News Briefs

Given all participants' frustration with one or more aspects of dispute resolution, Silverman said that the time is right to seek out areas of agreement across the industry and propel effective procedures into widespread usage. “The franchise industry is cohesive enough that we might be able to define best practices that are widely applicable,” he said. “And since the franchise relationship is controlled by a contract, it's reasonable to see that those procedures could be built into franchise agreements.”

Ultimately, for example, the task force could suggest language for litigation agreements written in contracts. The model language could describe how mandatory mediation or other active intervention could better avoid litigation by dealing with issues of timing or preliminary information exchange, Silverman said.

Managing discovery and e-discovery is another area ripe for review, he said. “Franchisors and franchisees are concerned with the problem of proportionality as it relates to the cost of discovery,” said Silverman. “Sometimes, the amount of money at stake in the dispute is small, such as $10,000, but there's no limit on the discovery. So long as adequate protections are built in, franchisors and franchisees should both benefit from proportionate discovery.”

In the area of fairness, franchisees often express concern that franchisors benefit from “repeat-player bias” in arbitrations because the franchisor is likely to appear before the same arbitrator or use the same arbitration provider more often than a franchisee. A system that gives franchisees and their counsel more information about how arbitrators ruled in past franchise disputes could address that problem, Silverman said. While acknowledging that it would have to be done without violating arbitration confidentiality, he pointed to FINRA, which oversees enforcement of investment brokers, as one possible model. FINRA releases basic information about the dispute, including the name of the arbitrator(s) and the counsel, but no detailed facts. “So, when a party names counsel for its dispute, the attorney could call counsel who appeared before that arbitrator and get information,” said Silverman.

While saying that his comments are not indicative of the direction that the LDAR Committee will take, Silverman said that his goal is for the committee to report to the ABA Forum on Franchising's governing body no later than its annual meeting in October 2012. “We might have substantive recommendations, but we might just recommend the next steps we would like to take in the process,” said Silverman, adding that developing litigation models could take several years.

To participate on a task force, contact Peter Silverman at [email protected].

IFA Sounds Alarm About Health Care Worker Overtime Wages

Newly proposed federal employment regulations “could potentially triple the cost of in-home healthcare for seniors and would negatively impact franchise small business owners,” said the International Franchise Association (“IFA”). The proposal would end a “companionship services” exemption to overtime requirements for workers in the home care industry under the federal Fair Labor Standards Act.

“The companionship exemption is a significant factor in helping to keep paid, senior home care affordable,” said IFA. “The proposed rulemaking by the U.S. Department of Labor will narrow the scope of those caregivers covered by the companionship exemption to include employees of many IFA member companies.”

Moreover, home health care is a fast-growing field, both in terms of employment and franchising ' and the economy can ill afford to undercut employment in any industry, said IFA. According to IFA data, the personal services line of business, of which home health care is one component, is projected to be the second-fastest growing segment of the franchise industry in 2012 in terms of new establishments, and the fastest-growing in terms of revenue.

IFA said it supports the Companionship Exemption Protection Act (H.R. 3066), sponsored by Rep. Lee Terry (R-NE). H.R. 3066 would supersede the Labor Department's proposed rules by defining the scope of activities covered as companionship services and granting third-party providers an exemption to the overtime requirements.

Allstate Agents Ruled Not Franchisees in New Jersey

On Jan. 6, the Superior Court of New Jersey dismissed all claims filed by three exclusive agents of Allstate New Jersey Insurance Company who sought protection as franchisees of the company. Allstate New Jersey is a wholly owned subsidiary of Allstate Insurance Company.

In 2011, the Allstate agents were terminated by Allstate New Jersey for failing to meet certain business objectives, said Allstate New Jersey in a press statement announcing the dismissal of the lawsuit. The agents filed lawsuits seeking to prevent the termination of their agency, alleging they had franchise relationships with Allstate New Jersey and were protected under the New Jersey Franchise Practices Act (“NJFPA”).

The court determined that the agents were not franchisees and have no protections under the NJFPA. It agreed with Allstate's position that its exclusive agents are independent contractors, not franchisees. “[The] insurance industry has never been found by any court in New Jersey, or elsewhere, to be home to an insurance company franchisor, or agent franchisee,” wrote the court.

Health Club Franchisor, Vendor Settle Infringement Lawsuit

Curves International, Inc. and software developer Go Figure, Inc. settled a lawsuit filed by Go Figure for alleged trademark and antitrust claims, according to representatives of Haynes and Boone, LLP, which represented Curves. The lawsuit was settled in the Southern District of Texas in late December.

Go Figure developed software for managing health clubs. From 2001 until its vendor agreement expired on May 1, 2009, Go Figure was an approved vendor to Curves franchisees. Curves did not renew the agreement, but it alleged that Go Figure continued to use its trademark in seeking contracts with Curves franchisees. In September 2009, Go Figure sued Curves in federal district court, seeking a declaration that Go Figure had the continued right to use Curves' trademark in connection with its sale of club management software to Curves' franchisees. Curves counterclaimed against Go Figure for trademark infringement and other related claims. When Curves debuted its own club management software in 2011, Go Figure amended its complaint to assert claims under the Sherman Act to seek more than $3.5 million in damages.

To settle the lawsuit, Haynes and Boone said that Go Figure agreed to a payment to Curves. Neither Curves nor Go Figure would comment on the details.

ABA Forum on Franchising Committee to Look at Dispute Resolution

The Litigation and Alternative Dispute Resolution (“LDAR”) Committee of the ABA Forum on Franchising has set an ambitious agenda to identify best practices and, possibly, make recommendations for procedures that could make dispute resolution “faster, cheaper, and fairer,” according to Peter Silverman, chair of the LDAR Committee. Task forces have been formed to begin what is likely to be a multi-year effort, he said.

“I don't know a franchisor or franchisee who doesn't believe that dispute resolution costs too much and takes too long,” said Silverman, a partner in the litigation practice group in the Toledo, OH, office of Shumaker, Loop & Kendrick, LLP. “We also know that there are issues of fairness or perceived fairness, such as from franchisees that believe that arbitration is biased against them.”

Given all participants' frustration with one or more aspects of dispute resolution, Silverman said that the time is right to seek out areas of agreement across the industry and propel effective procedures into widespread usage. “The franchise industry is cohesive enough that we might be able to define best practices that are widely applicable,” he said. “And since the franchise relationship is controlled by a contract, it's reasonable to see that those procedures could be built into franchise agreements.”

Ultimately, for example, the task force could suggest language for litigation agreements written in contracts. The model language could describe how mandatory mediation or other active intervention could better avoid litigation by dealing with issues of timing or preliminary information exchange, Silverman said.

Managing discovery and e-discovery is another area ripe for review, he said. “Franchisors and franchisees are concerned with the problem of proportionality as it relates to the cost of discovery,” said Silverman. “Sometimes, the amount of money at stake in the dispute is small, such as $10,000, but there's no limit on the discovery. So long as adequate protections are built in, franchisors and franchisees should both benefit from proportionate discovery.”

In the area of fairness, franchisees often express concern that franchisors benefit from “repeat-player bias” in arbitrations because the franchisor is likely to appear before the same arbitrator or use the same arbitration provider more often than a franchisee. A system that gives franchisees and their counsel more information about how arbitrators ruled in past franchise disputes could address that problem, Silverman said. While acknowledging that it would have to be done without violating arbitration confidentiality, he pointed to FINRA, which oversees enforcement of investment brokers, as one possible model. FINRA releases basic information about the dispute, including the name of the arbitrator(s) and the counsel, but no detailed facts. “So, when a party names counsel for its dispute, the attorney could call counsel who appeared before that arbitrator and get information,” said Silverman.

While saying that his comments are not indicative of the direction that the LDAR Committee will take, Silverman said that his goal is for the committee to report to the ABA Forum on Franchising's governing body no later than its annual meeting in October 2012. “We might have substantive recommendations, but we might just recommend the next steps we would like to take in the process,” said Silverman, adding that developing litigation models could take several years.

To participate on a task force, contact Peter Silverman at [email protected].

IFA Sounds Alarm About Health Care Worker Overtime Wages

Newly proposed federal employment regulations “could potentially triple the cost of in-home healthcare for seniors and would negatively impact franchise small business owners,” said the International Franchise Association (“IFA”). The proposal would end a “companionship services” exemption to overtime requirements for workers in the home care industry under the federal Fair Labor Standards Act.

“The companionship exemption is a significant factor in helping to keep paid, senior home care affordable,” said IFA. “The proposed rulemaking by the U.S. Department of Labor will narrow the scope of those caregivers covered by the companionship exemption to include employees of many IFA member companies.”

Moreover, home health care is a fast-growing field, both in terms of employment and franchising ' and the economy can ill afford to undercut employment in any industry, said IFA. According to IFA data, the personal services line of business, of which home health care is one component, is projected to be the second-fastest growing segment of the franchise industry in 2012 in terms of new establishments, and the fastest-growing in terms of revenue.

IFA said it supports the Companionship Exemption Protection Act (H.R. 3066), sponsored by Rep. Lee Terry (R-NE). H.R. 3066 would supersede the Labor Department's proposed rules by defining the scope of activities covered as companionship services and granting third-party providers an exemption to the overtime requirements.

Allstate Agents Ruled Not Franchisees in New Jersey

On Jan. 6, the Superior Court of New Jersey dismissed all claims filed by three exclusive agents of Allstate New Jersey Insurance Company who sought protection as franchisees of the company. Allstate New Jersey is a wholly owned subsidiary of Allstate Insurance Company.

In 2011, the Allstate agents were terminated by Allstate New Jersey for failing to meet certain business objectives, said Allstate New Jersey in a press statement announcing the dismissal of the lawsuit. The agents filed lawsuits seeking to prevent the termination of their agency, alleging they had franchise relationships with Allstate New Jersey and were protected under the New Jersey Franchise Practices Act (“NJFPA”).

The court determined that the agents were not franchisees and have no protections under the NJFPA. It agreed with Allstate's position that its exclusive agents are independent contractors, not franchisees. “[The] insurance industry has never been found by any court in New Jersey, or elsewhere, to be home to an insurance company franchisor, or agent franchisee,” wrote the court.

Health Club Franchisor, Vendor Settle Infringement Lawsuit

Curves International, Inc. and software developer Go Figure, Inc. settled a lawsuit filed by Go Figure for alleged trademark and antitrust claims, according to representatives of Haynes and Boone, LLP, which represented Curves. The lawsuit was settled in the Southern District of Texas in late December.

Go Figure developed software for managing health clubs. From 2001 until its vendor agreement expired on May 1, 2009, Go Figure was an approved vendor to Curves franchisees. Curves did not renew the agreement, but it alleged that Go Figure continued to use its trademark in seeking contracts with Curves franchisees. In September 2009, Go Figure sued Curves in federal district court, seeking a declaration that Go Figure had the continued right to use Curves' trademark in connection with its sale of club management software to Curves' franchisees. Curves counterclaimed against Go Figure for trademark infringement and other related claims. When Curves debuted its own club management software in 2011, Go Figure amended its complaint to assert claims under the Sherman Act to seek more than $3.5 million in damages.

To settle the lawsuit, Haynes and Boone said that Go Figure agreed to a payment to Curves. Neither Curves nor Go Figure would comment on the details.