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Thursday
Jun212018

Why Today's SCOTUS Decision May Impact Franchisor Royalties

Franchise & Distribution Law

 

 

by Taylor M. Vernon

818-907-3027

 

Today, in South Dakota vs. WayFair, Inc., et al.,  the United States Supreme Court (“Court”) overturned long-standing precedents that required an out-of-state Seller to have a physical presence in a state  to collect sales tax from consumers in that state.

Online Purchase Sales Tax - SCOTUS Decision

The South Dakota law (Senate Bill 106 enacted in 2016) being challenged by giant online retailers, Wayfair, Inc., Overstock.com, Inc., and Newegg, Inc. – none of which had a physical presence in South Dakota – requires out-of-state retailers to collect and remit sales tax “as if they had a physical presence in the state.”

The Court found that the South Dakota law did provide due process, commerce clause and small business safeguards because it:

  1. Applies only to sellers that, on an annual basis, deliver more than $100,000 of goods or services into the State or engage in 200 or more separate transactions for the delivery of goods or services into the State,

  2. Forecloses the retroactive application of this requirement, and

  3. Provides means for the law to be appropriately stayed until its constitutionality has been clearly established.

The Court acknowledged the new economic realities of e-commerce, that when combined with a judicially created “physical presence” rule, provided a tax shelter and an incentive to do business out-of-state, giving an unfair advantage to e-commerce over in-state retailers. The Court’s decision largely focused on the substantial nexus requirement between the out-of-state seller and the states in which they made on-line sales and found that the physical presence requirement was arbitrary in today’s digital economy.

SCOTUS’s Impact on Franchisors

While the largest economic hit will be to e-commerce giants, such as the ones that challenged the law, this case also has potentially huge implications for franchisors and franchise systems.

Franchisors may need to rethink their e-commerce platforms with regard to the granting or withholding of rights to franchisees to sell goods out of state. More importantly, this case could permit states to tax franchisors on royalties paid by their out-of-state franchisees for the use of marks and intellectual property, which could be a significant financial burden for the primary revenue stream of a franchise system.

Franchisors should begin consulting their franchise and tax attorneys on the potential implications of this decision, as well as any needed modifications to their business model and franchise agreements to account for this change in the law.

 

Taylor M. Vernon is an attorney in our Franchise and Distribution Practice Group.

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Wednesday
May092018

Court’s Prop 65 Ruling a Great “Brewhaha” for Coffee Retailers

Environmental Litigation AttorneyProp 65 Defense Attorney

 

 

 

Stephen T. Holzer

818.907.3299

 

 

In 2010, a nonprofit group called The Council for Education and Research on Toxics (CERT) brought a lawsuit against 91 commercial coffee roasters, retailers and distributors. 

CERT claimed the defendants failed to provide warnings regarding high levels of acrylamide, thus violating the Safe Drinking Water and Toxic Enforcement Act of 1986, more commonly known as California’s Proposition 65. The law requires companies with 10 or more employees warn consumers and others of any exposure to more than 900 confirmed or suspected carcinogens, including acrylamide, at the point of sale.

In late March, Los Angeles Superior Court Judge Elihu Berle tentatively decided in favor of CERT. The Court ruled that Starbucks and other companies failed to show there was no significant risk from acrylamide produced in the coffee roasting process and that cancer warning labels must be placed on their products in California.

That ruling has now been finalized. Barring a successful appeal, it appears that the law will force retailers either to post the Prop 65 warnings, or find ways to remove acrylamide from the coffee.

Prop 65: Signs of the Times

Businesses in California should take note: New compliance rules for Prop 65 take effect as of August 30, 2018. That leaves just a few months to ensure your signage or product packaging is complete and accurate. Generic warnings will no longer suffice.

Some of the new rules include the following requirements (for more details, see 27 California Code of Regulations [“CCR” §25603, Consumer Product Exposure Warnings – Content]:

  1. WARNING” must appear in the sign in bold and with all capital letters.

  2. The sign must also generally include a yellow equilateral triangle outlined in black, with a black exclamation point in the center. This symbol must be at least as high as the word “WARNING.”

  3. Premises signage must contain the specific name of the toxic substance found in the product sold.

  4. Product labels do not need the chemical name, but must include requirements 1 and 2, above.

  5. If warning labels and signs are given in another language, businesses must also provide them in English.

Stephen T. Holzer is the Chair of our Environmental Practice Group.

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Monday
Jan292018

Su-PERFLUO-us? More Chemicals Added to Prop 65 List

Environmental Litigation AttorneyEnvironmental Litigation Defense Attorney

 

Stephen T. Holzer

818.907.3299

 

Business owners manufacturing, buying, selling, or importing products in California already know about the state’s Prop 65 law. But do they also know every single chemical or substance that is on that list?

PFAs in food containersThey couldn’t possibly unless gifted with total recall, and even then they would have to keep up with numerous revisions made by the state’s Office of Environmental Health Hazard Assessment (OEHHA). As of December, nearly 1,000 contaminants have been added over the past 30 or so years – substances that are known to the State of California “to cause cancer or reproductive toxicity.”

Some recent additions to the list are perfluorooctanoic acid (PFOA) and perfluorooctane sulfonate (PFOS), members of the perfluoroalkyl substances (PFASs) family of chemicals.

As of now, the State has not determined a Maximum Allowable Dose Level. The federal Environmental Protection Agency however, established a drinking water health advisory level at 70 parts per trillion. Nevertheless, California businesses with 10 or more employees must provide warning labels on products that contain these PFOs, and in buildings where PFOA or PFOS may exist.

The chemicals are widely used to protect products from moisture and potential stains and to reduce friction in mechanical industries. So which businesses will most likely be affected?

  • Food Manufacturers & Packagers (packaged foods with coated paper);

  • Restaurants & Other Food Vendors (seafood or fish from water contaminated by PFOS, take-out containers, pizza boxes, popcorn bags, etc.);

  • Manufacturers (cosmetics, camping equipment, water/stain resistant clothing, water/stain resistant treatment products for clothing or furniture, carpeting, etc.);

  • Commercial Building owners and managers;

  • Retailers and Distributors dealing with any of the above.

PFOsAccording to the EPA, the contaminants aren’t made in the U.S. anymore – but PFOAs and PFOSs still show up in many imported products. And they don’t biodegrade well, thus the recent concerns regarding their presence in groundwater, fish, etc.

Anyone dealing in these and other products that contain PFOAs or PFOSs in California should post a Prop 65 warning label on products that contain these contaminants, and in buildings where employees or consumers may be exposed to the chemicals. 

Stephen T. Holzer is a Business Litigation Attorney and Chair of our Environmental Practice Group. 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Friday
Sep222017

Lighting Up Legislation: Regulating Recreational Marijuana in California

Environmental Litigation AttorneyEnvironmental Litigation Defense Attorney

Stephen T. Holzer

818.907.3299

 

California voters legalizing the use of recreational marijuana under Proposition 64, also known as The Adult Use of Marijuana Act (AUMA) last November is just the beginning. Deciding how cannabis will be grown, sold and consumed involves a lot of deep thinking by state and local legislators.

For one thing, AUMA has been replaced by the Medicinal and Adult-Use Cannabis Regulation and Safety Act, or MAUCRSA. The new law created one system of laws to regulate both medicinal and adult recreational use.

As we near the end of September, we realize two things: 

  1. Retailers are already stocking shelves with decorations for December holidays – it’s called “Christmas Creep” – a phenomenon that seems to arrive earlier and earlier each year.

  2. This year, “Cannabis Creep” is encroaching on the state too, as growers, distributors, potential retailers and consumers all keep their eyes peeled for the latest local and state laws regarding the purchase and sale of marijuana and marijuana-related products. Just think of the state government stocking up the legal shelves with bills and licensing requirements. 

Here’s a look at what’s happening currently in Los Angeles and state laws.

Regulating Marijuana Business Interests

State licenses for marijuana businesses are required, while many cities in California will also require approvals if not their own licensing. Los Angeles for example, requires city approval.

Los Angeles’s Proposition D, approved in 2013, will go up in smoke in January. The old ordinance prohibited sales of pot within the City unless the business dealt in medical marijuana and met certain other guidelines, like registration with the City Clerk. Proposition D will be repealed by Proposition M as of January 1, 2018.

Proposition M gives the L.A. City Council authority to enact and revise regulations regarding medical and recreational marijuana; enforce laws or collect fines; and tax sales.

Los Angeles Zoning: The City Planning Commission passed a Los Angeles ordinance to establish zoning regulations affecting pot growers, distributors and sellers. The primary rule under this ordinance to remember is the 800 ft. rule – no selling within 800 feet of schools, drug or alcohol treatment and rehabilitation centers, public libraries, public parks, or other cannabis retailers and microbusinesses that sell marijuana on site.

There are other zoning rules for Los Angeles: generally speaking, licensed sellers are allowed to sell in retail zones, and licensed cannabis product manufacturers are permitted to make products in manufacturing zones.

Cultivators though, have much more stringent rules pertaining to outdoor growth vs. greenhouse or nursery growth. See the info starting on page 9 of the L.A. ordinance link above for more information.

The California government developed a website to keep everyone straight at the state level: California Cannabis Portal (CCP).

As of now there are three branches of marijuana government: the Bureau of Medical Cannabis Regulation (BMCR, the main regulatory office), CalCannabis Cultivation Licensing (branch of the state’s Department of Food and Agriculture, also referred to as just CalCannabis), and Office of Manufactured Cannabis Safety Branch (MCSB is part of the state’s Department of Public Health), all post updates here.

State Licensing: According to CCP, applications for licensing are coming soon.

Under Senate Bill 94 which was chaptered in June, there will be two types of cannabis sales licenses in the state of California. Retailers selling recreational marijuana to adults should apply for A-licenses. Businesses selling medical marijuana should apply for M-licenses.

As noted, none of the state agencies are issuing licenses yet. The BMCR is the branch responsible for retail, distributor, lab testing and microbusiness licensing; and recommends business owners pursue approvals and licenses from city and county governments while they finalize the state process.

CalCannabis estimates the first cultivation licenses will be issued in January 2018. CalCannabis is working on a track-and-trace system to record supply chain movements.

The MCSB will offer several cannabis licenses, including Type 6 (non-volatile solvent and/or mechanical extractions) and Type 7 (volatile solvent extractions) licenses – neither of which will be available for a while, as the branch expects to be able to receive applications for licenses in January.

Pipe Dreams for Consumers?

Legalizing marijuana whether for medicinal or recreational use is a weighty endeavor – one that should be taken with great deliberation for the protection of all.

But given the fact that none of the state agencies are ready to issue licenses, and realistically, don’t seem to be able to do so until well after the start of the new year, the only lighting up consumers can look forward to in the near future is that of the Christmas and Hanukah lights in December.

At least those retailers are ready to roll.

 

Stephen T. Holzer is a Business Litigation Attorney and the Chair of our Environmental Practice Group. 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Friday
Sep152017

Pass the Beer: Craft Brew Distribution Law in the U.S.

CalBar Certified Franchise & Distribution Law Specialist

by Barry Kurtz

818-907-3006

 

How do Americans get their stouts, ales, pilsners and porters? Beer distribution, no matter the variety, is funneled through a highly regulated three-tier system: brewers at the top, distributors take their cut in the middle, and retailers sell directly to the consumer.

This system is designed to prevent pre-prohibition style marketing tactics, in which beer makers sold directly to brewer-owned taverns and other retailers, encouraging excessive consumption. The three-tier system also generates revenues for the states, facilitates state and local control over alcoholic beverages, and establishes a bit of temperance.

State statutory and regulatory schemes establishing the three-tier system vary substantially. But states generally fall into one of two categories: license states and control states.

Beer Licensing States

There are 32 license states. Under a typical licensing scheme, brewers who brew beer in another state, but who wish to sell it in the license state, must obtain a manufacture’s license, or register with a regulatory body, in advance of signing a distribution agreement with a distributor to distribute its beer.

While the licensing systems in the license states provide accountability and an additional source of revenue for those states, they are often convoluted and difficult to figure out. Determining which licenses are needed is no easy task.

Beer Control States 

There are 18 control states. These have licensing requirements too. The difference between control states and license states is that at some point in the distribution process, control states obtain a direct interest in the revenues by taking an ownership stake as distributors or retailers of the product. These states are also known to exert greater control over the conditions of sale and promotion of alcohol within their borders.

Source: Alcohol and Tobacco Tax and Trade Bureau

Beer Cyber States 

Naturally, craft breweries are eyeing the internet as an alternative channel of distribution for their products.

Only 16 states allow brewers to distribute their products directly to retailers, with some restrictions and 16 states forbid the direct shipment of beer to their residents. States that do permit the direct shipment of beer to their residents typically require the shipper to be licensed as a brewer, distributor or retailer in its state of origin – and to obtain a direct shipper permit in each state into which the brewer wishes to sell products before shipping into these states.

Further complicating matters, shipping beer through the United States Postal Service is illegal; DHL refuses to ship beer per company policy; and Federal Express and United Parcel Service will typically only ship for properly licensed shippers (those holding a valid brewer, wholesaler, retailer license etc.), on a contract basis.

In a nutshell, while the direct shipment of beer represents a potential innovation for the beer distribution industry, the three-tier system is effectively keeping the beer industry stuck in the 1990’s.

However, beer drinking consumers are beginning to push state legislatures for change, urging them to among other things, provide craft brewers the same direct shipment rights that wine producers enjoy in a majority of the states, and reminding them that restraints on competition rarely benefit consumers.

All-in-all, one can expect that states will begin to open their craft brewers’ taps for the free-flow of beer to their constituents.

Barry Kurtz is the Chair of our Franchise & Distribution Practice Group.

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

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