The Franchise Memorandum

In Bye v. Nationwide Mutual Ins., 2010 U.S. Dist. LEXIS 78930 (E.D. Mich., Aug. 5, 2010), a Michigan federal court last month granted Nationwide Mutual Insurance Company’s motion for summary judgment, holding that the Michigan Franchise Investment Law did not apply to the relationship between Nationwide and its insurance agent because the agent did not pay a franchise fee. The plaintiff was a Nationwide insurance agent for many years. The agent eventually opened a competing business, and Nationwide terminated his agency. In response, the plaintiff filed suit alleging, among other claims, a violation of the MFIL. 

Nationwide moved for summary judgment on the agent’s claims contending, among other things, that the MFIL did not apply because the plaintiff did not pay Nationwide a franchise fee. Under the MFIL, a franchise fee is a “fee or charge that a franchisee or subfranchisor is required to pay or agrees to pay for the right to enter into a business under a franchise agreement including, but not limited to, payments for goods and services.” The plaintiff claimed that he paid Nationwide a franchise fee because Nationwide makes a profit by taking a failed insurance agent’s book of business and reselling it to a new agent at an increased price. The court disagreed, finding that even if Nationwide does earn a profit after an agent fails, that profit is not paid for a right to enter into an agreement. In addition, the court found that the plaintiff provided no evidence that he paid a franchise fee and further stated that any loans that the plaintiff took out from Nationwide were not a requirement to become a Nationwide insurance agent.