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The Franchise Memorandum

Franchise Relationship Found Under New Jersey Statute

In McPeak v. S-L Distribution Co., 2014 U.S. Dist. LEXIS 10794 (D.N.J. Jan. 29, 2014), a federal district court held that held that a distributor had pled sufficient facts to be considered a franchisee under the New Jersey Franchise Practices Act ("NJFPA"), even though the distribution agreement specifically disclaimed that the parties were in a franchise relationship. McPeak was a distributor for a large snack food manufacturer, and the agreement specifically prohibited McPeak from using S-L's trademarks and trade name without its prior written permission. In addition, the agreement classified the distributor as an independent contractor and contained McPeak's explicit acknowledgment that it was "not a franchise agreement." However, S-L provided McPeak with business cards bearing its logo and slogan; mandated the use of invoices with its name, address, phone number, and web address; gave McPeak a telephone number and voice mailbox; required McPeak's employees to wear apparel bearing S-L's trademarks and logos; and allowed McPeak to display its trademarks on his delivery vehicle. Moreover, the distribution agreement prohibited McPeak from selling snack foods made by other manufacturers.

The district court agreed that McPeak was entitled to protection under the NJFPA, noting that the Act had been amended in 2010 to apply not only to "retail businesses, but also wholesale distribution franchisees that, through their efforts, enhance the reputation and goodwill of franchisors" in New Jersey. The court further explained that a trademark license is sufficient under the Act when a licensee is permitted to use a trademark in a manner that creates an impression that the parties are related and that the licensor is vouching for the activities of the licensee. The distributor met the minimum pleading requirements by alleging that the manufacturer had either required or allowed the extensive use of the manufacturer's trademarks by the distributor. The court further found the parties to the distribution agreement were in a "community of interest," under the NJFPA because the distribution agreement prohibited the distributor from selling snack products made by other manufacturers, rendering the distributor "economically dependent" on the manufacturer. Finally, the court held that the distributor fulfilled the requirement that he have a place of business in New Jersey by pleading that he rented warehouse space from the manufacturer.

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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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