Franchising in New England

Scott Krumholz v. AJA, LLC and Emack & Bolio (January 13, 2010)

All of the claims brought by the Emack & Bolio’s ice cream franchisees against a franchisor were time-barred by the one-year contractual limitations clause in the parties’ franchise agreement. The franchisees filed their complaint against the franchisor on December 24, 2007. The franchisees alleged that the franchisor had fraudulently induced them to invest significant financial resources in their franchise. The alleged misrepresentations occurred during a meeting between the parties on December 14, 2002. The franchise opened for business in May, 2003, and by the end of 2004 it was clear to the franchisees that the costs of construction, equipment, and inventory were significantly higher than the amounts quoted to them by the franchisor and that their earnings had fallen far short of the franchisor’s projections. In light of those facts, it could not be reasonably contended that, at least by December 2006, after closing the store due to $800,000 in losses, the franchisee did not have notice of the alleged cause of the harm-the franchisor’s alleged gross misrepresentations.

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This information was submitted by Barbara Arena of CIT Small Business Lending.

Senate bill S.2920 is to authorize and improve the financing and entrepreneurial development programs of the Small Business Administration, and for other programs was introduced in April and added to the congressional calendar, where is sits…  Contact your Congressional representative to get this moving!

Highlights include:

· Reauthorizes programs for FY2008-FY2010

· Maximum 7(a) loan would increase to $3,000,000 {with maximum guaranty of $2,250,000 (75%)}

· 7(a) and 504 loan program maximums would be available to a qualified borrower (meeting eligibility requirements of each program) under each program. (Maximum 7a would increase to $3,000,000; 504 remains unchanged – up to $4 million depending upon business)

· Alternative Size Standard definition:  7(a) loans may use tangible net worth (< $8 million) and net profit after tax (< $3 million) definitions (reserved for 504 loans) as an alternative to the 3-year revenue or # of employee definitions currently used to meet the “small business” size standard.

Click here to access FULL pdf version (warning a 214 page document)

Michael Radin of Tarlow Breed Hart & Rodgers, P.C. provides a Legal and Legislative update at each of NEFA’s Dinner Meetings.

The Legal and Legislative update is digest of legal and legislative tidbits that are pertinent to franchising and running a franchise.

Open a copy of the 5-20-08 NEFA Legal & Legislative Update presented by Michael Radin.

Michael Radin of Tarlow Breed Hart & Rodgers, P.C. provides a Legal and Legislative update at each of NEFA’s Dinner Meetings.

The Legal and Legislative update is a digest of legal and legislative tidbits that are pertinent to franchising and running a franchise.

Open a copy of the 1-15-08 NEFA Legal & Legislative Update presented by Michael Radin.

Submitted by Eric Karp, and David J. Meretta, of Witmer Karp Warner & Ryan, LLP, NEFA Members.

One of the most exciting aspects of the new Franchise Disclosure Rule (which took effect on an optional basis as of July 1, 2007 and will become mandatory as of July 1, 2008) is the wholly new requirement that the franchisor include in its Disclosure Document the name, address, telephone number, e-mail address and web address of any trademark-specific franchisee association within the franchise system that is either (a) created, sponsored or endorsed by the franchisor, or (b) incorporated and asks to be included in the disclosure document for the next fiscal year.

In the latter case, the request must be renewed in writing each year and made within 60 days following the end of the franchisor’s fiscal year. For our franchisee association clients, we prepare the notice to the franchisor requesting inclusion of the association in the Disclosure Document free of charge.

This component of the Rule is an important and emphatic statement of the Federal Trade Commission’s view of the vital role that franchisee associations can and do play in franchise systems. As observed by one federal district court nearly 30 years ago: One of the traditional control mechanisms of a franchisor has been to keep its franchisees disorganized.

Franchisees, by necessity, must have access to the franchise group in order to act together to deal with common problems, whether those problems be the oppressiveness of the franchisor or some less momentous concern.

McAlpine v. AAMCO Automatic Transmissions, Inc., 461 F. Supp. 1232, 1273-74 (E.D. Mich. 1978).

The access to a franchisee trade association that the McAlpine court sought to protect is currently secured by statute in eleven states: Arkansas, California, Hawaii, Illinois, Iowa, Michigan, Minnesota, Nebraska, New Jersey, Rhode Island, and Washington.

Having followed the case law in this field for nearly three decades, we observe that judges and juries tend to work hard to find a path to sanction the franchisor when it is alleged to have treated a member or a leader of the franchisee association differently than other franchisees, particularly when that disparate treatment is seen as a retaliatory response to the relationship between that franchisee and the association. These cases often have egregious facts, which seem to drive the results.

Beyond a statement of the legitimacy and constructive nature of franchisee associations, this new required disclosure will give prospective franchisees access to a crucial source of information about the franchise system that will enhance their ability to fully investigate the franchise opportunity. We were privileged to play a role in supporting the inclusion of this requirement in the new Rule.

Michael Radin of Tarlow Breed Hart & Rodgers, P.C. provides a Legal and Legislative update at each of NEFA’s Dinner Meetings.

The Legal and Legislative update is digest of legal and legislative tidbits that are pertinent to franchising and running a franchise.

Open a copy of the 11-13-07 NEFA Legal & Legislative Update presented by Michael Radin.

Michael Radin of Tarlow Breed Hart & Rodgers, P.C. provides a Legal and Legislative update at each of NEFA’s Dinner Meetings.

The Legal and Legislative update is digest of legal and legislative tidbits that are pertinent to franchising and running a franchise.

Open a copy of the 9-18-07 NEFA Legal & Legislative Update presented by Michael Radin.