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What Lies Beneath
 

What Lies Beneath

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    What Lies Beneath What Lies Beneath Presentation Transcript

    • WHAT LIES BENEATH THE FRANCHISEE PERSPECTIVE ON FRANCHISE CLAIMS BEYOND THE WRITTEN AGREEMENT Carmen D. Caruso J. Michael Dady
    • The Written Franchise Agreement
      • The only evidence you’ll ever need?
      • Evidence to be considered along with the parties’ communications and conduct?
    • EXCEPTIONS TO EVERY RULE
      • Where the Franchisor wants to expand the Franchise Agreement to impose new duties or restrictions on the Franchisee or reinterpret existing ones
      • Reinvestment Requirements
      • The Franchisee must meet system standards established by the Franchisor and modified from time to time
    • Franchisor’s Interpretation:
        • In the home stretch of a twenty year term, Franchisees were told to reinvest a fixed percentage of their annual revenue in order to qualify for another franchise agreement after expiration
        • Fiore v. McDonald’s Corporation
    • FRANCHISEE PERSPECTIVE
      • TRUTHFUL DISCLOSURES
      • HONEST, GOOD FAITH PERFORMANCE
      • PROTECTION OF EQUITY
      • FULL PROTECTION BY THE LEGAL SYSTEM
      • Aid to Construction of Existing Terms
      • Fills “Gaps”
      • Requires Proper Motive
      • Protects Reasonable Expectations of Parties
      IMPLIED COVENANT OF GOOD FAITH & FAIR DEALING
    • AMBIGUITY
      • Product Supply: “Franchisor May Profit” on Franchisee Purchases
      • How much?
      • Above market prices?
      • Alternative suppliers?
      • Good Faith & Fair Dealing?
    • Good Faith vs. Good Cause
      • Where a franchisee failed to pay royalties, creating good cause for termination, the franchisee nonetheless presented sufficient evidence that the franchisor acted in bad faith in causing the termination through its cannibalization of the franchisee's business.    Interim Health Care of Northern Illinois v. Interim Health Care
    • FIGHTING WORDS
      • “ This agreement shall be construed without reference to the implied covenant of good faith & fair dealing”
      • There are “No Implied Agreements”
      • Franchisor shall have “sole discretion”
      • No course of dealing evidence
    • TRUTHFUL DISCLOSURES
      • In the Offering Circular ? Or beyond? If beyond, can it be proven?
      • Follow the Money
      • Does the Agreement defeat the claim?
    • INTEGRATION CLAUSES
      • The “Complete Agreement”
      • If a contract was procured by fraud, an integration clause reciting that the written agreement was complete “ would go down the drain with the contract of which it was a part ”
      • Vigortone AG Prods., Inc. v. AG Prods
    • PROMISSORY FRAUD
      • Promise made with no intent of future performance (as part of fraud scheme)
      • Subject to “complete agreement” clause ?
    • ANTI-FRAUD CLAIM CLAUSES
      • “ No Representations”
      • “ No Reliance”
      • “ No defendant may escape liability for actual fraud through the use of general disclaimers”
      • Healy v. Carlson Travel Network Assocs. (dicta)
    • JURY TRIAL WAIVERS
      • In cases of fraud, contractual restrictions go down the drain …
      • Disparity of Bargaining Power
      • Lack of Negotiation
      • Inconspicuous & Not Understood
    • CHOICE OF LAW CLAUSES
      • STATE FRANCHISING ACTS
        • Non-Waiver Clauses
        • Freedom of Contract
      • MOVING TARGETS
    • Other Tough Clauses
      • Shortened Limitation Periods
      • “ Single Plaintiff”
      • Punitive Damage Exclusion
      • Liquidated Damages
      • Forum Selection
      • Arbitration (other states)
      • One-Sided Fee Shifiting
    • STATE FRANCHISE ACTS
      • Franchise Definition
      • Hidden Franchises:
        • Forced purchases can constitute franchise fees
        • To-Am Equip. Co. v. Mitsubishi
    • STATE FRANCHISE ACTS
      • Registration & Disclosure Claims
      • Fraud in the Sales Process
        • Extra-territorial (offer made in state)
        • Strict liability – “any untrue statements” or omissions that are materially “misleading”
    • STATE FRANCHISING ACTS
      • Post-Sale Protection Varies
      • Membership in Trade Associations
      • Discrimination (offensive & defensive claims)
    • Discrimination as a Defense to Termination Seventh Circuit: “ discrimination requires proof of “arbitrary disparate treatment among similarly situated individuals or entities.” Canada Dry Corp. v. Nehi Beverage Co., Inc. ,
    • STATE FRANCHISING ACTS
      • Expiration/Non-Renewal
      • Termination
          • Notice & Good Cause
    • Little FTC Acts
      • Franchisees as “Consumers”
      • Plead Facts – The Sales Process
    • Little FTC Acts
      • State law cause of action for violating the FTC Rule
        • Improper Earnings Claims
        • False Earnings Claims
    • Little FTC Acts
      • Intent vs. Recklessness
      • Reliance ?
      • Causation