Tuesday, July 15, 2008

Rhode Island Fair Dealership Act Amended

This posting was written by Pete Reap, Editor of CCH Business Franchise Guide.

Two identical Rhode Island bills that amend the good cause, notice of termination, and opportunity to cure provisions of the Rhode Island Fair Dealership Act (RIFDA) have become law without the Governor’s signature.

Enacted in 2007, the RIFDA is a relationship/termination law that requires the grantor of a dealership to provide a dealer at least 90 days' prior written notice of the termination, cancellation, nonrenewal, or substantial change in competitive circumstances of a dealership and to provide the dealer with at least 60 days in which to rectify any claimed deficiency.

The law's notice requirement will not apply in certain situations, including when the termination is for the dealer's insolvency. A shortened ten-day notice period applies in cases of payment defaults.

"Good Cause"

The RIFDA, as originally enacted, defined "good cause" to mean:

"(a) failure by a dealer to comply substantially with essential and reasonable requirements imposed upon the dealer by the grantor, or sought to be imposed by the grantor, which requirements are not discriminatory as compared with requirements imposed on other similarly situated dealers either by their terms or in the manner of their enforcement; or (b) bad faith by the dealer in carrying out the terms of the dealership."

Interestingly, the original version of the Act did not explicitly require "good cause" for termination, or even specify exactly to what its definition of “good cause” was to be applied.

The new amendments redefine “good cause” and specifically link it to terminations. Under the revised RIFDA, “good cause for terminating, canceling or nonrenewal shall include, but not be limited to, failure by the dealer to comply with reasonable requirements imposed by the grantor or for any of the reasons listed” elsewhere in the Act.

Other Reasons

Those reasons, added by the new laws to the RIFDA’s notice provision, are:

“in the event the dealer: (1) voluntarily abandons the dealership relationship; (2) is convicted of a felony offense related to the business conducted pursuant to the dealership; (3) engages in any substantial act which tends to materially impair the goodwill of the grantor's trade name, trademark, service mark, logotype or other commercial symbol; (4) makes a material misrepresentation of fact to the grantor relating to the dealership; (5) attempts to transfer the dealership (or a portion thereof) without authorization of the grantor; or (6) is insolvent, files or suffers to be filed against it any voluntary or involuntary bankruptcy petition, or makes an assignment for the benefit of creditors or similar disposition of assets of the dealer business.”

However, the amended RIFDA still does not explicitly mandate “good cause” for franchise terminations, in the manner of the relationship/termination laws of some other states.

The amendments modify the notice of termination and opportunity to cure provisions by requiring a grantor to provide 60 (previously 90) days prior written notice of termination or nonrenewal, and 30 (previously 60) days to cure any claimed deficiency. In addition, they specify that a dealer shall have the right to cure three times in any 12-month period.

The amendments also specify additional circumstances in which no advance written notice of termination is required (reasons one through six in the preceding paragraph), and make other changes.

As enacted, the bills differ drastically from their introduced versions, which sought to completely delete the good cause, notice of termination, and opportunity to cure provisions of the Act. In addition, the introduced version sought to eliminate the Act’s provision specifying that the Act did not apply to provisions for binding arbitration under certain circumstances. In the version of the bills that were enacted, that provision remained substantially intact.

House Bill No. 8150 became law without the Governor’s signature on July 5, 2008, and Senate Bill No. 2592 became law without the Governor’s signature on July 8, 2008. Both bills became effective immediately.

The amended law will appear at CCH Business Franchise Guide ¶4390.

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