News Briefs

The California Department of Corporations is one step closer to changing the state's regulations regarding negotiated terms in franchise agreements. The Department responded favorably, by letter, to new language proposed by the Franchise Law Committee (part of the Business Law Section of the State Bar of California) that would allow California franchisors to negotiate changes in FDDs with franchisees without having to disclose the terms of those changes, if they provide certain disclosures in the FDD.

“The Department of Corporations sent a letter that states that it has accepted our proposal for a future rulemaking action,” said Matthew Kreutzer, a Las Vegas franchise attorney with Armstrong Teasdale, LLP, who is head of the California Franchise Law Committee's Subcommittee on Negotiated Sales. The letter did not indicate a date by which the formal rulemaking process might begin, and Kreutzer said that he believes it is because the Department is in the midst of a merger with the Department of Financial Institutions that is the current focus of the Department's administrators.

At present, California has an unusual requirement that franchisors must disclosure the details of negotiated franchise agreements that diverge from the standard FDD. Franchisors and franchisees alike have said that the disclosure requirement discourages franchisors from negotiating in ways that might be beneficial for franchisees. The proposal would allow a franchisor to avoid having to make disclosures of negotiated terms in franchise contracts. In return, a franchisor would be required to add new language to its FDD, including: a statement that California law does not prohibit negotiation with a franchisee; an indication of whether or not the franchisor “as a general practice” negotiates with franchisees; and identification of a website at the Department of Corporations that has information about the negotiated sales process and the franchise sales process.

“We think it would create a better-informed market of franchising prospects, as well as give them the tools to negotiate if they wish,” said Kreutzer. “I would emphasize that the language in the proposed regulatory amendment is the product of more than a year-and-a-half of discussions that included representatives of franchisors and franchisees. It was carefully work-shopped, and it received unanimous approval by the Franchise Law Committee and then was endorsed by the California Bar.”

New Hampshire Passes Changes to Vehicle Dealership Laws

New Hampshire automobile dealers will enjoy significant new protections, if Gov. Maggie Hassan signs a bill that was passed by the legislature this spring. SB 126, which passed the state Senate in March and the House on May 22, would affect many provisions of dealership contracts, including terminations, non-renewals, mandatory arbitration, and showroom remodeling, according to Peter McNamara, president of the New Hampshire Automobile Dealers Association. “Since 2008, auto manufacturers have gotten particularly aggressive about facility upgrades, and that drove us to seek the legislation,” McNamara told FBLA . “The average cost of an upgrade is $3.5 million, and dealers were being required to do them every five to seven years, with no evidence that having a new face on a building was resulting in sales of more cars.”

Under SB 126, automakers would be prohibited from requiring a facility upgrade more often than every 15 years, unless the manufacturer pays 65% of the cost. While dealers would have to pay for the initial zoning variance request related to a facility upgrade, manufacturers would have to pay for appeals or repeated requests.

SB 126 also prohibits automakers from single-source purchase requirements related to showroom upgrades, though single-sourcing is allowed if the manufacturer pays 65% of the cost. “As examples, dealers have been required to buy tiles from one supplier in Detroit and leather couches from Italy. We don't think those are what drive vehicle sales,” said McNamara.

Other provisions of the bill would prohibit automakers from forcing a dealer to agree to exclusivity or site control, and would require automakers to provide annually to each dealer the routine internal business reports that the automakers' representatives file about the dealership. “The bill was modeled after laws in other states, except for the reporting requirement; no other state, to the best of my knowledge, has it,” said McNamara.

In one other break from laws in other states, SB 126 would cover dealers of farm equipment and off-road equipment. However, the Association of Equipment Manufacturers (“AEM”), which represents makers of off-road vehicles and farm equipment, has threatened to sue to block the law. AEM wrote to Gov. Hassan that the law “would likely be held unconstitutional, and it will almost certainly face such a challenge [in court].”

Exam for CA Board Certified Franchise and Distribution Law Specialist Set for Oct. 22

The State Bar of California's Board of Legal Specialization has announced that the 2013 legal specialization examination will be held on Oct. 22 in Pasadena and San Francisco. The exam is open to active members of the State Bar of California who have practiced franchise and distribution law since at least January 2012. It is the first step in becoming a certified specialist. The application deadline is Sept. 10, and late applications will be accepted until Oct. 15 at an additional fee if space is available.

For more information about the exam or full details of the requirements for becoming a Certified Franchise and Distribution Law Specialist, visit: www.californiaspe cialist.org, e-mail [email protected] or call 415-538-2120.

Dearborn, MI, McDonald's Drops Halal Chicken After Settling Lawsuit

Settlement of a class action lawsuit in Michigan alleging that a McDonald's franchisee falsely advertised that it was selling halal chicken ' chicken that met Islamic dietary laws ' has left few satisfied with the result. Franchisee Finley's Management Co. suffered a significant financial hit: $700,000. But the bigger blow came for customers of McDonald's when, in late May, the franchisee stopped selling halal chicken nuggets and sandwiches. Its restaurants were the only McDonald's in the nation selling halal chicken.

“One of my restaurants in Dearborn, Mich., has been serving two halal menu items for the past several years, and those items have been discontinued as a result of our continued efforts to focus on our national core menu,” said Wise Finley, president of Finley's Management in a statement released to the press. “We remain committed to our customers in the Dearborn community and are sorry for any inconvenience this may cause.”

The lawsuit arose from an incident in September 2011, when Ahmed Ahmed bought a chicken sandwich that did not contain halal chicken, though it was advertised as halal. The restaurant had allegedly run out of halal chicken on that day, but did not inform him. A class action lawsuit with him as the lead plaintiff was filed in November 2011. The settlement approved by the court in April 2013 distributed $700,000 to Ahmed, his attorneys, and local Islamic charities (Ahmed v. Finley's Mgmt. Co. , No. 11-014559-CZ (Mich. Cir. Ct., Wayne Cnty.)).

Delaware Affirms Franchisors Are Not Franchisees' Employers

On June 10, Delaware Gov. Jack Markell signed into law HB 55, which affirms that the franchisee/franchisor relationship is not an employment relationship and that franchisees are independent contractors. This measure passed both the Delaware House and Senate unanimously in the spring.

“This is a victory for the franchise industry and will allow franchising to remain a growing force in the Delaware economy,” said IFA President and CEO Stephen J. Caldeira. He added that IFA will be contacting legislators in other states to support similar legislation in their next legislative sessions, particularly states that use the three-pronged employment “A-B-C” test to determine independent contractor status.

CA Moves One Step Closer To Confidentiality for Negotiated Contract Terms

The California Department of Corporations is one step closer to changing the state's regulations regarding negotiated terms in franchise agreements. The Department responded favorably, by letter, to new language proposed by the Franchise Law Committee (part of the Business Law Section of the State Bar of California) that would allow California franchisors to negotiate changes in FDDs with franchisees without having to disclose the terms of those changes, if they provide certain disclosures in the FDD.

“The Department of Corporations sent a letter that states that it has accepted our proposal for a future rulemaking action,” said Matthew Kreutzer, a Las Vegas franchise attorney with Armstrong Teasdale, LLP, who is head of the California Franchise Law Committee's Subcommittee on Negotiated Sales. The letter did not indicate a date by which the formal rulemaking process might begin, and Kreutzer said that he believes it is because the Department is in the midst of a merger with the Department of Financial Institutions that is the current focus of the Department's administrators.

At present, California has an unusual requirement that franchisors must disclosure the details of negotiated franchise agreements that diverge from the standard FDD. Franchisors and franchisees alike have said that the disclosure requirement discourages franchisors from negotiating in ways that might be beneficial for franchisees. The proposal would allow a franchisor to avoid having to make disclosures of negotiated terms in franchise contracts. In return, a franchisor would be required to add new language to its FDD, including: a statement that California law does not prohibit negotiation with a franchisee; an indication of whether or not the franchisor “as a general practice” negotiates with franchisees; and identification of a website at the Department of Corporations that has information about the negotiated sales process and the franchise sales process.

“We think it would create a better-informed market of franchising prospects, as well as give them the tools to negotiate if they wish,” said Kreutzer. “I would emphasize that the language in the proposed regulatory amendment is the product of more than a year-and-a-half of discussions that included representatives of franchisors and franchisees. It was carefully work-shopped, and it received unanimous approval by the Franchise Law Committee and then was endorsed by the California Bar.”

New Hampshire Passes Changes to Vehicle Dealership Laws

New Hampshire automobile dealers will enjoy significant new protections, if Gov. Maggie Hassan signs a bill that was passed by the legislature this spring. SB 126, which passed the state Senate in March and the House on May 22, would affect many provisions of dealership contracts, including terminations, non-renewals, mandatory arbitration, and showroom remodeling, according to Peter McNamara, president of the New Hampshire Automobile Dealers Association. “Since 2008, auto manufacturers have gotten particularly aggressive about facility upgrades, and that drove us to seek the legislation,” McNamara told FBLA . “The average cost of an upgrade is $3.5 million, and dealers were being required to do them every five to seven years, with no evidence that having a new face on a building was resulting in sales of more cars.”

Under SB 126, automakers would be prohibited from requiring a facility upgrade more often than every 15 years, unless the manufacturer pays 65% of the cost. While dealers would have to pay for the initial zoning variance request related to a facility upgrade, manufacturers would have to pay for appeals or repeated requests.

SB 126 also prohibits automakers from single-source purchase requirements related to showroom upgrades, though single-sourcing is allowed if the manufacturer pays 65% of the cost. “As examples, dealers have been required to buy tiles from one supplier in Detroit and leather couches from Italy. We don't think those are what drive vehicle sales,” said McNamara.

Other provisions of the bill would prohibit automakers from forcing a dealer to agree to exclusivity or site control, and would require automakers to provide annually to each dealer the routine internal business reports that the automakers' representatives file about the dealership. “The bill was modeled after laws in other states, except for the reporting requirement; no other state, to the best of my knowledge, has it,” said McNamara.

In one other break from laws in other states, SB 126 would cover dealers of farm equipment and off-road equipment. However, the Association of Equipment Manufacturers (“AEM”), which represents makers of off-road vehicles and farm equipment, has threatened to sue to block the law. AEM wrote to Gov. Hassan that the law “would likely be held unconstitutional, and it will almost certainly face such a challenge [in court].”

Exam for CA Board Certified Franchise and Distribution Law Specialist Set for Oct. 22

The State Bar of California's Board of Legal Specialization has announced that the 2013 legal specialization examination will be held on Oct. 22 in Pasadena and San Francisco. The exam is open to active members of the State Bar of California who have practiced franchise and distribution law since at least January 2012. It is the first step in becoming a certified specialist. The application deadline is Sept. 10, and late applications will be accepted until Oct. 15 at an additional fee if space is available.

For more information about the exam or full details of the requirements for becoming a Certified Franchise and Distribution Law Specialist, visit: www.californiaspe cialist.org, e-mail [email protected] or call 415-538-2120.

Dearborn, MI, McDonald's Drops Halal Chicken After Settling Lawsuit

Settlement of a class action lawsuit in Michigan alleging that a McDonald's franchisee falsely advertised that it was selling halal chicken ' chicken that met Islamic dietary laws ' has left few satisfied with the result. Franchisee Finley's Management Co. suffered a significant financial hit: $700,000. But the bigger blow came for customers of McDonald's when, in late May, the franchisee stopped selling halal chicken nuggets and sandwiches. Its restaurants were the only McDonald's in the nation selling halal chicken.

“One of my restaurants in Dearborn, Mich., has been serving two halal menu items for the past several years, and those items have been discontinued as a result of our continued efforts to focus on our national core menu,” said Wise Finley, president of Finley's Management in a statement released to the press. “We remain committed to our customers in the Dearborn community and are sorry for any inconvenience this may cause.”

The lawsuit arose from an incident in September 2011, when Ahmed Ahmed bought a chicken sandwich that did not contain halal chicken, though it was advertised as halal. The restaurant had allegedly run out of halal chicken on that day, but did not inform him. A class action lawsuit with him as the lead plaintiff was filed in November 2011. The settlement approved by the court in April 2013 distributed $700,000 to Ahmed, his attorneys, and local Islamic charities (Ahmed v. Finley's Mgmt. Co. , No. 11-014559-CZ (Mich. Cir. Ct., Wayne Cnty.)).