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Cdc.aahoa 2007

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  • 1. _______________________________________ AAHOA 2007 TAKING CHARGE, LEADING TOGETHER FAIR FRANCHISING CARMEN D. CARUSO SCHWARTZ COOPER CHARTERED Chicago, Illinois
    • PERSPECTIVE
    • LEGAL STRATEGY
  • 2. Brief History of Fair Franchising _______________________________________ AAHOA 2007 TAKING CHARGE, LEADING TOGETHER
    • Early legal challenges in the 1970’s
    • The American Franchisee Association (AFA) (lobbied for a federal statute)
    • The American Association of Franchisees & Dealers (AAFD) has worked to create FAIR FRANCHISING STANDARDS
    • AAHOA offers 12 points of FAIR FRANCHISING
  • 3. _______________________________________ AAHOA 2007 TAKING CHARGE, LEADING TOGETHER Franchisee Advocacy
    • antitrust
    • statutory regulation & public policy
    • unconscionability
    • fiduciary duties (general & agency theory)
    • good faith & fair dealing
    • independent associations & collective bargaining
    • fair franchising standards
  • 4. FRANCHISORS FIGHT BACK _______________________________________ AAHOA 2007 TAKING CHARGE, LEADING TOGETHER From: Scheck v. Burger King : Implied Territorial Protection To: Post- Scheck Franchise Agreements No Territorial Protection
  • 5. _______________________________________ AAHOA 2007 TAKING CHARGE, LEADING TOGETHER The Implied Legal Covenant Of GOOD FAITH & FAIR DEALING “ a party who is vested with contractual discretion to exercise that discretion reasonably with proper motive and in a manner consistent with the reasonable expectations of the parties” Interim Health Care of Northern Illinois v. Interim Health Care (7 th Cir. 2000)
  • 6. _______________________________________ AAHOA 2007 TAKING CHARGE, LEADING TOGETHER GOOD FAITH & FAIR DEALING The federal district court denied summary judgment against a plaintiff-franchisee's claim for breach of the implied covenant where the franchisor allowed a competing franchisee within the plaintiff franchisee's trade area, despite the fact that the franchise agreement allowed the franchisor discretion to establish competing franchises "as appropriate." Bloomington Chrysler Jeep Eagle, Inc. v. DaimlerChrysler Motor Co., L.L.C. (Minnesota 2005)
  • 7. _______________________________________ AAHOA 2007 TAKING CHARGE, LEADING TOGETHER GOOD FAITH & FAIR DEALING Hubbard Auto Center, Inc. v. General Motors Corp. (Indiana 2006) Upholding a franchisee’s claim that its franchisor had breached the implied covenant by, inter alia , “failing to distribute motor vehicles in a fair and equitable manner…[and] failing to permit the opportunity to receive a reasonable return on investment.”
  • 8. _______________________________________ AAHOA 2007 TAKING CHARGE, LEADING TOGETHER No Good Faith & Fair Dealing?
    • No duty to be reasonable or fair?
    • No duty to act with proper motives?
    • No duty to act consistent with the parties’ reasonable expectations when the contract was signed?
    • No standard of care to measure performance?
  • 9. _______________________________________ AAHOA 2007 TAKING CHARGE, LEADING TOGETHER No Good Faith & Fair Dealing? Unless otherwise provided in this Agreement…, whenever this Agreement requires you to obtain our written consent, or permits us to take any action or refrain from taking any action, we are free to act in our own self-interest without any obligation to act reasonably, to consider the impact on you or to act subject to any other standard of care limiting our right , except as may be provided by statute or regulation. International Franchise Association Legal Symposium (2005)
  • 10. Unconscionability Doctrine _______________________________________ AAHOA 2007 TAKING CHARGE, LEADING TOGETHER
    • “ no man in his senses”
    • “ not under delusion”
    • “ no honest and fair man would accept”
    • “ i nequitable and unconscientious bargains”
    • “ licenses behavior sufficiently outrageous to “ shock the conscience ” of the court”
  • 11. _______________________________________ AAHOA 2007 TAKING CHARGE, LEADING TOGETHER Ticknor v. Choice Hotels 9 th Cir. 2001 (Montana Law) Non-mutual out-of-state arbitration clause
    • agreement = adhesive
      • standardized, form agreement
      • “ take it or leave it ”
    • arbitration clause = unconscionable
      • “ one-sided”
  • 12. _______________________________________ AAHOA 2007 TAKING CHARGE, LEADING TOGETHER Mailbox Center Owners v. Sup. Ct. Cal. App. 2005
    • Knocked Out
    • ban on class arbitrations
    • limitations on damages and other remedies
    • arbitration fee-splitting
  • 13. _______________________________________ AAHOA 2007 TAKING CHARGE, LEADING TOGETHER Mailbox Center Owners v. Sup. Ct.
    • KEY CONSIDERATIONS FOR THE COURT:
    • franchise agreements have some adhesion characteristics
    • “ clear disparity of bargaining power”
    • similarities to consumer and employment contracts
    • damage limitations cannot preclude statutory remedies
    • arbitration cost allocation
  • 14. _______________________________________ AAHOA 2007 TAKING CHARGE, LEADING TOGETHER FRANCHISEE STRATEGY
    • Improve Bargaining Power!
    • Press the 12 Points
    • Form Independent Associations, Demand Collective Bargaining & document any lack of negotiation
    • Litigate Aggressively
    • Seek Mutual Respect
    • Change the Playing Field
  • 15. _______________________________________ AAHOA 2007 TAKING CHARGE, LEADING TOGETHER