Franchising and Distribution
Attorneys at James McElroy & Diehl have represented chain franchisors with franchised locations in multiple states and countries and franchisees with as few as one, and as many as thirty locations. Industry sectors have included automobile dealerships, major fast food chains, beer distributorship, soft drink bottling, packaged foods, prepared foods, messenger services, hair styling salons, ice cream, dry cleaning, ice delivery, real estate brokerage, laboratory services, urgent care locations, and industrial sanitation services.
From the standpoint of a franchisor, the franchisor’s most valuable asset is the intangible product embodied in a system, look and feel, decor, menus, operational standards, marketing methods, and trademarks. The franchisor needs the ability to regulate franchisees for consistency and quality, and to upgrade the franchised businesses on a system-wide basis, and they frequently need an ability to obtain from a problematic franchisee the leasehold and other assets that are integral to preserving the value of a franchise. The franchisor also must anticipate pitfalls in state law that may render it uneconomical to jettison a “bad” franchisee.
From the standpoint of a potential franchisee, a franchise agreement may appear to be a boilerplate, non-negotiable presumptively straight-forward document, but it can in reality provide for a major wealth transfer from the franchisee to the franchisor, as the franchisee spends his or her capital to develop a business that will ultimately pass to the franchisor. We understand the importance of reviewing and negotiating the terms of a franchise agreement that often heavily favors the franchisor. From the initial stages of the negotiation process, our attorneys can assist in working with the parties involved to ensure that you not only understand your obligations under the agreement, but also are fairly represented in the agreement. Without such representation, a franchisee may find itself party to a one-sided contract with terms and conditions that the franchisee may not understand or intend. Often the detrimental provisions of a franchise agreement appear harmless until much later in the relationship when a franchisee has made a substantial investment and may feel trapped.
Litigation and Arbitration
Litigation relating to franchised businesses presents unique issues, and there are frequently points of leverage that require an attorney familiar with the circumstances that occur with a franchise dispute. Sometimes, state regulations, Federal Trade Commission disclosure implications or other factors make it unwise for a franchisor to exercise contractual rights. Sometimes the exigencies of commercial leases for a franchised location or the loyalties of franchise employees may render certain franchisor rights unworkable. Occasionally, a franchisor’s discretion to require capital expenditures or to refuse renewal under the franchise agreement may allow the franchisor to dictate other terms. James, McElroy & Diehl attorneys approach franchise disputes or problems holistically, assessing all of the circumstances to identify aspects that can be used to obtain the client’s objectives and viewing the situation from the other perspective to see things that can be exploited by the other side.