San Fernando Valley Los Angeles Attorneys
Navigation Two
Phone Number

Entries in sushi franchise (2)

Wednesday
Sep302015

Franchise Systems Can Fight Online Negativity; Bankruptcy Discharges Franchise Law Claims

Franchise 101 News

bkurtz@lewitthackman.com
dgurnick@lewitthackman.com
tgrinblat@lewitthackman.com
gwintner@lewitthackman.com
swolf@lewitthackman.com

September 2015

 

ABA Forum: David Gurnick Presenting

David Gurnick will co-present: Finders, Keepers, Losers, Weepers: Opportunities, Risks & Considerations in Using Intellectual Property Created by Others, at the ABA's 38th Annual Forum on Franchising, held in New Orleans October 13-17th. Finders, Keepers is scheduled for 10:15 a.m. on Thursday, 10/15, and 11:15 a.m. on Friday, 10/16. 

Franchise Lawyers*Certified Specialist in Franchise & Distribution Law, per the State Bar of California Board of Legal Specialization

FRANCHISOR 101:
Franchise Systems Can Fight Online Negativity


 

One of today's challenges faced by franchisors and franchise systems is negative remarks posted online by a customer, ex-employee, or even a dissatisfied franchisee. Negative comments appear in sites created specifically to criticize; on social media like Facebook or Tweets, blogs, personal sites and review sites like Yelp. These posts can reach unlimited numbers of people and hurt a brand's reputation.

Posts, positive or negative, may have First Amendment protection. Website hosts have immunity under the federal Communications Decency Act, for content posted by others on their sites. But companies are learning of ways to fight back. Here are some choices from which franchisors can assemble a strategy against negative online comments.

Proactive Efforts: A proactive way to reduce negative comments is using care to provide quality products, good customer experience and treating franchisees and employees well. Satisfied people are less likely to complain. Dissatisfied people - more likely. As a timely example, consider Volkswagen. Apparently, dishonesty was built into VW's products, and the company's misguided intent to fool the public is generating massive online negative comments that will be around for years to come. Honesty and good product quality would have avoided most of that negativity.

Terms and Conditions: Another proactive step is to have terms with customers, suppliers, franchisees and others, limiting posting of negative online comments

Seek Removal: A franchisor could consider contacting and asking the poster to remove or modify their statement. This course is especially useful if the negative comment is due to a misunderstanding or unique circumstance that is not likely to recur. An explanation to a franchisee, a franchisee's customer or ex-employee could address their concern. Sometimes an apology or other consideration may be needed. Some improper posts can be removed according to a site's terms of use. Many sites have terms for objecting and asking that posts be removed. For a particularly egregious or unlawful posting, a franchisor may find it useful to go beyond the site's stated procedure, and contact their management or attorney to request that the content be removed.

Post a Polite Response: Many sites provide the opportunity to post a reply. A respectful, even-tempered response explaining the circumstance, expressing regret for a poster's experience, and if appropriate noting what corrective action was or will be taken, can partially mitigate some ill effects of a negative online comment.

Cease and Desist Demand: Where justified, such as for comments that are false, exaggerated, or defamatory, a franchisor may choose to have counsel send the poster a strong demand to cease, desist and remove the posting. If the poster has made a threat, or disclosed secret information, civil or criminal implications may arise. Sometimes, people who post comments want this kind of attention, prompting concern that a cease and desist demand will not dissuade their conduct, but will generate more undesired comments.

Prudent Inaction: Because responses to negative online comments may generate more comments and undesired attention, another rational strategy - in the right circumstances - is to take no action. For example, a comment on an active Facebook or other page, whether negative or positive, if not responded to, may receive less attention and be pushed down by later posts on other subjects.

Get Other Posts: Similar to the above is to enlist other customers, friends and associates to post their own truthful, favorable comments. This method provides positive messages and sometimes causes negative reviews to be pushed down, where they get less and eventually no attention.

Digital Millennium Copyright Act Take Down Notice: Where a post includes content that infringes a copyright, federal law has a procedure for notifying and requiring the website to remove that content.

Seek Government Help: In some circumstances it is useful to ask for help from the government. The FTC, Attorney General and elected representatives are possible sources of assistance. For example, when a person posting negative or false comments is really a competitor, or ex-employee now working for a competitor, such agencies and officials may be willing to help.

Litigation: Due to expense, litigation is rarely anyone's first choice. But when someone breaks the law and won't stop, our system provides courts as forums for seeking relief. Courts can help identify anonymous perpetrators and award money damages for defamation, disparagement, false advertising and sometimes injunctive relief.

Sign-Up: It is distasteful but sometimes balancing cost and effect, a practical solution is to sign up with sites where this is known to result in removing or lowering the prominence of negative comments.

Many tools and strategies exist for responding and fighting back. It is not necessary to just accept the injury, harm to reputation and loss of business that come with being a target of negative comments on the internet.

 

FRANCHISEE 101:
Bankruptcy Discharges Franchise Law Claims

A recent Bankruptcy Appellate Panel decision is a reminder of both a benefit of bankruptcy, in appropriate circumstances, and the need to respect the bankruptcy discharge a party obtains in the process.

Mr. Lee was developing a sushi restaurant concept called Little Madfish. Mr. Im and his wife invested $200,000 and obtained stock and rights to open a Little Madfish restaurant. They also applied for a visa to work in the U.S. on the basis of having made a substantial investment in the business.

The restaurant failed. Lee filed for bankruptcy. After he obtained a discharge, Mr. Im sued in state court for franchise law violations, fraud and rescission of the stock purchase. Lee moved in state court to dismiss the claims based on his bankruptcy discharge. The state court dismissed some claims, but not all of them. At trial, a jury found Mr. Lee did not commit fraud and the court ruled that another claim was barred by the bankruptcy discharge.

Lee then asked the bankruptcy court to reopen his case so he could seek sanctions against Im for violating the discharge in bringing the state litigation. The bankruptcy court held Mr. Im in contempt, holding him liable for $50,000, for suing in state court after Mr. Lee obtained a discharge.

A bankruptcy discharge protects against claims for violating franchise laws as well as other claims. (Though under one bankruptcy code exception, a discharge may not protect against securities law claims). A person who is sued for franchise law violations or most other claims, may be able to discharge them through bankruptcy and it is important for claimants to respect the bankruptcy discharge.

Read the entire decision: In re Lee 2015 WL 3960897 (9th Cir. Bankr. App. Panel)

This communication published by Lewitt Hackman is intended as general information and may not be relied upon as legal advice, which can only be given by a lawyer based upon all the relevant facts and circumstances of a particular situation. Copyright Lewitt Hackman 2015. All Rights Reserved.

 

Wednesday
Mar252015

Forum Selection & Automatic Termination Clauses

Franchise 101

bkurtz@lewitthackman.com
dgurnick@lewitthackman.com
tgrinblat@lewitthackman.com
gwintner@lewitthackman.com
swolf@lewitthackman.com

Franchise 101 Lawyers*Certified Specialist in Franchise & Distribution Law, per the State Bar of California Board of Legal Specialization

March 2015

 

Barry Kurtz & Bryan H. Clements' Article in Business Law News, a publication of the State Bar of California

 

"The fact that states generally require brewers to provide distributors with exclusive territories in which no competitors may distribute the brewer's beer demonstrates the degree to which beer distributors enjoy greater territorial protections than do franchisees..."

Click to read: Traditional Franchise and Beer Distribution Relationships: A Legal Comparison

 

Samuel C. Wolf Article in Valley Lawyer, a publication of the San Fernando Valley Bar Association

 

"Franchise lawsuits and most business litigation are usually economic in nature, and application of the economic loss rule will often narrow the scope of the claims and damages available as a remedy..."

Read: Using the Economic Loss Rule to Your Client's Benefit

 

FRANCHISOR 101:
Forum Selection Clause Held Enforceable

 

Sushi Restaurant FranchiseA federal court in Sacramento recently upheld a franchisor's forum selection clause and transferred an action brought by an area representative to the federal district court in the Western District of Texas.

HDYR operated a sushi restaurant in Austin, and sought to franchise the concept under the name How Do You Roll? HDYR entered into an area representative service agreement with the plaintiffs under which the plaintiffs were to solicit franchisees to purchase How Do You Roll? restaurants in Northern California.

The agreement contained a forum selection clause providing for exclusive venue for disputes in the state or federal district courts in Texas.

In the Ninth Circuit, a forum selection clause is generally considered unenforceable only if it was the result of fraud, undue influence, or overwhelming bargaining power; if the selected forum was so inconvenient that forcing the plaintiffs to litigate there would essentially deny them their day in court; or if enforcement would contravene a strong public policy in the forum where the suit was brought.  

The court found that the plaintiffs presented no evidence that would void the forum selection clause. The court was not persuaded by the area representative's argument premised on the California Franchise Relations Act's (CFRA's) strong public policy against enforcing out-of-state forum selection clauses in franchise agreements, because the area representative agreement was not a franchise agreement. The court found that the area representative was retained to recruit franchisees, but was not a franchisee itself and was not the type of party that the CFRA was designed to protect.

The HDYR ruling is encouraging for franchisors since it illustrates the value of including well-conceived and well-drafted forum selection clauses in area representative agreements.

See: Estep v. Yuen Yung.

 

FRANCHISEE 101:
Nice Try Mr. Franchisee

In Fantastic Sam's Salons, Corp. v. Moassesfar, a federal court in Los Angeles denied a motion by former franchisees to dismiss Fantastic Sam's claims for breach of contract and trademark infringement based on the contractual limitations period in the parties' franchise agreements.

Hair Salon Franchise

The franchisees were required to pay a weekly franchise fee so long as the franchisee used the franchisor's system or marks, whether authorized or not. The franchise agreement stated the agreements terminated automatically, without notice from the franchisor, if the franchisees' bank failed or refused to honor any authorized bank draft for the payment of any weekly fees for two consecutive weeks.

The franchisees' checks to the franchisor were dishonored, first in January 2011 and again in February 2012. However, the franchisees continued to operate both locations as Fantastic Sam's salons until October 2014, when a stipulation to terminate the franchise agreements was entered into in the franchisor's termination action filed in August 2014.

The Moassesfars argued that the agreement had automatically terminated when two consecutive payments were missed, thus barring the franchisor's claims. The court rejected this theory, noting that the automatic termination clause without notice was contrary to California law and that the requirement of notice and an opportunity to cure prior to termination was intended to protect franchisees against arbitrary terminations.

See: Fantastic Sam's Salon Corp. v. Moassesfar.

 

This communication published by Lewitt Hackman is intended as general information and may not be relied upon as legal advice, which can only be given by a lawyer based upon all the relevant facts and circumstances of a particular situation. Copyright Lewitt Hackman 2015. All Rights Reserved.

 

LEWITT HACKMAN | 16633 Ventura Boulevard, Eleventh Floor, Encino, California 91436-1865 | 818.990.2120