The Franchise Memorandum

Applying Connecticut law, the United States Court of Appeals for the Second Circuit held last month that an insurance agent is not protected by the state’s franchise relationship law. Garbinski v. Nationwide Mut. Ins. Co., 2013 U.S. App LEXIS 12856 (2d Cir. June 24, 2013). In this decision, the Second Circuit reviewed and affirmed the district court’s dismissal order that we reported in Issue 159 of The GPMemorandum. Readers may recall that Nationwide, the insurance company, terminated its contract with Garbinski, who sold Nationwide insurance policies, after local media stories reported that Garbinski domestically assaulted his wife, thereby violating the “public image” provision of his contract. Garbinski sued Nationwide for violating the Connecticut statute for terminating his “franchise” without the 60-day notice required by the franchise statute. The courts have focused on whether the parties were in a franchisor-franchisee relationship governed by the Connecticut Franchise Act.

The court of appeals found no franchise relationship existed, and affirmed the district court’s dismissal of Garbinski’s claims. The Second Circuit applied a two-step test, analyzing whether the alleged franchisee had the right to offer, sell, or distribute goods or services; and whether the alleged franchisor substantially prescribed a marketing plan for the franchisee to offer, sell, or distribute the goods or services. First, the court found that Garbinski was merely a sales representative because he never purchased anything from Nationwide to resell and never actually owned the goods he sold, unlike a typical franchisee. Second, according to the court, Nationwide did not instruct Garbinksi on how to sell or market the insurance plans, and required no quota from him, so it did not substantially prescribe Garbinski’s marketing plan. On these two issues, the appellate court concluded a reasonable jury could not find that a franchise relationship existed between Nationwide and Garbinski, and Garbinski’s claim for improper termination under the Connecticut Franchise Act failed as a matter of law.