Focus on Franchising

This posting was written by John W. Arden.

News and notes on franchising and distribution topics:

□ The U.S. Supreme Court has scheduled oral argument on January 19, 2010, on Mac’s Shell Service Inc. v. Shell Oil Products Co., a case involving constructive nonrenewal claims brought by Shell gasoline station operators under the Petroleum Marketing Practices Act (PMPA). The U.S. Court of Appeals in Boston (CCH Business Franchise ¶13,890), held that the PMPA did not support a claims for constructive nonrenewal where a franchisee had signed and continued to operate under the complained of renewal agreement. On June 15, 2009, the Supreme Court granted the petitions of the franchisees and Shell (see June 16, 2009 posting at Trade Regulation Talk). The franchisees asked the Court to consider “the scope of the protections afforded by the PMPA to franchisees who face termination or nonrenewal of their franchise agreements unless they accept onerous contract terms.’’ They alleged that there was a split among the circuits “over whether a franchisor can lawfully present its franchisees with the Hobson’s choice of accepting unlawful contract terms or risking their livelihoods on a chance that a court will grant a preliminary injunction.” The petitions are Mac's Shell Service, Inc. v. Shell Oil Products Co., Dkt. 08-240, and Shell Oil Products Co. v. Mac's Shell Service, Inc., Dkt. 08-372.

□ The ABA Forum on Franchising is presenting a teleconference and live audio webcast of “Mediating Franchise Disputes,” a CLE program presented from 1 p.m. to 2:30 p.m. EST on Tuesday, December 3, 2009. This program— “one of the best programs presented at the 32nd Annual Forum on Franchising”—will cover the benefits and strategies used in mediations, as well as how to effectively draft mediation clauses. Moderated by Earsa Jackson of Strassburger & Price, the program will feature Michael K. Lewis of JAMS, Peter R. Silverman of Shumaker, Loop & Kendrick, and Peter J. Klarfeld of Grey Plant Mooty. Further information appears here on the ABA website.

□ The plenary session on Annual Franchise and Distribution Law Developments is always a highlight of the annual meeting of the ABA Forum on Franchising. This year’s plenary session—presented on October 16 by Joel R. Buckberg and Jon P. Christiansen—was no different. Each year since 2002, the presentation has been accompanied by a soft-cover bound volume containing more details of the developments and trends of the year. The introduction to this year’s book included a particularly interesting list of themes and trends from the reporting period of August 1, 2008 through July 31, 2009:

■ The extraordinary impact of automobile industry contraction, manufacturer bankruptcy, brand terminations, and dealer network shrinkage produced a sizable number of challenges to auto industry practices and efforts to restructure.

■ Franchisee challenges to franchise selling practices using deceptive practice statutes gained traction with appellate courts and demonstrated desperation in selling tactics, even for experienced franchisors.

■ Arbitration provisions continued to face uncertain enforcement, but challenges to arbitration awards were unsuccessful for the most part.

■ The U. S. Court of Appeals for the Ninth Circuit and its District Courts, the Federal Trade Commission and the California Department of Corporations again ignored each other’s policies on negotiation of franchise agreements and fostered their contradictory policy approaches to franchise empowerment.

■ There was no meaningful harmonization of the revised FTC Franchise Rule and state franchise laws, regulations, exemptions, and exclusions.

■ Damages for early termination of franchise relationships became less certain of collection, particularly where the franchisee’s history of unprofitable operation made its viability for the remainder of the franchise term speculative.

■ Bankruptcy court decisions highlighted the unfortunate risks that reward entrepreneurship with asset liquidation when a franchise, a franchisee and the franchisee’s financing are mismatched.

■ In-term non-competition covenants came under attack in the Ninth Circuit, applying California law, and in Georgia, where the state’s constitution supplied the firepower, in both cases to curtail the scope of these restrictions substantially.

■ Courts once again wrestled with legal principles underlying voluntary choice of law, fundamental public policy identification for conflict of laws purposes, and the applicability of state franchise statutes, producing some inconsistency and reduced predictability in case outcomes.

Further information about the ABA Forum on Franchising and its publications appears here.