Your SlideShare is downloading. ×
Unconscionability and Franchise Litigation
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×

Introducing the official SlideShare app

Stunning, full-screen experience for iPhone and Android

Text the download link to your phone

Standard text messaging rates apply

Unconscionability and Franchise Litigation

1,518
views

Published on

Published in: Business

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
1,518
On Slideshare
0
From Embeds
0
Number of Embeds
5
Actions
Shares
0
Downloads
0
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1.  
  • 2. UNCONSCIONABILITY and Franchise Litigation BETHANY L. APPLEBY WIGGIN and DANA LLP New Haven, Connecticut C. GRIFFITH TOWLE BARTKO, ZANKEL, TARRANT & MILLER San Francisco, California CARMEN D. CARUSO SCHWARTZ COOPER CHARTERED Chicago, Illinois
  • 3. Do these clauses look familiar?
    • no class or representative arbitration
    • requiring franchisees to arbitrate in another state
    • arbitration clauses that lack mutuality
    • damage limitations
    • other provisions arguably favoring the franchisor
  • 4. Freedom Of Contract Supervision by Courts A threat to franchising as we know it?
  • 5. Wake Forest Empirical Study U.C.C. Cases 1965-2005
    • 28% success rate overall (57% in California).
    • 12% success rate -- both sides were businesses.
    • 4.5% success rate -- equal bargaining power.
    • Your authors found 11 successful assertions of unconscionability in franchising!
  • 6. PERSPECTIVE & STRATEGY
  • 7. Why in the world should we discuss antitrust today? Jefferson Parish Hospital v. Hyde 466 U.S. 2 (1984) Eastman Kodak Co. v. Image Technical Servs. 504 U.S. 451 (1992)
  • 8. The Fairness Debate
    • In the early 1970’s, Harold Brown of Boston argued:
    • Threats to Franchisee Equity were unconcsionable
    • Franchisors owed Fiduciary Duties
    • Specifically denounced:
      • burdens on franchise transfers
      • sudden termination for non-material breach
      • post-termination non-competes
      • out-of-state venue clauses
  • 9. Franchisee Advocacy
    • antitrust
    • statutory regulation & public policy
    • unconscionability
    • fiduciary duties (general & agency theory)
    • good faith & fair dealing
    • independent associations & collective bargaining
    • fair franchising standards
  • 10. Equity Seeks To Do Justice
    • adhesion alone?
    • adhesion + surprise?
    • adhesion + oppression?
    • adhesion + surprise + oppression?
    • how “oppressive” must it be?
    • sliding scale?
  • 11. The Market Power Contradiction “ Precontract, competition … to sign up franchisees prevents [franchisor] from exercising any economic power in setting contract terms with potential franchisees.” Martino v. McDonald’s (N.D. Ill. 1985) (Rejecting claim that requiring franchisees to buy particular soft drinks was an unlawful tying arrangement)
  • 12. Characterization 53 haircutting franchisees: “ not vulnerable consumers or helpless workers but business people who bought a franchise” Arbitration in MBE agreement: “similar to mandatory employer/ employee… and consumer arbitration” We Care Hair (7 th Cir. 1999) MB Center Owners (Cal. App. 2005)
  • 13. The Renewal Dilemma “ O bviously, there is almost invariably disparate economic power between a franchiser and an already existing single franchisee …” Martino v. McDonald’s (N.D. Ill. 1985)
  • 14. Locked-In? Or Not? Subsolutions v. Doctor’s Assoc. 2001 U.S. Dist. LEXIS 24393 *32 (D. Conn. 2001) (alleged unlawful tying of POS system) “ Subway ® must be mindful of the way it treats its locked-in franchisees because it will have ramifications for its ability to sell new franchises.”
    • Eastman Kodak
    • was the offensive term foreseeable?
      • the “surprise” element of unconscionability?
  • 15. Risks of Inconsistency
    • One
    • same system
    • different franchisee
    Disputed term: “ must arbitrate in Antarctica”
    • Two
    • same franchisees
    • different systems
  • 16. Key Substantive Questions
    • who wins, loses?
      • individuals or the “system”?
      • net effect?
    • is there a sliding scale?
    • are there any absolute wrongs?
  • 17. Words or Deeds Term: “Franchisor may derive revenue from franchisee purchases of proprietary products”
    • Loose words ►►► ambiguity
    • Conduct ►►► unconscionable
        • Oppression
        • Surprise
  • 18. Adhesion terms that shock the conscience?
    • abolish good faith & fair dealing?
    • arbitrary threats to equity
    • harmful economic conduct
    • jury trial waivers
                   
  • 19. ►►► Moving Forward ►►►
    • evidence:
      • course of dealing & performance
      • industry standards
      • expert testimony
    • scrutiny of intent, interests & effects
    • market power debate
    • challenges to conduct
    • “ evolving standards” &
    • comparative law
                   
  • 20. FRANCHISEE STRATEGY
    • Improve Bargaining Power!
    • greater due diligence
    • document lack of negotiation
    • support independent associations
    • demand collective bargaining
    • seek mutual respect
    ►►► use unconscionability as a club                
  • 21. FRANCHISOR STRATEGY
    • ask what terms do you really need?
    • use prominent and clear language
    • negotiate?
    • present evidence:
      • disclosures
      • other choices
      • f’ee sophistication (not like an employee or consumer)
      • business purpose of disputed terms