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The Franchise Memorandum

The Franchise Memorandum

Posts in Practice of Franchise Law.

On May 19, 2019, the North American Securities Administrators Association, Inc. (“NASAA”) adopted new franchise state cover sheet instructions that revise instructions in its 2008 Franchise Registration and Disclosure Guidelines (“NASAA Guidelines”) regarding the information provided in the state cover sheets to a franchise disclosure document. You can access a copy of the new instructions at: https://www.nasaa.org/wp-content/uploads/2019/06/New-Frachise-State-Cover-Sheets-Instructions.pdf. The new instructions are the result of a proposal prepared ...

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On November 5, 2018, the Financial Accounting Standards Board (FASB) published a staff memo addressing franchise-specific questions surrounding the implementation of the revenue recognition accounting rules set to be applicable to private companies beginning in 2019. Under the previous accounting rules, franchisors recognized the entire initial fee as income when a franchised business opened. Under the new rules and FASB guidance, initial franchise fees must be amortized over the term of a franchise agreement. However, the FASB memo allows franchisors to accelerate their ...

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In a notice published in the Federal Register on October 29, 2018, the Federal Trade Commission announced that, by December 2018, it will begin its decennial review of Disclosure Requirements and Prohibitions Concerning Franchising, 16 C.F.R. Part 436, commonly known as the FTC Franchise Rule. The agency will review the rule and seek public comments. We will await guidance from the FTC as to the extent of the review, and will report as we learn more.

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On June 12, 2018, the Franchise Project Group of the North American Securities Administrators Association, Inc. (NASAA) sought public comments on a proposal (the “Proposal”) to revise instructions in its 2008 Franchise Registration and Disclosure Guidelines (“NASAA Guidelines”) regarding the information provided in the state cover sheets to franchise disclosure documents (FDDs). If the Proposal is adopted as currently written, three new state cover sheets titled “How to Use this Franchise Disclosure Document,” “What You Need to Know About Franchising ...

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U.S.-based franchisors and other American businesses were just getting used to compliance with the European Union’s General Data Protection Regulation (GDPR) when, on June 28, 2018, California Governor Jerry Brown signed into law the 2018 California Consumer Privacy Act (CCPA). In its current form, the CCPA applies to any business that collects personal information from California residents and (1) has annual gross revenues of $25 million or more; (2) buys, receives, sells, or shares the personal information of at least 50,000 California residents, households, or devices ...

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On July 9, 2018, in a coordinated action, attorneys general of California, the District of Columbia, Illinois, Maryland, Massachusetts, Minnesota, New Jersey, New York, Oregon, Pennsylvania, and Rhode Island announced that they were seeking information about the antipoaching practices of eight QSR chains. Companies receiving requests for information include Arby’s, Burger King, Dunkin’ Donuts, Five Guys Burgers and Fries, Little Caesar, Panera, Popeyes Louisiana Kitchen, and Wendy’s. In her press release announcing the probe, Massachusetts Attorney General ...

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On June 21, 2018, the U.S. Supreme Court eliminated the physical presence requirement for sales tax collection. In a 5-4 decision in South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018), the Court overruled its prior decision in Quill Corp. v. North Dakota, 504 U.S. 298 (1992), in which the Court had ruled that a state could require an out-of-state seller to collect sales tax on sales into the state only if that seller has a physical presence in the state. The Court was reviewing South Dakota’s economic nexus statute that imposes a sales tax obligation on out-of-state sellers with at ...

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In February, the Federal Trade Commission announced its revised regulatory review schedulefor 2018. This year,the FTC intends to begin its initial review of, and solicit public comments on, Disclosure Requirements and Prohibitions Concerning Franchising, 16 C.F.R.Part436, which is more commonly known as the FTC Franchise Rule. The current version of the FTC Franchise Rule became effective on July 1, 2007. This scheduled review aligns with the FTCs intention to review its regulations on a ten- year cycle to ensure that they remain up-to-date. Stay tuned for more information ...

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On October 13, 2017, the SBA announced a revision to its requirements for franchisors to qualify their franchisees for SBA financing programs. As of January 1, 2018 any franchise listed on the SBA Franchise Directory will be deemed to meet SBA’s “affiliation,” “business eligibility,” and “franchise” definitional requirements. The Directory may be found at www.sba.gov/partners/lenders. SBA does not charge for a Directory listing. The Directory is simple, laid out in seven columns, providing the following information, about which SBA writes either “Yes” or ...

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A trial court’s dismissal of defamation claims against a franchisor and related parties, including the franchisor’s legal counsel, was reversed last week by a court of appeals in Florida. Rolle v. Cold Stone Creamery, Inc., et al., 2017 WL 815365 (Fla. App. March 1, 2017). This case arose when Rolle, a former franchisee, participated in a 2010 CNBC documentary regarding franchising. In response to the documentary, the franchisor retained attorney Robert Zarco, who wrote a letter to CNBC (with a copy to Janet Sparks, a freelance writer for the Blue Mau Mau website), asking that ...

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Franchisors seeking to do business in Iran will continue to face challenges because Iranian sanctions will remain substantially in place for most industries. On October 7, 2016, the United States Department of Treasury’s Office of Foreign Assets Control (“OFAC”) updated the FAQs related to the Iranian Sanctions Program to provide further clarity regarding the scope of the sanctions lifting that occurred as part of the Joint Comprehensive Plan of Action (“JCPOA”) reached in 2015.

In July 2015, the U.S. and other countries entered into the JCPOA to ensure that Iran’s ...

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The United States Court of Appeals for the Seventh Circuit last week issued a decision upholding the dismissal of claims challenging the publication of a settlement in a franchise disclosure document. Caudill v. Keller Williams Realty, Inc., No. 15-3313 (7th Cir. July 6, 2016). Franchisor Keller Williams had settled a case brought by a former franchisee who later had become a regional director of the franchisor. The settlement, like many, was subject to a confidentiality provision that specifically covered the amount paid to the plaintiff in the settlement. Importantly, the ...

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The United States Supreme Court has denied a petition for a writ of certiorari filed by the International Franchise Association ("IFA") in International Franchise Ass'n v. Seattle, 2016 WL 1723297 (S. Ct. May 2, 2016). In its petition, the IFA asked the Court to consider whether a state or local law that discriminates against certain in-state businesses based solely on their ties to interstate commerce violates the Commerce Clause of the United States Constitution. In the underlying case, the United States Court of Appeals for the Ninth Circuit had upheld a lower court's denial of the ...

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As reported in Issue No. 199 of The GPMemorandum, the North American Securities Administrators Association ("NASAA")—the state franchise examiners—issued a "Proposed Franchise Commentary on Financial Performance Representations" on October 1, 2015. NASAA is seeking to create new interpretations and guidelines for financial performance representations ("FPRs"), including (a) when franchisors can and cannot use data from company-owned or affiliate-owned outlets; (b) when franchisors can and cannot use a subset of the entire pool of franchised or company-owned ...

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On October 1, 2015, the North American Securities Administrators Association ("NASAA")—the franchise examiners—issued a "Proposed Franchise Commentary on Financial Performance Representations." NASAA is seeking to create new interpretations and guidelines for financial performance representations ("FPRs"), including (a) when franchisors can and cannot use data from company-owned or affiliate-owned outlets; (b) when franchisors can and cannot use a subset of the entire pool of franchised or company-owned outlets; and (c) the types of disclaimers, notes and ...

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In Patel v. 7-Eleven, Inc., Bus. Franchise Guide (CCH) 9115,492 (C.D. Cal. Apr. 14, 2015), a former franchisee alleged that 7-Eleven unlawfully terminated its franchise. While preparing to file the case, Patel's counsel was contacted by a disgruntled employee in 7- Eleven's Asset Protection Department, Kurt McCord, who offered his services as a "Loss Prevention Consultant." Patel hired McCord. He drafted a document specifying how 7- Eleven's Asset Protection Department operated, a summary of proper interview techniques, and an analysis of 7-Eleven's loss prevention ...

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In Doctor’s Associates, Inc. v. Windham, 2013 U.S. Dist. LEXIS 546 (Conn. App. Nov. 26, 2013), the Connecticut Court of Appeals found that alleged violations of the Connecticut Rules of Professional Conduct by the franchisor’s lawyers, even if they actually occurred, did not constitute sufficient grounds to overturn an arbitration award. Doctor’s Associates had initiated arbitration in this case, seeking to terminate a Subway franchise agreement based on Windham’s failure to complete required store upgrades. Windham failed to make an appearance in the arbitration ...

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In a decision with implications for lawyers representing franchisees, a New Jersey court recently disqualified a firm because of a conflict of interest. In Mody v. The Quiznos Franchise Company, 2012 N.J. Super. LEXIS 1719 (N.J. Super. Ct. App. Div. July 18, 2012), the New Jersey appellate court disqualified the Marks & Klein, LLP (“M&K”) law firm from representing the plaintiffs in a lawsuit against Quiznos after M&K hired an attorney, Andrew Bleiman, who had represented various Quiznos-related entities in litigation relating to franchise disputes. Significantly, the ...

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In Maaco Franchising, Inc. v. Augustin, 2010 U.S. Dist. LEXIS 83895 (E.D. Pa. Aug. 16, 2010), a Pennsylvania federal district court declined to impose sanctions on the franchisee defendants despite finding that they destroyed documents in bad faith during litigation with Maaco. This case involves the former franchisees’ operation of a competing business after Maaco terminated their franchise agreements for nonpayment. Maaco served several requests for documents and then sought sanctions against the franchisees for destroying documents during litigation and making false ...

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In a ruling that already has sent shock waves through the franchisor community, a Massachusetts federal judge ruled in March that Coverall, a janitorial services franchisor, could not classify its franchisees as independent contractors.  Awuah v. Coverall North America, 2010 U.S. Dist. LEXIS (D. Mass. Mar. 23, 2010). Instead, in granting the franchisees’ motion for partial summary judgment, the court found Coverall’s franchisees must be classified as employees.  The opinion hinged on a single prong of Massachusetts’s employee classification test—whether or not the ...

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In I’mnaedaft, LTD v. The Intelligent Office System, LLC, 2009 WL 1011200 (D. Colo. Apr. 15, 2009), the plaintiff, a former franchisee of Intelligent Office Systems (“IOS”), requested a court order preventing IOS from interfering with subpoenas that the plaintiff had issued to several of IOS’ franchisees. As part of the request, the plaintiff also sought a “no contact” order preventing IOS from having any further contact with non-party franchisees.

The court denied the plaintiff’s request and determined that IOS did not interfere with the subpoenas or tamper with ...

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In State of Nebraska v. Orr, 2009 WL 212966 (Neb. Jan. 30, 2009), the Nebraska Supreme Court affirmed a disciplinary finding that an attorney violated his oath of office because he failed to provide competent representation to a franchisor.

Orr was engaged to represent a Nebraska start-up franchisor. The lawyer drafted a franchise agreement and disclosure statement, but failed to draft a complete Uniform Franchise Offering Circular. After the franchisor already had sold 21 franchises, it received a request for a UFOC from a prospective franchisee. The attorney then told the ...

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About this Publication

The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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