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Current Status Bill Number:View additional legislative information at the LPITS web site.1302 Type of Legislation:General Bill GB Introducing Body:Senate Introduced Date:20020522 Primary Sponsor:Reese All Sponsors:Reese Drafted Document Number:l:\council\bills\nbd\11761ac02.doc Residing Body:Senate Current Committee:Judiciary Committee 11 SJ Subject:Responsible Franchise Practices Act History Body Date Action Description Com Leg Involved ______ ________ ______________________________________ _______ ____________ Senate 20020522 Introduced, read first time, 11 SJ referred to Committee Versions of This Bill
TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA, 1976, BY ADDING CHAPTER 80 TO TITLE 39 SO AS TO ENACT THE "RESPONSIBLE FRANCHISE PRACTICES ACT", INCLUDING THE ESTABLISHMENT OF CERTAIN MISDEMEANOR OFFENSES AND CRIMINAL PENALTIES AND THE ESTABLISHMENT OF CIVIL PENALTIES.
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. Title 39 of the 1976 Code is amended by adding:
Section 39-80-10. This chapter is known and may be cited as the 'Responsible Franchise Practices Act'.
Section 39-80-20. It is the purpose of this chapter to promote the vitality of franchising through fair, equitable, and responsible franchise practices. Franchising has matured into a significant and competitive mode of product and service distribution in our national economy. Traditional common law doctrines have not evolved sufficiently to protect franchisees adequately from fraudulent or unfair practices in the sale and operation of franchised businesses; significant contractual and procedural restrictions have denied franchisees viable legal recourse to protect their interests in such businesses.
For all parties to a franchise, having disputes settled under inconsistent and widely varying state laws provides little predictability and consistency in how the issue will be treated by the courts. A uniform set of standards would ensure that all franchisees and franchisors will be treated the same on a particular issue, no matter what state they do business in.
Section 39-80-30. As used in this chapter:
(1) 'Chapter' means the 'Responsible Franchise Practices Act'.
(2) 'Advertisement' means an oral or written communication disseminated by mail, print, or electronic media, or otherwise, to the public, in connection with an offer or sale of a franchise.
(3) 'Business days' are all days other than Saturday, Sunday, and federal and state holidays.
(4) 'Franchise' means:
(a) an express or implied agreement, whether oral or written, by which:
(i) a party is granted the right to offer, sell, or distribute goods or services under a marketing plan or system prescribed or suggested in substantial part by a franchisor;
(ii) the operation of the business is allowed to be substantially associated with a trademark, service mark, trade name, logotype, advertising, or other commercial symbol owned, controlled, or used by the franchisor or its affiliate; and
(iii) the franchisee is required to pay, directly or indirectly, a franchise fee;
(b) an area franchise, unless specifically stated otherwise in this section;
(c) a subfranchise, unless specifically stated otherwise in this section;
(d) any commercial relationship entered into in reasonable reliance on representations, either oral or written, that the criteria of paragraph (a) of this item (4) will be met; or
(e) any commercial relationship explicitly referred to as a franchise by the seller.
(5) The term 'franchise' does not include a nonprofit organization operated on a cooperative basis, by and for independent retailers, which wholesales goods and services primarily to its member retailers and to which all of the following are applicable:
(a) each member has substantially the same control and ownership of the cooperative, or such control and ownership as is apportioned by number of retail units owned;
(b) only those who will avail themselves of the services furnished by the organization may be members;
(c) transfer of ownership is prohibited or limited;
(d) capital investment receives no return;
(e) any benefits to the members are made on the basis of patronage of the cooperative or on the basis of retail units owned;
(f) members are not personally liable for obligations of the organization in the absence of a direct undertaking or authorization by them;
(g) services of the organization are furnished primarily for the use of the members; and
(h) no part of the receipts, income, or profit of the organization is paid to any profit-making entity, except for arms-length payments for necessary goods and services, and members are not required to purchase goods or services from any designated profit-making entity, other than approved suppliers selected on an objective basis. The nonprofit organization is subject to an action for rescission or damages if the organization fraudulently induced the plaintiff to join the organization.
(6) A 'franchise' does not include any contract regulated by the Federal Petroleum Marketing Practices Act, 15 U.S.C. 2801 et seq.
(7) A 'franchisee' is a person to whom a franchise is granted. 'Franchisee' includes the following:
(a) a subfranchisor with regard to its relationship with a franchisor; and
(b) a subfranchisee with regard to its relationship with a subfranchisor.
(8) A 'franchisor' means a person who grants or has granted a franchise, area franchise, or subfranchise, or an affiliate of such a person. 'Franchisor' also includes a subfranchisor with regard to its relationship with a franchisee, unless stated otherwise in this chapter.
(9) An 'area franchise' means any franchise between a franchisor and a franchisee whereby the franchisee is granted the right to operate more than one unit within a specified geographic area.
(10) A 'subfranchise' means any agreement where a franchisor gives another person the right to sell or negotiate the sale of franchises. A contract or agreement which is a franchise does not become a subfranchise merely because under its terms a person is granted the right to receive compensation for referrals to a franchisor or subfranchisor or to receive compensation for acting as a sales representatives on their behalf.
(11) A 'subfranchisee' means a person who is granted a franchise from a subfranchisor.
(12) A 'subfranchisor' means a person to whom a subfranchise is granted from a franchisor.
(13) A 'franchise fee' means any payment or agreement to pay for the right to enter into or continue in a franchise including, but not limited, any payment for goods or services. However, the following are not considered the payment of a franchise fee:
(a) the purchase or agreement to purchase goods at a bonafide wholesale price if the purchaser has no obligation to purchase more goods than a reasonable person normally would purchase as a starting inventory or to maintain a going inventory or supply;
(b) the payment of a reasonable service charge to the issuer of a credit card by an establishment accepting or honoring such credit card; or
(c) payment to a trading stamp company by a person issuing trading stamps in connection with a retail sale.
(14) 'Fraud' and 'deceit' are not limited to common law fraud or deceit.
(15) 'Offer' or 'offer to sell' includes every attempt to offer to dispose of, or to solicit an offer to buy, a franchise or interest in a franchise for value.
(16) 'Sale' or 'sell' includes every express or implied, written or oral agreement of sale of, contract to sell, or disposition of, a franchise or interest in a franchise for value.
(17) 'Person' means an individual or any other legal or commercial entity.
(18) 'Rule' means any published regulation or standard of general application issued by the Federal Trade Commission relating to franchising.
(19) 'Affiliate' means a person controlling, controlled by, or under common control with another person, every officer or director of such a person, and every person occupying a similar status or performing similar functions.
(20) 'Franchise broker' means a person, other than a franchisor or franchisee, or an employee thereof, who sells, offers for sale, or arranges for the sale of a franchise.
(21) 'Marketing plan' means a plan or system concerning a material aspect of conducting business. Indicia of a marketing plan include any of the following:
(a) price specification, special pricing system, or discount plans;
(b) sales or display equipment or merchandising devices;
(c) sales techniques;
(d) promotional or advertising materials or cooperative advertising;
(e) training regarding the promotion, operation, or management of the business;
(f) operational, managerial, technical, or financial guidelines or assistance;
(22) The terms 'material' and 'material fact' include:
(a) any fact, circumstances, or set of conditions which a reasonable individual would consider important in making a decision relating to, entering into, remaining in, or abandoning a franchise relationship; or
(b) any fact, circumstances, or set of conditions which has, or may have, any significant financial impact on a franchisor, franchisee, or a prospective franchisee.
Section 39-80-40. The terms defined in Section 39-80-30 do not include the renewal or extension of an existing franchise where there is no interruption in the operation of the franchised business by the franchisee, except that a material modification of an existing franchise, whether upon renewal or otherwise, is a 'sale' within the meaning of Section 39-80-30. However, the sale of an existing franchise by the franchisee is not a 'sale' within the meaning of that section, if all of the following are applicable:
(1) neither the franchisor nor any of its owners or affiliates have any ownership interest in the selling party; and
(2) the sale is not effected by or through the franchisor or its affiliates. A sale is not effected through a franchisor if the franchisor's involvement in it is limited to approving the prospective new franchisee.
Section 39-80-50. (A) In connection with the advertising, offering, sale, or other promotion of any franchise, it is unlawful for any person:
(1) to employ any device, scheme, or artifice to defraud;
(2) to engage in an act, practice, course of business, or pattern of conduct which operates, or is intended to operate, as a fraud or deceit upon any person;
(3) to make an untrue statement of a material fact or any omission to state a material fact, or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading;
(4) to represent or imply in any manner that a franchise has been endorsed, recommended, or approved by any agency or officer of any state or of the United States.
(B) In connection with any presale franchise disclosure document, notice, or report required by law or regulation, it is unlawful for any franchisor or franchise broker, either directly or indirectly through any officer, employee, agent, representative, or affiliate:
(1) to make or cause to be made an untrue statement of material fact, omit to state a material fact, or omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading;
(2) to fail to furnish any prospective franchisee with all information required to be disclosed at the time and in the manner required by rule or other applicable law;
(3) to make any claim or representation to a prospective franchisee, whether orally or in writing, which is inconsistent with or contradicts any information provided to the prospective franchisee in any required disclosure;
(4) to make a statement of fact which has the intent or effect of misrepresenting the profitability of a franchise opportunity, the rate of success of franchises or franchisees associated with a franchise opportunity, the expected market value of the franchise, the equity the franchisee will accumulate in the franchised business, or the rate of success of franchises generally.
(C) For the purposes of this section, the burden of proof is upon the franchisor to show that any claim, statement, or representation made orally or in writing in connection with the advertising, offering, sale, or other promotion of a franchise is accurate and not misleading and that there was a reasonable basis in fact for each such claim, statement, or representation at the time it was made.
Section 39-80-60. (A) A franchisee may transfer the franchised business and franchise to a transferee, provided that the transferee satisfies the reasonable current qualifications of the franchisor for new franchisees. For the purposes of this section, reasonable current qualifications for a new franchisee are qualifications based upon legitimate business reasons. If the proposed transferee does not meet the reasonable current qualifications of the franchisor, the franchisor may refuse to permit the transfer, provided that the refusal of the franchisor to consent to the transfer is not arbitrary or capricious.
(B) A franchisor may require as a condition of a transfer any of the following:
(1) that the transferee successfully complete a reasonable training program;
(2) that a reasonable transfer fee be paid to reimburse the franchisor for the franchisor's reasonable and actual expenses directly attributable to the transfer;
(3) that the franchisee pay or make provision reasonably acceptable to the franchisor to pay any amount due the franchisor or the franchisor's affiliate; and
(4) that the financial terms of the transfer comply at the time of the transfer with the franchisor's current financial requirements for franchisees.
(C) A franchisee may transfer the franchisee's interest in the franchise for the unexpired term of the franchise agreement, and a franchisor may not require the franchisee or the transferee to enter into a new or different franchise agreement as a condition of the transfer.
(D) A franchisee shall give the franchisor no less than thirty days' written notice of a transfer which is subject to the provisions of this section, which notice shall include a statement of the proposed transferee's financial qualifications and business experience.
(E) A transfer by a franchisee is deemed to be approved thirty days after the franchisee submits the request for consent to the transfer unless, within that time, the franchisor withholds consent to the transfer as evidenced in writing, specifying the reason or reasons for withholding the consent. Any such notice is privileged and is not actionable based upon a claim of defamation.
(F) The following occurrences are not considered transfers requiring the consent of the franchisor under a franchise agreement and shall not result in the imposition of any penalties or make applicable any right of first refusal by the franchisor:
(1) the succession of ownership of a franchise upon the death or disability of a franchisee, or of an owner of a franchise, to the surviving spouse, heirs, or a partner active in the management of the franchisee unless the successor fails to meet within one year the then current reasonable qualifications of the franchisor for franchisees and the enforcement of the reasonable current qualifications is not arbitrary or capricious;
(2) incorporation of a proprietorship franchisee, provided that the incorporation does not prohibit a franchisor from requiring a personal guaranty by the franchisee of obligations related to the franchise;
(3) a transfer within an existing ownership group of a franchise, provided that more than fifty percent of the franchise is held by persons who meet the franchisor's reasonable current qualifications for franchisees. If less than fifty percent of the franchise would be owned by persons who meet the franchisor's reasonable current qualifications, the franchisor may refuse to authorize the transfer, provided that enforcement of the reasonable current qualifications is not arbitrary or capricious;
(4) a transfer of less than a controlling interest in the franchise to the franchisee's spouse or child or children, provided that more than fifty percent of the entire franchise is held by those who meet the franchisor's reasonable current qualifications. If less than fifty percent of the franchise would be owned by persons who meet the franchisor's reasonable current qualifications, the franchisor may refuse to authorize the transfer, provided that enforcement of the reasonable current qualifications is not arbitrary or capricious;
(5) a transfer of less than a control interest in the franchise to an employee stock ownership plan, or employee incentive plan, provided that more than fifty percent of the entire franchise is held by those who meet the franchisor's reasonable current qualifications for franchisees. If less than fifty percent would be owned by persons who meet the franchisor's reasonable current qualifications, the franchisor may refuse to authorize the transfer, provided that enforcement of the reasonable current qualifications is not arbitrary or capricious;
(6) a grant or retention of a security interest in the franchised business or its assets, or an ownership interest in the franchisee, provided that the security agreement establishes an obligation on the part of the secured party, enforceable by the franchisor, to give the franchisor notice of the secured party's intent to foreclose on the collateral simultaneously with notice to the franchisee, and a reasonable opportunity to redeem the interests of the secured party and recover the secured party's interest in the franchise or franchised business by paying the secured obligation.
Section 39-80-70. (A) A franchisor, either directly or indirectly through any affiliate, officer, employer, agent, or representative, may not prohibit or restrict a franchisee from obtaining equipment, fixtures, supplies, goods, or services used in the establishment or operation of the franchised business from sources of the franchisee's choosing, except that such goods or services may be required to meet established uniform system-wide quality standards which are not arbitrarily promulgated or enforced by the franchisor.
(B) This section applies to all goods or services that the franchisee is required to obtain whether or not they are related to a trademark, trade name, trade secret, or patent owned, used, or controlled by or licensed to the franchisor or its affiliates.
(C) Without limiting the rights of the franchisee under subsection (A) of the section, a franchisor shall provide and continuously update an inclusive list of suggested vendors for all goods and services related to the business.
(D) A franchisor shall fully disclose whether or not it receives any rebates, commissions, payments, or other benefits as a result of the purchase of goods or services by franchisees. All of these rebates or benefits shall pass directly to the franchisee.
(E) The franchisor shall report not less frequently than annually, using generally accepted accounting principles, the amount of revenue and profit it earns from the sale of goods and services to the franchisee and to franchisees of the franchisor.
Section 39-80-80. Without regard to whether a fiduciary duty is imposed generally on the franchisor by virtue of a franchise relationship, the franchisor owes a fiduciary duty to its franchisees and is obligated to exercise the highest standard of care when:
(1) performing bookkeeping, collections, payroll, or accounting services on behalf of the franchisee; the franchisor only may use the information concerning the franchised business gained while performing such services for bona fide and legitimate business purposes; bona fide and legitimate business purposes do not include competition with the franchisee;
(2) administering or supervising the administration of an advertising or promotional fund to which the franchisee is required to make contributions; all of these pooled funds must be kept in a segregated account and are not subject to the claims of creditors of the franchisor; the franchisor shall, at its expense, provide an independent certified audit of these pooled funds within sixty days following the close of the franchisor's fiscal year; the audit shall fully disclose all fees, expenses, or other payments from the fund to the franchisor.
Section 39-80-90. (A) A franchisor shall not directly or indirectly prohibit or restrict the right of franchisees to freely associate or from forming, joining, or participating in any trade association.
(B) A franchisor shall not directly or indirectly retaliate or discriminate against a franchisee for forming, joining, or participating in any trade association.
(C) A trade association of franchisees is not subject to the applicable antitrust laws, whether by statute, rule, or common law; neither the association nor the members of it may be held or construed to be in restraint of trade.
(D) A franchisor shall not discriminate against any franchisee or prospective franchisee in the sale, renewal, or approval of the transfer of a franchise on the basis of race, color, religion, gender, sexual preference, age, national origin, or disability. However, nothing in this chapter may be construed to prohibit or restrict the right of a franchisor to make franchise opportunities available to persons lacking the capital, training, business experience, or other qualifications ordinarily required of its franchisees, pursuant to any bona fide affirmative action or other similar program adopted by the franchisor.
Section 39-80-100. (A) A franchisor shall not grant or license a new franchise, or otherwise establish a new outlet, one or more points of sale of, or a new channel of distribution for goods or services similar to that offered by a franchisee and identified by the same trade name, trademark, logotype, commercial system, or advertising used by a franchise, or owned or managed by an entity related to the franchisor, in unreasonable proximity to an outlet or business owned or licensed to such franchisee so that the effect or probable effect of granting or establishing the new franchise, outlet, or point or points of sale is to cause a reduction in gross sales of the existing franchise.
(B) The franchisor, before granting or licensing a new franchise or opening a new outlet or one or more points of sale, shall provide not less than one hundred twenty days' written notice to all franchisees in proximity of the proposed franchise, outlet, or point of sale.
(C)(1) Where a franchisor has granted a new franchise or established a new outlet or point of sale in such unreasonable proximity to an existing franchise, the owner of the existing franchise has a cause of action for monetary damages including, but not limited to, actual loss of income resulting from the reduction in gross sales caused by the opening and operation of the new franchise, outlet, or point of sale, anticipated loss of income caused by the continued operation of that franchise, outlet, or point of sale, the loss or reduction in the value of the franchised business, and all costs of litigation including reasonable attorney's and expert witness fees.
(2) This section does not apply where:
(a) the reduction in gross sales for an existing franchise caused by the opening and operation of the new franchise, outlet, or one or more points of sale, based on a comparison to annual gross sales from the same franchise location during the twelve-month period immediately preceding the opening of the new franchise, outlet, or point of sale, is determined to have been less than ten percent during the first twelve months following the opening of the new franchise, outlet, or point of sale;
(b) the franchisor agrees to compensate the existing franchisee or franchisees for market sales diverted by the opening of a new franchise, outlet, or points of sale, provided that the franchisor and franchisee agree upon the proper amount of the compensation to be provided, or if the franchisor and franchisee cannot agree on the proper amount of the compensation:
(i) each party shall appoint an independent appraiser to determine the amount of the compensation;
(ii) if the independent appraisers are unable to agree on the appropriate amount of the compensation, the independent appraisers shall appoint a third appraiser to determine the level of compensation; and
(iii) the determination of the independent appraiser is final and binding.
(D) The franchisor has the burden of proof to show that a decline in sales of an existing franchise or franchises occurred because of a reason other than the opening and operation in unreasonable proximity to the existing franchise of the new franchise, outlet, or point of sale.
(E) Upon petition by the franchisee, a court of competent jurisdiction may grant a permanent or preliminary injunction to prevent injury or threatened injury for a violation of this section or to preserve the status quo pending the outcome of the formal procedure.
Section 39-80-110. (A) A franchise contract imposes on each party a duty to act in good faith in its performance and enforcement.
(B) The duty of good faith obligates each party to a franchise to do nothing that will have the effect of destroying or injuring the right of the other party to receive the full expected benefit and fruits of the contract, and to do everything required under the contract to accomplish that purpose.
(C) Any action that prevents such enjoyment, even if not prohibited by the letter of the contract, is prohibited.
(D) Franchisors and franchisees shall act in a fair and equitable manner toward each other so as to guarantee freedom from wrongfulness, arbitrariness, coercion, or duress by the other party.
(E) Good faith includes honesty of fact and the observance of reasonable standards of fair dealing.
(F) A franchisor that simply acts in compliance with the terms of its franchise agreement with a franchise is not necessarily dealing with its franchisee fairly and in good faith.
(G) The courts have the authority to refuse to enforce unconscionable contract provisions, including those unfairly imposed on the franchisee by reason of the superior bargaining position of the franchisor.
Section 39-80-120. (A) The franchisor is required to exercise the skill and knowledge normally possessed by franchisors in good standing in the same or similar types of business.
(B) Franchisors and franchisees are mutually accountable to conform to clearly established system-wide standards of operation which are not arbitrarily promulgated or enforced.
(C) Franchisors shall provide individual franchisees with initial training and continuing commercial or technical assistance during the entire life of the agreement.
(D) For purposes of this section:
(1) the phrase 'skill or knowledge' means something more than the mere minimum level of skill or knowledge required of any person engaging in a service or business and involves a special level of expertise:
(a) which is the result of acquired learning and aptitude developed by special training and experience in the business to be conducted under the franchise, or the result of extensive use and experience with the products or services or the operating system of the franchise;
(b) which is the result of experience in organizing a franchise system and in providing training, assistance, and services to franchisees; and
(c) which a prospective franchisee would expect in reasonable reliance on the written and oral commitments and representations of the franchisor; and
(2) a franchisor must be permitted to show that it contracted for, hired, or purchased the expertise necessary to comply with the requirements of this subsection and that such expertise was incorporated in the franchise or communicated or provided to the franchisee.
Section 39-80-130. Recognizing the needs of both the franchisor and the franchisee to make reasonable changes to the franchise system to incorporate new and mutually advantageous products, technologies, and methods of doing business and to accommodate and meet competitive challenges in the industry, field, or market in which franchisees operate, no change to the operating manuals or other ancillary documents, or to the form of the renewal franchise agreement offered to a franchisee, shall:
(1) change the franchisee fee, royalty rates, or other material financial terms of the franchise relationship; or
(2) operate to materially change, abrogate, or deprive the franchisee of the intended fruits of the franchise agreement.
Section 39-80-140. (A) A franchisor may not refuse to renew a franchise agreement for the purpose of converting the franchisee's business to operation by the franchisor or by any employee, agent, or affiliate of the franchisor.
(B) A franchisor may not refuse to renew a franchise agreement unless the franchisor provides at least six months' prior written notice of its intent not to renew, and
(1) termination of the franchise agreement would be permitted under Section 39-80-170;
(2) the franchisee and the franchisor agree in writing not to renew the franchise agreement;
(3) the franchisor withdraws from distributing its products or services through franchises in the geographic market served by the franchisee, or ceases to offer new franchises, in which event, upon expiration, any noncompetition covenant is null and void.
(C) A franchisor may not impose as a condition of renewal that the franchisee ceases to own or operate an independent business not within an unreasonable proximity of the franchised business.
Section 38-80-150. (A) A franchisor may not, either directly or indirectly through any officer, employee, agent, representative, or affiliate, prohibit or enforce a prohibition against any franchisee from engaging in any business at any location after expiration of a franchise or after termination of the franchise before its expiration for good cause.
(B) This section does not apply to enforcement of the prohibition in subsection (A) where the franchisor, not less than thirty days before the effective date of the termination or expiration, offers in writing to, and does purchase the assets of the franchised business for its fair market value as a going concern, provided that:
(1) the fair market value of that business is determined as if it were to be resold or renewed for a period of years equal to the contract term being offered by the franchisor for new or renewed franchisees;
(2) the fair market value of that business is ascertained by an impartial appraiser whose appointment is acceptable to both parties; and
(3) any forgiveness of debt may not be considered a purchase of assets by the franchisor for purposes of this section.
(C) Nothing in this section may be interpreted to prohibit enforcement of any provisions of a franchise contract obligating a franchisee after expiration, termination, or transfer of a franchise:
(1) to cease or refrain from using a trademark, trade secret, or other intellectual property owned by the franchisor or its affiliate, except that the existence of language in the franchise agreement purporting to determine ownership of a trademark, trade secret, or other intellectual property is not binding upon any court or forum for purposes of this paragraph but may be considered by the court or forum as evidence of the ownership; or
(2) to alter the appearance of the premises and the manner of operation of the franchise business to avoid any likelihood of confusion as to the affiliation of the business with its former franchisor.
Section 39-80-160. (A) Whenever all or a major portion of the franchise system is acquired by another person through purchase, merger, consolidation, acquisition of assets, bankruptcy proceedings, any foreclosure or judicial order, or otherwise, the person acquiring the franchise system shall assume the obligations agreed to by the predecessor franchise in contracts with franchises, and the franchisees are entitled to hold that transferee legally responsible for the duties and responsibilities of, and all then-existing claims against, the predecessor franchisor.
(B) A franchisor may not transfer its interest in a franchise unless:
(1) the franchisor provides not less than thirty days' advance notice to every franchisee of the intent to transfer its interest in the franchise or of substantially all of the franchises held by the franchisor;
(2) the notice is accompanied by a complete description of the business and financial terms of the proposed transfer; and
(3) upon the transfer, the entity assuming the franchisor's obligations has the business experience and financial means to perform all of the franchisor's obligations in the ordinary course of business.
(C) If a person acquiring a franchise system fails to expressly undertake the obligations, or fails to act in good faith to renegotiate the obligations with franchisees, the franchisees are entitled to reject their contractual duties and responsibilities to the franchisor, including any noncompetition covenant and post-term obligations, provided that, upon the rejection, the franchisees cease from using the franchisor's trademarks, logos, and other express identification, and otherwise alter the appearance of the premises and the manner of operation of the franchised business to avoid any likelihood of confusion as to the affiliation of the business with the franchise system.
Section 39-80-170. (A) A franchisor shall not cancel or terminate a franchise agreement or substantially change the competitive circumstances of the franchise before the expiration of its terms except for good cause based on a legitimate and good faith business reason.
(B) Any termination for good cause may not be arbitrary or capricious when compared with the acts and practices of, and the requirements imposed by, the franchisor in other similar circumstances.
(C) Before termination for good cause, the franchisor shall provide a written notice to the franchisee which:
(1) specifies the precise basis for the proposed termination, including a description of those material terms of the franchise agreement with which the franchisee is not in compliance;
(2) provides to the franchisee a reasonable period of time to cure any nonfinancial events of default, which period shall be not less than thirty but need not be more than ninety days;
(3) provides to the franchisee a reasonable period of time to cure any failure to pay monies due to the franchisor or its affiliate, which period need not be more than thirty days; and
(4) includes an offer to purchase from the franchisee the franchisee's current inventory meeting the franchisor's then present standards and held for sale in accordance with the franchise agreement, at the higher of wholesale value or franchisee's cost.
(D) A franchisor need not provide an opportunity to cure if any one of the following apply:
(1) the franchisee is declared bankrupt, is judicially determined to be insolvent, or makes or suffers an assignment for the benefit of creditors;
(2) the franchisee voluntarily abandons the franchised business for five consecutive days, unless the result of natural disaster or other cause beyond the control of the franchisee;
(3) after reasonable notice the franchisee operates the franchised business in a manner that imminently endangers the public health and safety; or
(4) the franchisee is convicted of a felony which materially and adversely affects the operation, maintenance, and goodwill of the franchised business in the relevant market, provided the franchisee is permitted not less than ninety days to transfer the franchise, subject to the provisions of Section 39-80-60.
Section 39-80-180. Any provision in a franchise agreement or ancillary document which obligates a franchisee to mediate, arbitrate, or litigate any claim or controversy in a forum outside the state in which the franchised business is located is in violation of the purposes of this chapter as set forth in Section 39-80-20 and is null and void.
Section 39-80-190. (A) A person who violates any provision of this chapter or any rule is liable to the franchisee who may sue for damages caused thereby, for recission, or other relief as the court considers appropriate.
(B) Every person who directly or indirectly controls a person liable under subsection (A), every partner in a firm so liable, every principal executive officer or director of a corporation so liable, every person occupying a similar status or performing similar functions, and every employee of a person so liable who materially aids in the act or transaction constituting the violation is also liable jointly and severally with and to the same extent as such person, unless the person who would otherwise be liable hereunder had no knowledge of or reasonable grounds to know of the existence of the facts by reason of which the liability is alleged to exist.
(C) Any suit authorized under this section may be brought to recover the actual damages sustained by the plaintiff together with costs and disbursements plus reasonable attorney's and expert witness fees. The remedies provided in this chapter and this section are in addition to all other remedies at law and in equity.
(D) No action may be commenced pursuant to this section or this chapter more than four years after the cause of action accrues.
Section 39-80-200. Any provision in a franchise agreement or ancillary document which requires a franchisee or prospective franchisee, upon the purchase, renewal, or transfer of a franchise, or at any other time, to (a) assent to a release, assignment, novation, or waiver which would relieve any person from liability under this chapter or (b) waive compliance by the franchisor with any provision of this chapter is null and void.
Section 39-80-210. (A) The provisions of this chapter apply to the franchise agreement as well as all ancillary documents and agreements including, but not limited to, the franchise offering circular, sales of goods and services, operating manuals and policies, leases and mortgages of real or personal property, promissory notes, pledge and security agreements, insurance and advertising contracts, installation or construction contracts, and any other arrangement in which the franchisor has a direct or indirect interest or over which the franchisor exercises material supervision or control.
(B) The provisions of this chapter apply to all franchise agreements and ancillary agreements entered into, renewed, amended, or transferred on or after the effective date of the chapter.
(C) The provisions of this chapter apply to all franchise agreements which require or contemplate the operation of a franchised business or location in the United States.
Section 39-80-220. (A) Any person who violates any provision of this chapter or who violates any rule is liable for a civil penalty of at least two thousand five hundred dollars for each violation, which amount must be assessed and recovered in a civil action brought in any court of competent jurisdiction.
(B) Any person wilfully violating any provision of this chapter is guilty of a misdemeanor and, upon conviction, must be fined not more than ten thousand dollars for each violation or imprisoned for not more than five years for each violation, or both.
(C) As applied to the penalties for acts in violation of this chapter, the remedies provided by this section and by other sections of this chapter are not exclusive and may be sought and employed in any combination to enforce the provisions of this chapter.
Section 39-80-230. (A) This chapter must be liberally interpreted so as to effectuate its purposes as set forth in Section 39-80-20.
(B) The provisions of this chapter are severable. If any provision of this chapter or its application to any person or circumstance is held invalid, that invalidity does not affect other provisions or their application which can be given effect without the invalid provision or application."
SECTION 2. This act takes effect upon approval by the Governor.
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Tuesday, December 8, 2009 at 11:17 A.M.