Release Agreement Barred Michigan Franchise Law Claims

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

Michigan Franchise Investment Law claims brought by a terminated insurance agency franchisee against its franchisor were barred by a release agreement that waived the franchisee’s right to bring any claims in exchange for the franchisor’s waiver and deferral of certain franchise fees, a federal district court in Detroit has decided.

The franchisee alleged that the franchisor violated the Michigan franchise law by:

(1) Making untrue statements of material fact and omitting material fact; and

(2) Failing to provide a copy of its Uniform Franchise Offering Circular at least ten business days prior to the execution of the parties’ franchise agreements.

However, the release agreement signed by the parties approximately two years after the execution of their franchise agreements provided for a blanket waiver of any and all claims the franchisee held against the franchisor, including claims under the franchise statute.

The franchisee adduced no evidence refuting the conclusion that the release was fairly and knowingly made, according to the court. The release was a short, two-page document, the bulk of which was comprised of the paragraph setting out the terms of the franchisee’s release of his claims.

Although the franchisee asserted that he did not grasp the clear intent of the release and that the franchisor failed to inform him that by signing the release he was waiving his rights to sue the franchisor, given the clear and unambiguous terms of the release, this alleged failure to inform fell short of a misrepresentation of the contract or other fraudulent or overreaching conduct.

The franchisee argued that the release was void under the Michigan Franchise Investment Law provision that a "requirement that a franchisee assent to a release, assignment, novation, waiver, or estoppel which deprives a franchisee of rights and protections provided in this act" is "void and unenforceable if contained in any documents relating to a franchise."

However, the release was not a "document relating to a franchise" within the meaning of that provision because the franchisee was not required to release his franchise law claims as a condition of the franchise agreements, the court determined.

Moreover, the Michigan Franchise Investment Law also stated that this provision did not preclude a franchisee, after entering into a franchise agreement, from settling any and all claims. Under the circumstances in which the release was executed more than two years after the franchise agreement in exchange for the waiver of fees, the release was more akin to a settlement of claims than a "document relating to a franchise."

The decision is NBT Associates, Inc. v. Allegiance Insurance Agency CCI, Inc., DC Mich., CCH Business Franchise Guide ¶14,726.

Insurance Agent Could Be “Franchisee” Under Michigan Franchise Sales Law

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

The Michigan Franchise Investment Law could apply to insurance agency contracts, the federal district court in Detroit has decided. Thus, an insurance company was not entitled to judgment on the pleadings on an agent’s claim that it committed deceptive practices in the sale of an agency in violation of the Franchise Investment Law.

The company argued that the Michigan insurance code comprehensively regulated the industry and that applying the franchise law would be incompatible with such comprehensive state regulation. It also pointed to decisions from other states holding that franchise laws in those states were inapplicable to the insurance industry.

There were no Michigan decisions directly addressing the question, the court observed. However, neither the Franchise Investment Law nor the laws of other states explicitly provided an exception for insurance agency agreements. Instead, the relevant statutes—including Michigan’s—simply specified generic characteristics of the contracts that they did cover.

In determining whether insurance agency agreements were governed by the franchise statutes, the courts in other states simply considered whether the agreements exhibited the required characteristics, according to the court. However, absent clearer direction from the Michigan statutes or courts, the court refused to hold as a matter of law that the Franchise Investment Law did not apply to insurance agency agreements.

“Offering, Selling” Goods or Services

The agency agreement at issue fell within the Franchise Investment Law’s requirement that a franchisee be “granted the right to engage in the business of offering, selling, or distributing goods or services under a marketing plan or system prescribed in substantial part” by a franchisor, the court held.

The company argued that Michigan courts have stated that insurance agents were merely “order takers,” while insurance companies owned the insurance polices and actually sold them.

The Illinois franchise sales statute was identical in relevant part to Michigan’s, and an Illinois court had ruled that insurance agents did not fall within the protections of the Illinois law because “the right to sell consists of an unqualified authorization to transfer a product at the point and moment of the agreement to sell or authority to commit a grant to sell” and the insurance agents did not have that authority,

However, that Illinois decision ignored part of the language of the Illinois state and which was identical to Michigan’s, the court reasoned.

A person was a franchisee under the Michigan Franchise Investment Law if he was engaged in selling, offering, or distributing goods or service. The legal meaning of “offering” required that an acceptance would create a contract, and either transfer ownership or create a legal obligation to transfer ownership, the court noted.

If the agent did not own insurance policies and was not authorized to contractually bind the insurance company, he could not offer them in this sense, the court reasoned. But if the word “offering” in the Franchise Investment Law was interpreted to have only such a meaning, the word would have been redundant of the word “selling,” the court determined. Therefore, the term “offer” in the statute must be interpreted more broadly, and less technically, to refer to making goods or services available in a practical, rather than a legal, sense.

By soliciting orders for insurance coverage, with the intention and expectation that the orders would be accepted, insurance agents would fall within this definition. Thus, the agency agreement fell within this part of the “franchise” definition in the Franchise Investment Act, the court held.

Franchise Fee

The issue of whether the agent paid the company a “franchise fee,” as required of a franchisee, could not be determined on the pleadings, the court ruled.

The agent’s claim that he was required to purchase excessively-priced office supplies as a condition of becoming the company’s agent seemed unlikely. However, the court could not make such a factual determination on the pleadings.

An allegation that the agent’s payment for office furniture and computers was a franchise fee was entitled to a presumption of truth at this stage of the litigation. The agent claimed that he was required to pay $12,900 for four-year-old furniture and approximately $3,000 for four-year-old computers.

The purchase of goods was not considered to be a franchise fee under the statute when the goods were purchased at bona fide wholesale prices. However, the agent adequately alleged that the prices paid for the furniture and computers were excessive.

The decision is Bucciarelli v. Nationwide Mutual Insurance Co., CCH Business Franchise Guide ¶14,200.

For a previous blog posting on whether an insurance agent could be considered a "franchisee," see the May 21, 2009 entry on Trade Regulation Talk.

Rebranding of Nearby Gas Station Did Not Cause Antitrust Injury

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

A Mobil gasoline station in Detroit failed to identify an antitrust injury resulting from an alleged conspiracy between ExxonMobil and Michigan Fuels, Inc.—one of the oil company’s approved distributors—to rebrand a nearby gas station, the U.S. Court of Appeals in Cincinnati has ruled.

Summary judgment in favor of ExxonMobil and the defending distributor (2008-1 Trade Cases ¶76,144) was affirmed.

The complaining gas station entered into a sales agreement with ExxonMobil to purchase the station and entered into a Petroleum Marketing Practices Act (PMPA) motor fuels dealer franchise agreement with McPherson Oil Company, another approved ExxonMobil distributor. About a year later, ExxonMobil approved the rebranding of a nearby gas station as an Exxon-branded station to be supplied under a PMPA agreement with Michigan Fuels.

The owner of the complaining gas station contended that Michigan Fuels’ principal—who was a distant relative—pursued the rebranding of the nearby station to get back at him for selecting McPherson Oil as his distributor. The complaining gas station argued that the rebranding violated an unwritten policy of avoiding locating ExxonMobil stations within one mile of each other.

Antitrust Injury

Any loss of business resulting from the rebranding of the nearby station represented an injury to an individual competitor, the court noted. It did not amount to an antitrust injury. The complaining gas station failed to establish an injury to the market as a whole resulting from the purported conspiracy. Further, an adverse market-wide effect was not shown to have resulted from a restriction on the complaining gas station’s ability to purchase gasoline from another source.

Michigan Antitrust Reform Act

A monopolization claim under the Michigan Antitrust Reform Act was also rejected. ExxonMobil would not have monopolized the stretch of road in Detroit served by the complaining gasoline station by requiring the complaining firm to buy a minimum quantity of branded gasoline from its distributor.

Relevant markets were generally not limited to a single manufacturer’s products, but were composed of products that were reasonably interchangeable—i.e., gasoline rather than ExxonMobil-branded gasoline. Further, the complaining gasoline station offered no evidence that ExxonMobil had the power to exclude competition from the market for gasoline, the court explained.

Michigan Franchise Law

ExxonMobil’s failure to provide the gas station owner with presale disclosures regarding an exclusive territory did not violate the Michigan Franchise Investment Law, since no franchise agreement existed between the two parties, the court explained. The owner’s franchise relationship was with McPherson Oil Co., which was not a party to the action.

Moreover, the relationship between the owner and McPherson Oil was not a “franchise” within the Michigan law because the owner was not required to pay a “franchise fee” for the right to enter into the business. Absent the required payment of a franchise fee, the Franchise Investment Law—and its disclosure requirement—did not apply, the court observed.

The May 4 not-for-publication decision in Partner & Partner, Inc. v. ExxonMobil Oil Corp. appears at 2009-1 Trade Cases ¶76,600.