News Briefs

Rhode Island Dealership Law Could Have Franchise Impact

Although not written with the franchise industry in mind, the Rhode Island Fair Dealership Act ('the Act') eventually could have an effect on franchisors operating in the state. The Act's similarity to Wisconsin's dealership law is attracting the attention of franchise attorneys, who saw court rulings in Wisconsin apply that law to franchising activities. The Rhode Island Act became effective on June 14.

'The Rhode Island Fair Dealership Act is not a franchise law. Rhode Island has had a franchise law since 1973, and this new Act does not have any impact on that law,' said a representative of the Rhode Island Department of Business Regulation, which reviews franchise registrations and offerings. 'Title 19 is our franchise law, and Title 6 is general business law. The Fair Dealership Act is part of Title 6.'

The Act defines the restrictions for dealers to renew, terminate, or amend dealership agreements. It sets a 90-day notice period for all terminations and non-renewals (which includes 60 days to address alleged violations), unless dealership nonpayment or insolvency has occurred.

As with other dealership laws in other states, the Act defines 'good cause' as it relates to dealer conduct. 'There is a good cause requirement related to arbitration, but it is ambiguous,' noted an analytical memo prepared by Nixon Peabody LLP. 'It appears that there is an incentive in the Act to apply the good cause standard where the parties agree to arbitrate. The Act is suggestive that good cause may become the standard in future judicial decisions, as it constitutes a statement of public policy by the legislature.

It is in just such an arbitration situation that franchise attorneys see the Act as having possible relevance to franchising in the future. 'It's accurate to say that the Rhode Island Fair Dealership Act is not a franchise registration or disclosure rule,' said Craig Tractenberg, partner, Nixon Peabody LLP (Philadelphia). 'But I see many similarities to Wisconsin's fair dealership law, which courts have ruled can be applied to franchising.'

A client memo prepared by DLA Piper added that 'literally hundreds' of franchise cases have been litigated in Wisconsin over terminations in which the dealership law has been invoked.

One impact of litigation in Wisconsin is that when a franchisor sends a franchisee an offer, it must include an addendum about the 60-day and 90-day rules. This requirement is not part of the law as it pertains to franchisors in Rhode Island.

Tractenberg predicted that at some time in the future a franchisee-franchisor dispute will wind up in court, and one party or the other will cite the dealership act as providing legal grounding for its claim. Most likely, a franchisee will make the argument that new law protects it from termination. Tractenberg believes the act may be turned on it head and some franchise lawyer will argue, 'Why shouldn't this dealership law apply?'

A franchisee attorney would argue that Rhode Island's dealership definition applies to franchises, too: '[A] person is granted the right to sell or distribute goods or services, or use a ' trademark ' advertising or other commercial symbol, in which there is a community of interest in the business of offering, selling or distributing goods or services.'

The Rhode Island Department of Business Regulation staff member agreed that nothing would stop a Rhode Island franchisee from attempting to invoke the law. But the staff member cautioned against assuming that franchises will be deemed to be covered by the law, just because Wisconsin's law has been interpreted so.

Translation of China's New Franchise Law Available Online

Jones & Co. (Toronto, Canada) has published a translation of China's new franchising law and related documents. The translations for the New Tiaoli, the Questions and Answers, the Disclosure Measures, and the Registration (or Filing) Measures can be read at http://admin.jonesco-law.ca, under the link for Publications.

The text is bilingual and formatted to make it easier to check the actual Chinese text, said Paul Jones in an e-mail announcement. 'We have also included a number of footnotes where there were ambiguities in the wording, where some background on China would assist the reader, or where there were other ways to assist a reader unfamiliar with Chinese or China to have a practical understanding of that portion of the text,' he added. 'In addition, at the beginning of the Tiaoli (or Regulation) there is a 6 page introduction to aspects of civil law and Chinese law that will assist readers in understanding the context in which the Regulations are being implemented.'

Rhode Island Dealership Law Could Have Franchise Impact

Although not written with the franchise industry in mind, the Rhode Island Fair Dealership Act ('the Act') eventually could have an effect on franchisors operating in the state. The Act's similarity to Wisconsin's dealership law is attracting the attention of franchise attorneys, who saw court rulings in Wisconsin apply that law to franchising activities. The Rhode Island Act became effective on June 14.

'The Rhode Island Fair Dealership Act is not a franchise law. Rhode Island has had a franchise law since 1973, and this new Act does not have any impact on that law,' said a representative of the Rhode Island Department of Business Regulation, which reviews franchise registrations and offerings. 'Title 19 is our franchise law, and Title 6 is general business law. The Fair Dealership Act is part of Title 6.'

The Act defines the restrictions for dealers to renew, terminate, or amend dealership agreements. It sets a 90-day notice period for all terminations and non-renewals (which includes 60 days to address alleged violations), unless dealership nonpayment or insolvency has occurred.

As with other dealership laws in other states, the Act defines 'good cause' as it relates to dealer conduct. 'There is a good cause requirement related to arbitration, but it is ambiguous,' noted an analytical memo prepared by Nixon Peabody LLP. 'It appears that there is an incentive in the Act to apply the good cause standard where the parties agree to arbitrate. The Act is suggestive that good cause may become the standard in future judicial decisions, as it constitutes a statement of public policy by the legislature.

It is in just such an arbitration situation that franchise attorneys see the Act as having possible relevance to franchising in the future. 'It's accurate to say that the Rhode Island Fair Dealership Act is not a franchise registration or disclosure rule,' said Craig Tractenberg, partner, Nixon Peabody LLP (Philadelphia). 'But I see many similarities to Wisconsin's fair dealership law, which courts have ruled can be applied to franchising.'

A client memo prepared by DLA Piper added that 'literally hundreds' of franchise cases have been litigated in Wisconsin over terminations in which the dealership law has been invoked.

One impact of litigation in Wisconsin is that when a franchisor sends a franchisee an offer, it must include an addendum about the 60-day and 90-day rules. This requirement is not part of the law as it pertains to franchisors in Rhode Island.

Tractenberg predicted that at some time in the future a franchisee-franchisor dispute will wind up in court, and one party or the other will cite the dealership act as providing legal grounding for its claim. Most likely, a franchisee will make the argument that new law protects it from termination. Tractenberg believes the act may be turned on it head and some franchise lawyer will argue, 'Why shouldn't this dealership law apply?'

A franchisee attorney would argue that Rhode Island's dealership definition applies to franchises, too: '[A] person is granted the right to sell or distribute goods or services, or use a ' trademark ' advertising or other commercial symbol, in which there is a community of interest in the business of offering, selling or distributing goods or services.'

The Rhode Island Department of Business Regulation staff member agreed that nothing would stop a Rhode Island franchisee from attempting to invoke the law. But the staff member cautioned against assuming that franchises will be deemed to be covered by the law, just because Wisconsin's law has been interpreted so.

Translation of China's New Franchise Law Available Online

Jones & Co. (Toronto, Canada) has published a translation of China's new franchising law and related documents. The translations for the New Tiaoli, the Questions and Answers, the Disclosure Measures, and the Registration (or Filing) Measures can be read at http://admin.jonesco-law.ca, under the link for Publications.

The text is bilingual and formatted to make it easier to check the actual Chinese text, said Paul Jones in an e-mail announcement. 'We have also included a number of footnotes where there were ambiguities in the wording, where some background on China would assist the reader, or where there were other ways to assist a reader unfamiliar with Chinese or China to have a practical understanding of that portion of the text,' he added. 'In addition, at the beginning of the Tiaoli (or Regulation) there is a 6 page introduction to aspects of civil law and Chinese law that will assist readers in understanding the context in which the Regulations are being implemented.'