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EVALUATING A FRANCHISE OPPORTUNITY
ENSURING A SAFE INVESTMENT
SHOULD A FRANCHISEE LITIGATE?
BIOGRAPHY
CONTACT US

Stephen A. Katz, P.C.
111 John Street, Suite 800
New York, NY 10038-3180

(212) 349-6400
(800) 251-3529
(212) 349-6407 (Fax)
sakatz00@aol.com
 

 

ENSURING A SAFE INVESTMENT

The time for the franchisee to learn about the unpleasant tactics that franchisors use is not when the franchisor perpetrates them, but before the franchisee purchases his franchise. Negotiated contract provisions, laws, regulations, and court decisions can all work to protect the franchisee, depending on what state’s laws govern the transaction. And Katz will look at the franchisor’s prior record—his prior lawsuits, news articles about him, and reports from present and former franchisees—for an indication of what type of behavior to expect from the franchisor in the future.

For no franchise, no matter how famous, can be be assumed to be a good investment.  Roadside names that we've all patronized often have bitter lawsuits pending against them, in which franchisees allege appalling tactics by the franchisor.  So whether an investor is considering buying some small car-wash franchise, a famous Starbucks franchise or Subway franchise, a start-up coffee franchise, or even an international franchise--she should always have a lawyer review the transaction."

Protecting Franchisees from Wrongful Termination

When a franchisor tries to terminate, or refuses to renew, a franchise, the franchisee’s investment and good will are threatened. While a franchisor may have valid grounds for seeking to terminate—such as the franchise’s being unprofitable, or the franchisee’s refusing to abide by the terms of the franchise contract (for example, refusing to stay open 24 hours a day when it has agreed to do so)—in many cases franchisors try to terminate without a valid basis. There may be a personality conflict between a perfectly good franchisee and a member of the franchisor’s management; the franchisor may want to take over the location as a company store, and be trying to force the franchisee out on a pretext; or the franchisor may be discriminating on the basis of race, sex, religion, or some other prohibited ground.

In some cases, attorney Katz can prevent a franchisor from terminating or refusing to renew a franchise. The franchisee’s defense against termination or non-renewal will vary depending on the facts of the situation, the terms of the contract, and the governing law. For example, some twenty states have statutes that prevent a franchisor from arbitrarily terminating or not renewing a franchise. Those good-cause statutes specify acceptable grounds for termination, and greatly increase the franchisee’s chances of keeping his franchise. Or, the franchisor may have violated certain laws, such as the antitrust laws’ prohibition against price-fixing, or a state franchise registration-and-disclosure law, which will give the franchisee leverage over the franchisor. Or, the franchisor may have at one time accepted a modification in the contract—such as accepting the franchisee’s not staying open 24 hours a day—which will prevent it from later complaining about that modification.

Those and numerous other factors can enable attorney Katz to prevent a termination, or to permit it, but on terms that are favorable to the franchisee.

 

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