Below are some questions many clients have when they first contact Lagarias, Napell & Dillon, LLP. If you don't find the answers here, you should contact us for answers to questions specific to your case. The initial consultation is free.
- My franchisor has breached its agreement with me- now what?
- I’ve been defrauded in the purchase of a franchise- now what?
- I think I’ve been harmed by the conduct of my franchisor, what steps do I take?
- What can I expect in a franchise lawsuit?
- What do you mean by the term “Franchise Laws”?
- My franchisor has asked me to sign a release, is that a good idea?
- My franchise agreement contains an arbitration clause, what are my options?
- What is the statute of limitations in a franchise case?
- How much is my case worth?
- How would bankruptcy affect my case?
- Can I join my case with other franchisees?
- What should I bring to (or send in advance of) my first meeting with you?
- What does it mean for a California lawyer to be certified as a legal specialist in Franchise and Distribution Law?
If you feel that your franchisor has breached the agreement, it is important to obtain legal advice from an experienced franchise attorney promptly. Many franchise agreements contain shortened statutes of limitations which may be bar the bringing of a lawsuit if such a suit has not been filed within the permitted period of time. For example, if your contract says that any and all claims must be filed within one year of the date of discovering the breach, if you file one year and one day beyond that period, a franchisor will try to argue that you have “missed” the statute of limitations. And that your claim should now be dismissed.
Consulting an experienced franchise attorney will also allow you to determine the significance of the breach involved and plan the appropriate course. It may be, considering the nature of the breach involved, better to negotiate with the franchisor as opposed to filing a lawsuit. This is primarily a business decision but can be informed by the legal aspects of the dispute. The first thing to review is whether the breach is significant or insignificant. Significant breaches have the ability to detrimentally affect the operation and/or continued success or vitality of the business. Insignificant breaches, are breached that may inconvenience you or create headaches but are not likely to be detrimental to the business as a whole. An experienced franchise attorney can assist you in determining which category the alleged breach of contract falls into.
Once you have consulted with your franchise attorney with regard to breaches, then certain decisions have to be made. Depending upon the reasonableness and working relationship the franchisee has had with the franchisor, a decision about filing a lawsuit or trying to negotiate can be arrived at with adequate information. Often times, franchisors will negotiate and matters can be settled quickly and without a need for a lawsuit. In other cases, franchisors may play hard ball and not negotiate even over the slightest issues involving a breach of contract. In these cases, your franchise attorney can advise you best on how to proceed.2. I’ve been defrauded in the purchase of a franchise- now what?If you feel that you have been defrauded in the purchase of a franchise, it is important to contact an experienced franchise attorney that is well versed in franchise lawsuits to determine what options are available to you. An experienced franchise attorney, can help you determine what laws would be available to assist you in the recovery of your investment and/or damages. Significantly, a number of states have enacted franchise laws which prohibit the misrepresenting of material facts or the concealment of material facts in connection with the offer and sale of the franchise and permit private rights of action for violations. In addition, the federal trade commission has promulgated a number of franchise protections in the form of the franchise disclosure rule. While the federal franchise disclosure rule does not provide for a “private” right of action, many states have adopted consumer protection laws that allow a violation of the franchise disclosure rule to serve as a predicate for violation of that consumer protection law. Other states have permitted certain common law claims to be grounded in violations of the franchise disclosure law. In addition to statutory remedies, you may have claims for what are known as common law causes of action. These types of actions are generally known as: fraud, negligent misrepresentation, fraud by concealment or omission. As noted above in the breach of contract action, it is very important to examine your contract for statute of limitations issues. Franchisors often take the opportunity to insert very one- sided provisions in their franchise agreements that are designed to limit and/or eliminate any claims by the franchisees. Such provisions may include a drastic shortening of the otherwise applicable statute of limitations permissible. It is important for you to contact a franchise attorney immediately when you suspect that the franchisor has misrepresented information or concealed material information from you.3. I think I’ve been harmed by the conduct of my franchisor, what steps do I take?
If you think you’ve been injured by the conduct of your franchisor, you may be wondering what to steps to take. Here are some things to keep in mind:
- Don’t give any recorded statements to the franchisor or sign anything you don’t understand. Talk to an experienced franchise attorney about anything that the franchisor is demanding. Ideally, show any documents you have been provided for signature to an experienced franchise attorney before you sign.
- Do not destroy any documents related to your franchise, these documents may be extremely helpful in proving whatever case you may have.
- Keep thorough records of everything that happens. Keep copies of every form you have submitted or signed and keep a diary of everything that happens and write down anything that you were told by any franchisor representatives.
- Create a file with all of your relevant information involved in your case. This would include your franchise agreement, any other agreements with the franchisor, your lease agreements, any letters or documents you received from your franchisor prior to or subsequent to becoming a franchisee that is relevant to the issues at hand, a list of witnesses, and anything else you have that is related to your case. Be prepared to describe the who, what, how, where, when, and why of circumstance surrounding your case.
- Contact an experienced franchise attorney immediately so that you may begin to evaluate and ultimately prepare your case. Not all lawyers regularly handle franchise cases, so it is important that you find an attorney or law firm with actual experience in litigating franchise cases. This step will be valuable even if you do not intend to file a lawsuit but are considering negotiating with your franchisor. While you may not benefit for certain by hiring an attorney, you won’t know until you talk to one.
Our experienced franchise attorneys are always available to talk to you about your case at no cost of obligation. Please contact Lagarias, Napell & Dillon, LLP at 1-415-460-0100.4. What can I expect in a franchise lawsuit?
Franchise lawsuits, like any other lawsuit, can be time consuming and expensive to prosecute. However, there are certain aspects of franchise lawsuits that render them vulnerable to more attorney time and costs than in ordinary cases. Franchise lawsuits can involve a number of different areas of the law and require the assertion of different alternative theories of liability in order to “cover your bases.” Depending upon the nature of the dispute involved, different common law and statutory claims can be utilized. Most franchise disputes involve a breach of contract or a breach of good faith and fair dealing implied in all contracts. However, franchise lawsuits can also implicate anti-trust claims which may be predicated on state and/or federal anti-trust laws. Franchise lawsuits can involve violations of franchise disclosure laws or franchise relationship laws. Disclosure laws generally cover the manner in which the franchise was sold to the franchisee and the information that was presented to the franchisee. Franchise relationship laws generally cover the termination and/or nonrenewal of franchises and the reasons therefore. Many states in addition have consumer protection laws and/or unfair trade practice laws that would extend protections to franchisees. These statutes typically prohibit a broad range of what are determined unlawful, unfair, or fraudulent business practices.
Once you have determined the parameters of your dispute with an experienced franchise attorney, the decision needs to be made about where to file a lawsuit. Often times, a franchisor will require in its contract that suit be brought in its home state. Such provisions may or may not be enforceable. Further, the enforceability of such provisions may depend very well on what court is deciding the enforceability of those provisions. Thus, for example, if a franchise agreement contains a provision that any and all claims arising out of or relating to the franchise agreement will be brought in the home state of the franchisor, it is more likely that a court in that home state would enforce such a provision. But, if for example, you are a franchisee located in California, then by filing your suit first in a California court, you may have increased the likelihood of keeping the lawsuit in California. California courts may be more favorably disposed to setting aside a foreign forum and choice of law based upon California statutory and/or public policy provisions. An experienced franchise attorney can assist you in making strategic decisions that will benefit your case in the long run and help determine the most favorable court in which to litigate your dispute.
Once your lawsuit has been started, the parties enter a phase called “discovery”. Discovery is a process whereby the parties are entitled to demand the production of documents, things, admissions, and testimony from the opposing parties. Testimony may be taken under oath in the form of a “deposition” or interrogatories. Depositions are used for two general purposes. One is to discover information that the other side possesses including the identity and location of witnesses, the existence of documents, and to generally pin down the other side in terms of the facts to which they will testify in trial. Depositions are also used to secure testimony for trial of witnesses that are beyond the subpoena power of the courts at issue. For example, a case brought in California means that witnesses who do not reside in California are beyond the power of the court to order them to appear at the trial in the matter. However, California courts through a process of cooperation with other states courts can compel the attendance of the witness at a deposition in their home state and that deposition can be used in lieu of trial testimony at the trial in the matter in California. Other discovery procedures call for the exchange of documents and the written testimony under oath of answering questions.
As a franchisee in a franchise law suit, you can expect to give a deposition. When giving a deposition, it is important to always tell the truth in response to question asked. This does not mean you must volunteer information or respond to question that were note asked. But you can expect that the franchisor lawyers will be skilled attorneys and subject you to a vigorous cross examination about the merits of your case. Generally speaking, depositions will last a day or more depending upon whether you are in federal or state court. You can expect your lawyer to also take depositions of parties and key witnesses on the other side.
Once depositions have been completed, one side or another may bring what is known as a summary judgment. Summary judgment is a procedure whereby the parties can use the materials gathered in discovery in order to request that the court enter a judgment in favor of one party or another based upon the evidence that has been deduced thus far. Depending upon whether the court finds that there are factual issues involved in the case that would need to be decided by a jury, it may or may not enter a summary judgment. If a summary judgment is entered, the case is over and the losing party will have the right of an appeal. Otherwise, the case will be decided by a jury. Of course this assumes there is no arbitration clause at issue in the case. Arbitration clauses are discussed below.
Another aspect of franchise cases is the necessity of hiring experts to testify as to liability and damage issues. While experts are not absolutely necessary, they are sometimes desirable and particularly so if the franchisor has hired experts to represent its case. Experts can be a very key but also expensive part of preparing a case for trial. You will need to confer with your experienced franchise attorney on the pros and cons of hiring an expert to represent your case.
At the trial of a franchise lawsuit, you will be required to provide testimony as to both liability and damages. As the plaintiff in a franchise lawsuit, you will generally bear the burden of proving liability and damages. The burden of proof is generally speaking in civil cases by a preponderance of the evidence. That means that you must show that it was more likely than not that the franchisor’s conduct, whether a breach of contract or violation of an applicable law, caused your damages. You will also be required to prove by a preponderance of the evidence, that you in fact suffered damages. The damages that you request must not be speculative, but they do not have to be established with exact certainty. Assuming that you are entitled to a jury trial in your franchise lawsuit, it will be the jury that decides whether you have proven that the franchisor is legally responsible to you for damages and the amount of such damages. At the end of the case, the jury will render its decision and a final judgment either in favor of you as the franchisee or the franchisor will be entered. Even if you win your franchise lawsuit, it does not you will get paid right away. Franchisors or franchisees, should they be the losing party, will have the opportunity to appeal. In addition, subsequent to the jury decision, it may also be possible to request the court award attorney’s fees depending upon whether the contract provides for attorneys fees to the prevailing party and/or a statute upon which the franchisee has prevailed as a provision for awarding attorneys fees to the franchisee.
In sum, once you move forward with your franchise case, you should be ready for a significant fight. Franchisors will often fight even the most meritorious cases tooth and nail because to admit defeat might expose them to the same types of claims by all of its franchisees. Franchisors may pull out all of the stops in using tactics and strategies designed to insulate them from having to pay you for the damages that they caused. An experienced franchise attorney can help you get the compensation that you are owed.5. What do you mean by the term “Franchise Laws”?
Various state legislatures have passed laws that generally govern two differing aspects of general franchising. The Congress has not enacted any specific federal franchise legislation. However, the federal government has permitted the Federal Trade Commission the ability to promulgate rules and regulations regarding certain aspects of franchising. The FTC has promulgated a disclosure obligation known as the Franchise Rule. Under the Franchise Rule franchisors are required to provide franchisees with certain information about the prospective franchise investment. The document required by the FTC rule is more commonly referred to as a FDD or Franchise Disclosure Document, formerly known as a Uniform Offering Circular. Under the federal regulation, there is no required registration of the franchise documents with any federal agency or entity. In addition, there is no private right of action for a violation of the FTC rule. However, as noted elsewhere, some states adopt the FTC rule or the standards of the FTC rule as the predicate for violations of other statutes and/or certain common law duties.
A number of states have enacted both disclosure and registration requirements for franchisors to meet independent of the FTC rule. In these states, it is incumbent upon franchisors to comply with the requirements as noted in the various laws. If franchisors do not comply with the requirements, they may be subject to liability. A number of states prohibit the use of misleading devices, misrepresentation s, and concealment of information that would be important for franchisees to know about the opportunity. In these states, actions can be brought for such statutory violations. An experienced franchise attorney can advise you as to whether any of these various state laws may be applicable to your particular situation. The fact that you do not reside in the state that does not have such a law, does not automatically mean that you may not be able to be afforded the protection of the franchisor’s home state franchise statutes. Therefore it is important for you to obtain the advice and counsel of an experienced franchise attorney.
A number of states also have franchise relationship statutes which govern the termination and non-renewal of franchises. Thus, a franchisor who refuses to renew a franchisee for reasons are not permitted under the law, may be subject to an action for violation of the franchise relationship statute. Again, it is important for franchisees to consult with experienced franchise attorneys to determine what protections may be afforded under various state relationship laws. Finally, there does exist state and/or federal legislation governing specific types of franchises including alcohol distributors, automobile dealers, farm equipment dealers, petroleum dealers, and wholesale distributors. An experienced franchise attorney can be consulted as to the applicability of such statutes.6. My franchisor has asked me to sign a release, is that a good idea?
If you bring a dispute to the attention of a franchisor, and the franchisor makes any accommodations whatsoever to meet the complaint, it will generally ask for a release of claims. A release of claims is simply a contract that provides that you are giving up any and all claims – generally from the beginning of time to the date of the release -- regarding the franchise. It is almost never a good idea to enter into a release of claims prior to discussing the matter with an experienced franchise attorney. The risk that you run is that, while resolving the matter at hand, there may be other issues involved in the operation of your franchise that you are either unaware of or think that you may be able to work through but do not have the benefit of adequate information in making that assessment. As a consequence, you may be giving up valuable claims for little or no consideration. Again, it is extremely important when faced with the insistence of the franchisor of signing a release that you obtain counsel from an experienced franchise attorney.7. My franchise agreement contains an arbitration clause, what are my options?
Arbitration clauses and franchise agreements have given rise to vast amounts of collateral litigation surrounding franchise disputes. Franchisors often put arbitration clauses in their franchise agreements as a way to discourage the filing of complaints and insert one-sided terms that will advantage the franchisor in any ultimate dispute. However, just because the franchisor has inserted these arbitration provisions and one-sided terms into the franchise agreement does not necessarily mean they are enforceable. An experienced franchise attorney will be able to help guide you in terms of what is or is not enforceable and what may be properly challenged in a court of law. Attorneys unfamiliar with the nuances of arbitration agreements and other onerous provisions may not be aware of the fact that these agreements can effectively be challenged in a court of law if the proper procedures and arguments are presented. The attorneys at Lagarias, Napell & Dillon, LLP are experienced in reviewing various terms of franchise agreements and in particular arbitration clauses with an eye toward maintaining the actions in a court of law wherever feasible.8. What is the statute of limitations in a franchise case?
The statute of limitations is generally speaking, the time period within which a lawsuit must be brought or be forever barred. Many of you may be familiar with the statute of limitations in a personal injury case. In California, for example, a person injured in an automobile accident has two years from the date of the accident to sue or their claim will be forever barred. In franchise cases, the statute of limitations will be dependent upon and differ for the specific causes of action that are being claimed. Virtually every state will have set forth statute of limitations either generally or in specific laws. Depending upon the state you live in, you will need to check what the statute of limitations are with respect to your particular claims. Franchise laws have differing statutes of limitation and each law must be considered on its own and according to its own terms. An experienced franchise attorney can help you determine the applicable statute of limitations.
One of the most important things you can do when consulting an attorney, is tell them about when you became aware that you were injured on account of the franchisors conduct. You may have the best franchise lawsuit in the world but if you do not file before the applicable statute of limitations has run, it will be worthless.9. How much is my case worth?
This is a common question in franchising and is dependent upon the individual facts of your own case. The value of a case will depend upon such things as the nature of the injuries that you have suffered, the claims you can bring, and whether you have a right to a jury trial. For example, your economic damages are related to the amount of actual money that you have lost in the business. That will depend upon how much of your capital you have invested in the business and/or obligations you have undertaken in the form of loans and/or leases and things of that nature. If you have been defrauded in the sale of a franchise, you may also be entitled to emotional distress damages. These kinds of damages are intended to compensate you for the emotional pain and suffering suffered as a result of being victimized by a fraud. Punitive or exemplary damages are available to franchisees that have been defrauded and are designed to deter franchisors from engaging in oppressive and malicious conduct. If you must try your case in front of a judge or arbitrator instead of a jury, you may be unlikely to obtain the same level of punitive or emotional distress damages. The determination of how much your case might be worth is best made by you and consultation with an experienced franchise attorney.10. How would bankruptcy affect my case?
Lagarias, Napell & Dillon, LLP are not bankruptcy attorneys. Generally speaking, when bankruptcy is filed, the trustee of the bankruptcy estate becomes the owner of all the assets of the bankrupt person or entity and this would include any filed or potential lawsuits. As estate property, the trustee has the option of prosecuting the case, settling the lawsuit with the franchisor with or without your consent, or abandoning the lawsuit back to you.11. Can I join my case with other franchisees?
Joining with other franchisees in a lawsuit over common claims is generally possible and is good way to spread the costs of prosecuting such an action. When multiple clients are suing the same defendant, there may be conflicts of interests presented between the clients. We cannot represent a group of clients against a franchisor without obtaining the express consent and a waiver of conflicts of interest from each client. Also, some franchise agreements prohibit joining more than one franchisee in an action. In California, we have defeated such clauses. See Independent Ass'n of Mailbox Center Owners, Inc. v. Superior Court, 133 Cal.App.4th 396, 34 Cal.Rptr.3d 659 (2005).12. What should I bring to (or send in advance of ) my first meeting with you?
- Franchise contracts, offering circulars, lease agreements, loan documents, check registers, significant e-mails and correspondence. The beginning point of evaluating a franchise case is almost always the contract and the FDD. The contract contains information on the rights and responsibilities of each party. The FDD contains the necessary disclosure items given to you before the contract was signed. Lease agreements provide information regarding your potential damages as do check registers. E-mails and correspondence may enlighten on any of the above.
- Chronology of Events Written For Your Lawyer. Drafting a chronology of events is an excellent way to think about and describe the various factors involved in your case and is a great time saver for your attorney. If you choose to request Lagarias, Napell & Dillon, LLP review your matter, we will provide you with a template for your chronology.
- Quality Control Reports. If your franchisor has provided you with periodic quality control reports or other feedback on your operations, please provide these.
- Pictures. If you have picture of your location, by all means bring them.
- Income documents. You may have a claim for lost profits. In order to bring a claim for lost profits, your lawyer needs to be able to show what kind of money you were making before the dispute. Bring any income statements as well as any tax returns you have filed related to the franchise. If you made no money in the franchise but left a productive income producing opportunity to start the franchise, you should bring documents related to that opportunity.
It means that the lawyer has demonstrated to the California Board of Legal Specialization that they are substantially involved in and have a special competence in franchise law the area of Franchise and Distribution Law. In California, as of January 1, 2019, there are only about 50 lawyers certified in franchise and distribution law. All three of our partners been certified by the California Board of Legal Specialization as a specialist in franchise and distribution law.