power of the courts at issue. For example, a case brought in
California means that witnesses who do not reside in California are beyond the
power of the court to order them to appear at the trial in the matter. However,
California courts through a process of cooperation with other states courts can
compel the attendance of the witness at a deposition in their home state and
that deposition can be used in lieu of trial testimony at the trial in the
matter in California. Other discovery procedures call for the exchange of
documents and the written testimony under oath of answering questions.
As a
franchisee in a franchise law suit, you can expect to give a deposition. When
giving a deposition, it is important to always tell the truth in response to
question asked. This does not mean you must volunteer information or respond to
question that were note asked. But you can expect that the franchisor lawyers
will be skilled attorneys and subject you to a vigorous cross examination about
the merits of your case. Generally speaking, depositions will last a day or more
depending upon whether you are in federal or state court. You can expect your
lawyer to also take depositions of parties and key witnesses on the other side.
Once depositions have been completed, one side or another may bring what is
known as a summary judgment. Summary judgment is a procedure whereby the parties
can use the materials gathered in discovery in order to request that the court
enter a judgment in favor of one party or another based upon the evidence that
has been deduced thus far. Depending upon whether the court finds that there are
factual issues involved in the case that would need to be decided by a jury, it
may or may not enter a summary judgment. If a summary judgment is entered, the
case is over and the losing party will have the right of an appeal. Otherwise,
the case will be decided by a jury. Of course this assumes there is no
arbitration clause at issue in the case. Arbitration clauses are discussed
below.
Another aspect of franchise cases is the necessity of hiring experts to
testify as to liability and damage issues. While experts are not absolutely
necessary, they are sometimes desirable and particularly so if the franchisor
has hired experts to represent its case. Experts can be a very key but also
expensive part of preparing a case for trial. You will need to confer with your
experienced franchise attorney on the pros and cons of hiring an expert to
represent your case.
At the trial of a franchise lawsuit, you will be required
to provide testimony as to both liability and damages. As the plaintiff in a
franchise lawsuit, you will generally bear the burden of proving liability and
damages. The burden of proof is generally speaking in civil cases by a
preponderance of the evidence. That means that you must show that it was more
likely than not that the franchisor’s conduct, whether a breach of contract or
violation of an applicable law, caused your damages. You will also be required
to prove by a preponderance of the evidence, that you in fact suffered damages.
The damages that you request must not be speculative, but they do not have to be
established with exact certainty. Assuming that you are entitled to a jury trial
in your franchise lawsuit, it will be the jury that decides whether you have
proven that the franchisor is legally responsible to you for damages and the
amount of such damages. At the end of the case, the jury will render its
decision and a final judgment either in favor of you as the franchisee or the
franchisor will be entered. Even if you win your franchise lawsuit, it does not
you will get paid right away. Franchisors or franchisees, should they be the
losing party, will have the opportunity to appeal. In addition, subsequent to
the jury decision, it may also be possible to request the court award attorney’s
fees depending upon whether the contract provides for attorneys fees to the
prevailing party and/or a statute upon which the franchisee has prevailed as a
provision for awarding attorneys fees to the franchisee.
In sum, once you move
forward with your franchise case, you should be ready for a significant fight.
Franchisors will often fight even the most meritorious cases tooth and nail
because to admit defeat might expose them to the same types of claims by all of
its franchisees. Franchisors may pull out all of the stops in using tactics and
strategies designed to insulate them from having to pay you for the damages that
they caused. An experienced franchise attorney can help you get the compensation
that you are owed.
5. What do you mean
by the term “Franchise Laws”?
Various state legislatures have passed laws that
generally govern two differing aspects of general franchising. The Congress has
not enacted any specific federal franchise legislation. However, the federal
government has permitted the Federal Trade Commission the ability to promulgate
rules and regulations regarding certain aspects of franchising. The FTC has
promulgated a disclosure obligation known as the Franchise Rule. Under the
Franchise Rule franchisors are required to provide franchisees with certain
information about the prospective franchise investment. The document required by
the FTC rule is more commonly referred to as a FDD or Franchise Disclosure
Document, formerly known as a Uniform Offering Circular. Under the federal
regulation, there is no required registration of the franchise documents with
any federal agency or entity. In addition, there is no private right of action
for a violation of the FTC rule. However, as noted elsewhere, some states adopt
the FTC rule or the standards of the FTC rule as the predicate for violations of
other statutes and/or certain common law duties.
A number of states have
enacted both disclosure and registration requirements for franchisors to meet
independent of the FTC rule. In these states, it is incumbent upon franchisors
to comply with the requirements as noted in the various laws. If franchisors do
not comply with the requirements, they may be subject to liability. A number of
states prohibit the use of misleading devices, misrepresentation s, and
concealment of information that would be important for franchisees to know about
the opportunity. In these states, actions can be brought for such statutory
violations. An experienced franchise attorney can advise you as to whether any
of these various state laws may be applicable to your particular situation. The
fact that you do not reside in the state that does not have such a law, does not
automatically mean that you may not be able to be afforded the protection of the
franchisor’s home state franchise statutes. Therefore it is important for you to
obtain the advice and counsel of an experienced franchise attorney.
A number
of states also have franchise relationship statutes which govern the termination
and non-renewal of franchises. Thus, a franchisor who refuses to renew a
franchisee for reasons are not permitted under the law, may be subject to an
action for violation of the franchise relationship statute. Again, it is
important for franchisees to consult with experienced franchise attorneys to
determine what protections may be afforded under various state relationship
laws. Finally, there does exist state and/or federal legislation governing
specific types of franchises including alcohol distributors, automobile dealers,
farm equipment dealers, petroleum dealers, and wholesale distributors. An
experienced franchise attorney can be consulted as to the applicability of such
statutes.
6. My franchisor has asked
me to sign a release, is that a good idea?
If you bring a dispute to the attention
of a franchisor, and the franchisor makes any accommodations whatsoever to meet
the complaint, it will generally ask for a release of claims. A release of
claims is simply a contract that provides that you are giving up any and all
claims – generally from the beginning of time to the date of the release --
regarding the franchise. It is almost never a good idea to enter into a release
of claims prior to discussing the matter with an experienced franchise attorney.
The risk that you run is that, while resolving the matter at hand, there may be
other issues involved in the operation of your franchise that you are either
unaware of or think that you may be able to work through but do not have the
benefit of adequate information in making that assessment. As a consequence, you
may be giving up valuable claims for little or no consideration. Again, it is
extremely important when faced with the insistence of the franchisor of signing
a release that you obtain counsel from an experienced franchise attorney.
7. My franchise agreement contains an
arbitration clause, what are my options?
Arbitration clauses and franchise
agreements have given rise to vast amounts of collateral litigation surrounding
franchise disputes. Franchisors often put arbitration clauses in their franchise
agreements as a way to discourage the filing of complaints and insert one-sided
terms that will advantage the franchisor in any ultimate dispute. However, just
because the franchisor has inserted these arbitration provisions and one-sided
terms into the franchise agreement does not necessarily mean they are
enforceable. An experienced franchise attorney will be able to help guide you in
terms of what is or is not enforceable and what may be properly challenged in a
court of law. Attorneys unfamiliar with the nuances of arbitration agreements
and other onerous provisions may not be aware of the fact that these agreements
can effectively be challenged in a court of law if the proper procedures and
arguments are presented. The attorneys at Lagarias & Boulter, LLP are
experienced in reviewing various terms of franchise agreements and in particular
arbitration clauses with an eye toward maintaining the actions in a court of law
wherever feasible.
8. What is the statute of limitations in
a franchise case?
The statute of limitations is generally speaking, the time
period within which a lawsuit must be brought or be forever barred. Many of you
may be familiar with the statute of limitations in a personal injury case. In
California, for example, a person injured in an automobile accident has two
years from the date of the accident to sue or their claim will be forever
barred. In franchise cases, the statute of limitations will be dependent upon
and differ for
the specific causes of action that are being claimed. Virtually every state will
have set forth statute of limitations either generally or in specific laws.
Depending upon the state you live in, you will need to check what the statute of
limitations are with respect to your particular claims. Franchise laws have
differing statutes of limitation and each law must be considered on its own and
according to its own terms. An experienced franchise attorney can help you
determine the applicable statute of limitations.
One of the most important things you can do when consulting an attorney, is tell
them about when you became aware that you were injured on account of the
franchisors conduct. You may have the best franchise lawsuit in the world but if
you do not file before the applicable statute of limitations ahs run, it will be
worthless.
9. How much is my case
worth?
This is a common question in franchising and is dependent upon the
individual facts of your own case. The value of a case will depend upon such
things as the nature of the injuries that you have suffered, the claims you can
bring, and whether you have a right to a jury trial. For example, your economic
damages are related to the amount of actual money that you have lost in the
business. That will depend upon how much of your capital you have invested in
the business and/or obligations you have undertaken in the form of loans and/or
leases and things of that nature. If you have been defrauded in the sale of a
franchise, you may also be entitled to emotional distress damages. These kinds
of damages are intended to compensate you for the emotional pain and suffering
suffered as a result of being victimized by a fraud. Punitive or exemplary
damages are available to franchisees that have been defrauded and are designed
to deter franchisors from engaging in oppressive and malicious conduct. If you
must try your case in front of a judge or arbitrator instead of a jury, you may
be unlikely to obtain the same level of punitive or emotional distress damages.
The determination of how much your case might be worth is best made by you and
consultation with an experienced franchise attorney.
10. How would bankruptcy affect my case?
Lagarias & Boulter L.L.P. are not bankruptcy attorneys. Generally speaking, when
bankruptcy is filed, the trustee of the bankruptcy estate becomes the owner of
all the assets of the bankrupt person or entity and this would include any filed
or potential lawsuits. As estate property, the trustee has the option of
prosecuting the case, settling the lawsuit with the franchisor with or without
your consent, or abandoning the lawsuit back to you.
11. Can I join my case with other
franchisees?
Joining with other franchisees in a lawsuit over common claims is
generally possible and is good way to spread the costs of prosecuting such an
action. When multiple clients are suing the same defendant, there may be
conflicts of interests presented between the clients. We cannot represent a
group of clients against a franchisor without obtaining the express consent and
a waiver of conflicts of interest from each client. Also, some franchise
agreements prohibit joining more than one franchisee in an action. In
California, we have defeated such clauses. See Independent Ass'n of Mailbox
Center Owners, Inc. v. Superior Court, 133 Cal.App.4th 396, 34 Cal.Rptr.3d
659 (2005).
12. What should I
bring to (or send in advance of ) my first meeting with you?
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Franchise contracts, offering circulars, lease agreements, loan documents,
check registers, significant e-mails and correspondence. The beginning point
of evaluating a franchise case is almost always the contract and the UFOC. The
contract contains information on the rights and responsibilities of each party.
The UFOC contains the necessary disclosure items given to you before the contract
was signed. Lease agreements provide information regarding your potential
damages as do check registers. E-mails and correspondence may enlighten on any
of the above.
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Chronology of Events Written For Your Lawyer. Drafting a chronology of
events is an excellent way to think about and describe the various factors
involved in your case and is a great time saver for your attorney. If you choose
to request Lagarias & Boulter L.L.P. review your matter, we will provide you
with a template for your chronology.
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Quality Control Reports. If your franchisor has provided you with
periodic quality control reports or other feedback on your operations, please
provide these.
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Pictures. If you have picture of your location, by all means bring them.
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Income documents. You may have a claim for lost profits. In order to
bring a claim for lost profits, your lawyer needs to be able to show what kind
of money you were making before the dispute. Bring any income statements as well
as any tax returns you have filed related to the franchise. If you made no money
in the franchise but left a productive income producing opportunity to start
the franchise, you should bring documents related to that opportunity.
13. What does it mean for a California
lawyer to be certified as a legal specialist in Franchise and Distribution Law?
It means
that the lawyer has demonstrated to the California Board of Legal Specialization
that they are substantially involved in and have a special competence in
franchise law the area of Franchise and Distribution Law. In California, as of
January 1, 2010, there are only about 30 lawyers certified in franchise and
distribution law. Attorney Peter C. Lagarias, has been certified by the
California Board of Legal Specialization as a specialist in franchise and
distribution law.