Franchise Law
Since 2001, Mulcahy LLP’s nationally-recognized franchise law group has represented franchisors (and at times, subfranchisors, master franchisees, area developers, regional developers, franchising joint ventures, and franchisees) in the following business sectors that have adopted franchising as a method of distribution:
- Quick Service Restaurant (QSR)
- Health Care
- Real Estate Brokerages
- Business Services
- Home Services
- Cleaning
- Motor Vehicle
- Pet & Grooming
- Hospitality
- Tutoring
- Farm & Industrial Equipment
- Health and Fitness
- Senior Care
- Restaurant
- DVD, Video & Gaming
- Entertainment
- Printer, Copying & Sign
- Security
- Hotels
- Mailing & Shipping
- Vending
Our clients cover a broad range of size and experience, from entrepreneurs and start-up companies that are establishing new programs, to the largest franchise systems with thousands of outlets. We represents our franchise clients on a wide variety of legal issues involving franchise registration and compliance, distribution systems, intellectual property, real estate, employment, and other matters.
Our attorneys are recognized as leaders in the franchise law community. They include certified specialists in franchise and distribution law as recognized by the State Bar of California, Board of Legal Specialization. They have also been conferred titles such as: “Top Rated Franchise & Dealership Attorney” by Super Lawyers® Magazine, and “Franchise Times Legal Eagle” by Franchise Times Magazine and their peers.
In addition, our attorneys hold leadership positions on various franchise-specific committees and associations. They currently hold (or have recently held) leadership positions on the California Franchise Committee (Chairs) and on the Franchise and Distribution Law Advisory Commission, California Board of Legal Specialization. They regularly write and speak on franchise, distribution and competition issues for, among others, the California State Bar, the International Franchise Association and the American Bar Association.
We counsel clients on all aspects of the franchise relationship: from the initial decision to franchise, to navigating the myriad state and federal registration and disclosure laws, to drafting franchise agreements and disclosure documents, to developing internal policies and best practices for managing a franchise and distribution system, to negotiating with suppliers, distributors and other third parties, to litigating and arbitrating when necessary.
As experienced trial lawyers, we have extensive experience with state-specific franchise and relationships laws, disclosure and fraud issues, contract disputes and breaches of the implied covenant of good faith and fair dealing, dealer/franchise renewals, terminations, and transfers, territorial disputes, expansion and encroachment issues exclusivity and noncompete provisions, tortious interference and other intentional tort claims, trade secret, trademark and copyright infringement, Lanham Act violations, antitrust, and labor and employment disputes.
Practice Guides
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What is a Franchise Under California Law?
On January 1, 1971, the California Franchise Investment Law (the “CFIL”) became law in California, making it the first franchise-specific law in the country. The CFIL, codified at Corporations Code sections 31000 through 31516, is designed to regulate franchisors’ dissemination of information to prospective franchisees, allowing the prospects to make informed decisions regarding their potential franchise investments. Both the registration and disclosure requirements under the CFIL closely mirror California’s Blue Sky Laws.
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Selectively Enforcing Franchise Agreements
The contractual rights and responsibilities of the individual franchisees in a particular franchise system are generally uniform throughout that system. The franchisor achieves this homogeneity by (1) amending or supplementing earlier versions of its franchise agreement to reflect its current version of the document, and (2) requiring all franchisees to adhere to a single operations manual. Uniform obligations help instill consistency in the brand and simplify the franchisor’s monitoring and enforcement efforts.
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Personal Liability of Franchisor's Officers & Directors
It is widely understood that the owner or operator of a corporation acting in her “corporate capacity” can hide behind the protective veil of the corporation to avoid liability of the corporation. However, this fundamental protection afforded the principals of most business models may not be available to franchisors.
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Private Right of Action Under the CFIL
Unlike the federal franchise laws – that can only be enforced by the Federal Trade Commission – the California Franchise Investment Law (CFIL) provides individual franchisees (and subfranchisors) with a private right of action against the franchisor.
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Disclosure Of California Franchise Opportunity
All franchisors that are subject to registration in California are required to provide prospective franchisees with a Franchise Disclosure Document (“FDD”), including the California cover page and addendum, all attachments and exhibits, 14 calendar days before the prospect signs a binding agreement with, or makes any payment to, the franchisor or its affiliate.
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Related Articles
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Stuft Pizza v. Rai
(Orange County Superior Court) the firm represented a franchisor who sued four terminated franchisees for trademark infringement and related claims. The firm also defended the franchisees’ $3.5 million counterclaim for fraud and breach of contract.
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Submarina v. S&D #4
(San Diego Superior Court) the firm successfully enforced the termination of a franchise and obtained preliminary and permanent injunctions on behalf of a franchisor against a franchisee who had failed to pay royalties.
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Submarina v. Sial
(U.S. District Court, Southern District of California) the firm obtained a TRO on behalf of a franchisor against a franchisee for violation of the Lanham Act.
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Tomcat Consulting, LLC v. Play N Trade Franchise, Inc., et al.
(Orange County Superior Court and California Court of Appeal, Fourth Appellate District, May 2010), terminated Play N Trade franchisee Tomcat Consulting, LLC (“Tomcat”) initiated a lawsuit against the franchisor asserting various causes of action for: (1) the franchisor’s alleged failure to approve a transfer of Tomcat’s franchise agreement to a prospective franchisee (“Transfer Claims”); ...
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Are Franchisees Employees?
Until recently, a franchisee was considered an inpendent busiess operator doing busineess in the style, under the trademark, and in the name of the franchisor. However, district court filings by franchisees in Massachusetts, Minnesota, Pensylvania, and California are pushing the boundaries on the franchisor / franchisee relationship.
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Dispute Resolution: Protecting the Franchisor
Keep your brand out of costly lawsuits. Despite the best intentions and bona fide efforts of reasonable clients, not every lawsuit is avoidable. Certainly not in these litigious times. Franchisors must be prepared to defend their companies wisely, tenaciously, and efficiently.
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Franchisors Beware: Ninth Circuit Case Gets Tested
In April 2007, a Los Angeles County Superior Court judge examined the reasoning in the Ninth Circuit’s 2006 opinion in Nagrampa v. MailCoups. Cold Stone confirms that California courts will be examining alternative dispute resolution clauses in franchise agreements more closely than in other states.
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Franchisors Wince as Some Courts Re-Label Franchisees as Employees
Employee misclassification is a potential issue lurking in all industries. The franchise community was re-cently shaken up following a series of court decisions that relabeled franchisees as "employees" of the franchisor. Jani-King and Coverall North America, two of the largest commercial cleaning franchisors, have been defending themselves from labor law claims brought by franchisees seeking minimum wage, overtime pay, and other employment-related benefits.
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Inadvertent Franchises and the Graybar Hotel
The Orange County Lawyer, the official publication of the Orange County Bar Association, has published James Mulcahy and Gerard Davey’s article “Inadvertent Franchises and the Graybar Hotel” in its June, 2010 issue. This article addresses the problems that can befall a business that inadvertently operates as a “franchisor” under Federal or California franchise law and provides a roadmap to companies that are trying to avoid the “franchisor” classification.
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IAG v. SANDERS
“Mulcahy LLP took a very serious claim against us and completely turned the tables,” said It’s A Grind CEO Steve Shoeman. “We could not be happier with the result.”
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Mulcahy LLP Secures Arbitration Victory for Leading Franchisor
Mulcahy LLP, a leading antitrust and franchise litigation boutique in California, successfully litigated an arbitration proceeding against a franchisee on behalf of coffee house franchisor It’s A Grind. The firm secured dismissal of the franchisee’s antitrust and fraud claims, and an award of damages for the franchisor.
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Mustard Franchise Corporation V. Yek, Inc
A recent arbitration proceeding litigated by Mulcahy LLP demonstrates the value of proactive arbitration in helping a franchisor terminate a difficult franchisee. As a result of arbitration, the delicatessen franchisor was granted the right to terminate the franchisee’s franchise agreement and to obtain possession of the franchisee’s restaurant.
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New California Franchise Law and Practice Publication
The California Continuing Education of the Bar (“CEB”) has released the first definitive publication on franchise and distribution law in California, entitled California Franchise Law and Practice. Mulcahy LLP managing partner James Mulcahy authored Chapter 5 (Handling Department of Corporations Enforcement Actions) and Chapter 11 (California State Antitrust Law Issues).
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Budget Blinds Enforcement Actions.
Mulcahy LLP filed the following lawsuits on behalf the same franchisor client to recover unpaid fees, enforce the non-competition clause in the franchise agreements, and to protect the client’s trademarks and trade secrets against existing or former franchisees that were operating outside the system.
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Budget Blinds, Inc. v. Asta Saknyte, et al.
(United States District Court, Central District of California, January 2010), Mulcahy LLP initiated a lawsuit on behalf of a franchisor against former franchisees for their: (1) failure to come current with their monetary obligations; (2) violation of the noncompetition provision of the franchise agreement; (3) unauthorized use of the franchisor’s proprietary marks; and (4) failure to comply with the post termination provisions of the franchise agreement.
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Budget Blinds, Inc. v. Juan Carlos Carlin
(United States District Court, Central District of California, March 2010), defendant, a former licensee, continued to operating a competing business utilizing the licensor’s service marks and trade name and in violation of the noncompetition provision contained within the parties’ license agreement.
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Budget Blinds, Inc. v. Lyle Hayman et. al.
(AAA, Orange County, California and United States District Court, Central District of California, September 2009), Mulcahy LLP was retained to file a demand for arbitration against defendants, former franchisees, as a result of their operation of a competing window covering business in violation of their franchise agreement.
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Dousette v. Red Brick Pizza
(Los Angeles County Superior Court) the firm, representing a franchisor, successfully petitioned the court to grant a new trial following a trial handled by other counsel.
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Gold, et al. v. Melt Franchising, LLC, et al.
(Los Angeles County Superior Court, June 2008 & California Court of Appeals, April 2010), fifteen persons and entities purporting to represent a nationwide class of franchisees of Melt Franchising filed a class action suit against Melt, alleging fraud and violations of state franchise laws.
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KFC Corporation v. Parvez Shaikh, et al.
(United States District Court, Central District of California, April 2009), Mulcahy LLP initiated a lawsuit on behalf of a franchisor against a former franchisee for claims of breach of contract, trademark infringement, and unfair business practices, among others.
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Lippo v. Mobil Oil Corporation
(U.S. District Court, Northern District of Illinois), Lawmen’s and Shooter’s Supply, Inc. v. Smith and Wesson (U.S. District Court, Southern District of Florida), and Smith and Wesson v. Knight Enterprises (U.S. District Court, Arizona) Jim Mulcahy was lead trial counsel for Smith and Wesson and Mobil in claims alleging violations of antitrust laws, trademark infringement, violation of franchising statutes, and breach of manufacturer/dealer contracts.
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Melt Franchising , LLC v. PMI Enterprises, Inc.
Melt Franchising, a gelato italiano franchisor, terminated a Massachusetts franchisee for violating terms of the franchise agreement. Following the termination, Melt retained Mulcahy LLP, who immediately filed a motion for preliminary injunction requesting that the franchisee comply with the post-termination provisions of the franchise agreement.
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Meyers v. Conehead Investments, Inc.
In Meyers v. Conehead Investments, Inc. (Los Angeles County Superior Court) the firm represented a Cold Stone Creamery franchise and prevailed on a cutting edge question regarding the enforceability of an arbitration provision in a franchise agreement.
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Play N Trade Enforcement Actions.
Mulcahy LLP filed the following lawsuits on behalf the same franchisor client to recover unpaid fees, enforce the non-competition clause in the franchise agreements, and to protect the client’s trademarks and trade secrets against former franchisees operating outside the system.
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Excessive Arbitration Fees Not Enough To Allow Franchisee To Avoid Arbitration
Last week, the California Northern District Court denied a franchisee’s request for a temporary restraining order – asking the court to enjoin the franchisor from arbitrating the parties’ dispute – because the franchisee’s anticipated injuries were limited to the substantial sums of money he would have to pay the American Arbitration Association, the arbitrator and others defending the arbitration. The court found that these expenses would not subject the franchisee to irreparable harm as is required for a TRO to issue.
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The Elegance of Franchising
The word “elegance” can be defined as “ingeniously simple.” Put another way elegance is combining effectiveness with simplicity. If your business depends on several retail units to reach your customers, franchising may well be the most elegant business structure available to you. Here’s what you should consider.
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Closet Tailors, LLC v. Gary Neil Poisson
In Closet Tailors, LLC v. Gary Neil Poisson (JAMS, Orange County, January 2010), a former multi-unit licensee was in violation of his license agreements for: (1) failing to pay monies due to the licensor; (2) violating the noncompetition provision of the license agreements; and (3) failing to comply with the post termination provisions of the license agreements.
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Fanfare Investments v. FS Concepts
(AAA, Los Angeles) the firm defended the regional franchisor for Fantastic Sams hair salons in Hawaii against the claims of a franchisee who alleged fraud and violation of the California Franchise Investment Law.
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IAG Coffee Franchise LLC v. Sanders
(AAA, Orange County, September 2008), It’s A Grind (“IAG”) coffeehouse franchisor terminated a franchisee’s franchise agreement for breaching the agreement. In response, the franchisee filed a lawsuit in Placer County Superior Court alleging fraud, violations of the California Franchise Investment Law, and price fixing in violation of the Cartwright Act.
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