Source: https://www.goldlawgroup.com/franchise-laws/california-franchise-laws/
Timestamp: 2019-04-19 14:47:18+00:00

Document:
California has a franchise relationship act and it is called the California Franchise Relations Act (“CFRA”). The CFRA covers, inter alia, franchise terminations, renewals and transfers.
The CFRA, in Sec. 20021, also carves out instances where a franchisor, by definition, will have reasonable grounds for a termination. Specifically, the CFRA allows for immediate notice of termination, without an opportunity to cure, under the following circumstances, all deemed reasonable: (a) The franchisee or the business to which the franchise relates suffers severe financial distress, including, for instance, where the franchisee declares bankruptcy or becomes insolvent; (b) The franchisee, due to circumstances not under the franchisee’s control, abandons the franchise by failing to operate the business for five consecutive days during which the franchisee is required to operate the business under the terms of the franchise, or any shorter period after which it is not unreasonable under the facts and circumstances for the franchisor to conclude that the franchisee does not intend to continue to operate the franchise; (c) The franchisor and franchisee agree in writing to terminate the franchise; (d) The franchisee makes any material misrepresentations relating to the acquisition of the franchise business or the franchisee engages in conduct which reflects materially and unfavorably upon the operation and reputation of the franchise business or system; (e) The franchisee fails, for a period of 10 days after notification of noncompliance, to comply with any federal, state or local law or regulation applicable to the operation of the franchise; (f) The franchisee, after curing any failure in accordance with Section 20020 engages in the same noncompliance whether or not such noncompliance is corrected after notice; (g) The franchisee repeatedly fails to comply with one or more requirements of the franchise, whether or not corrected after notice; (h) The franchised business or business premises of the franchise are seized, taken over or foreclosed by a government official in the exercise of his duties, or seized, taken over, or foreclosed by a creditor, lienholder or lessor, provided that a final judgment against the franchisee remains unsatisfied for 30 days (unless a supersedeas or other appeal bond has been filed); or a levy of execution has been made upon the license granted by the franchise agreement or upon any property used in the franchised business, and it is not discharged within five days of such levy; (i) The franchisee is convicted of a felony or any other criminal misconduct which is relevant to the operation of the franchise; (j) The franchisee fails to pay any franchise fees or other amounts due to the franchisor or its affiliate within five days after receiving written notice that such fees are overdue; or (k) The franchisor makes a reasonable determination that continued operation of the franchise by the franchisee will result in an imminent danger to public health or safety.
California, Sec. 20025 addresses grounds for non-renewal. Specifically, the CFRA states that no franchisor may fail to renew a franchise unless such franchisor provides the franchisee at least 180 days prior written notice of its intention not to renew; and (a) During the 180 days prior to expiration of the franchise the franchisor permits the franchisee to sell his business to a purchaser meeting the franchisor's then current requirements for granting new franchises, or if the franchisor is not granting a significant number of new franchises, the then current requirements for granting renewal franchises; or (b)(1) The refusal to renew is not for the purpose of converting the franchisee's business premises to operation by employees or agents of the franchisor for such franchisor's own account, provided, that nothing in this paragraph shall prohibit a franchisor from exercising a right of first refusal to purchase the franchisee's business; and (2) Upon expiration of the franchise, the franchisor agrees not to seek to enforce any covenant of the non-renewed franchisee not to compete with the franchisor or franchisees of the franchisor; or (c) Termination would be permitted pursuant to Section 20020 or 20021; or (d) The franchisee and the franchisor agree not to renew the franchise; or (e) The franchisor withdraws from distributing its products or services through franchises in the geographic market served by the franchisee, provided that: (1) Upon expiration of the franchise, the franchisor agrees not to seek to enforce any covenant of the non-renewed franchisee not to compete with the franchisor or franchisees of the franchisor; and (2) The failure to renew is not for the purpose of converting the business conducted by the franchisee pursuant to the franchise agreement to operation by employees or agents of the franchisor for such franchisor's own account; and (3) Where the franchisor determines to sell, transfer, or assign its interest in a marketing premises occupied by a franchisee whose franchise agreement is not renewed pursuant to this paragraph: (A) The franchisor, during the 180-day period after giving notice offers such franchisee a right of first refusal of at least 30 days' duration of a bona fide offer, made by another to purchase such franchisor's interest in such premises; or (B) In the case of the sale, transfer, or assignment to another person of the franchisor's interest in one or more other controlled marketing premises, such other person in good faith offers the franchisee a franchise on substantially the same terms and conditions currently being offered by such other person to other franchisees; or (f) The franchisor and the franchisee fail to agree to changes or additions to the terms and conditions of the franchise agreement, if such changes or additions would result in renewal of the franchise agreement on substantially the same terms and conditions on which the franchisor is then customarily granting renewal franchises, or if the franchisor is not then granting a significant number of renewal franchises, the terms and conditions on which the franchisor is then customarily granting original franchises.
The franchisor may give the franchisee written notice of a date which is at least 30 days from the date of such notice, on or before which a proposed written agreement of the terms and conditions of the renewal franchise shall be accepted in writing by the franchisee. Such notice, when given not less than 180 days before the end of the franchise term, may state that in the event of failure of such acceptance by the franchisee, the notice shall be deemed a notice of intention not to renew at the end of the franchise term.
Sec. 20030 of the CFRA regards notices of Termination or Non-renewal. Under this provision, all notices of termination or nonrenewal required by this chapter: (a) Shall be in writing; (b) Shall be posted by registered, certified or other receipted mail, delivered by telegram or personally delivered to the franchisee; and (c) Shall contain a statement of intent to terminate or not renew the franchise: (1) Together with the reasons therefor, and (2) The effective date of such termination or nonrenewal or expiration.
Sec. 20035 of the CFRA regulates the statutory Requirement of Offer to Repurchase Inventory. Under this provision, in the event a franchisor terminates or fails to renew a franchise other than in accordance with the provisions of this chapter, the franchisor shall offer to repurchase from the franchisee the franchisee's resalable current inventory meeting the franchisor's present standards that is required by the franchise agreement or commercial practice and held for use or sale in the franchised business at the lower of the fair wholesale market value or the price paid by the franchisee. Further, under the CFRA, the franchisor shall not be liable for offering to purchase personalized items which have no value to the franchisor in the business which it franchises.
7-Eleven, Inc. v. DhaliwalEyeglasses, United States District Court, E.D. California.November 21, 2012 (“To show that Dhaliwal is infringing 7–Eleven's registered trademarks in violation of the Lanham Act, 7–Eleven must show that Dhaliwal's use of its protected marks is both unauthorized and likely to cause confusion. See Applied Info. Sciences Corp. v. eBay, Inc., 511 F.3d 966, 969–71 (9th Cir.2007); Wetzel's Pretzels, LLC v. Johnson, 797 F.Supp.2d 1020, 1025 (C.D.Cal.2011).
United States District Court, E.D. California, January 24, 2011 (“Section 16.2.3 of the agreements provided that Century 21 could terminate the agreement for good cause, which included curable and non-curable defaults. Section 16.2.4, governing termination for curable defaults, provided that Century 21 could terminate the agreement with 30 days notice of the “proposed termination and the opportunity to cure the breach during the entire notice period, or such longer or shorter notice as is required or permitted by the law of the state where the Office is located,” if the curable breach was the failure to pay financial obligations. The CFRA, which the agreements incorporated by reference, prohibits a franchisor from terminating a franchise agreement absent good cause.
Mahroom v. Best Western Intern., Inc., United States District Court, N.D. California, San Jose Division, July 22, 2009 (“b. BWI's Violation of the CFRA -- Pursuant to the statute, “no franchisor may terminate a franchise prior to the expiration of its term, except for good cause. Good cause shall include, but not be limited to, the failure of the franchisee to comply with any lawful requirement of the franchise agreement after being given notice thereof and a reasonable opportunity, which in no event need be more than 30 days, to cure the failure.” Cal. Bus. & Prof.Code § 20020. BWI complied with this provision of the CFRA, as it had good cause to terminate the Mahrooms under the Membership Agreement, and notice of the deficiencies in the Mahrooms' performance was provided in August 2006, approximately ten weeks prior to the termination hearing. At least some deficiencies still existed at the time of the hearing, in particular the outdated guest rooms. *7 BWI informed the Mahrooms of the termination decision by letter on November 8, 2006. Pursuant to the CFRA, a termination notice: (a) Shall be in writing; (b) Shall be posted by registered, certified or other receipted mail, delivered by telegram or personally delivered to the franchisee; and (c) Shall contain a statement of intent to terminate or not renew the franchise: (1) Together with the reasons therefor, and The effective date of such termination or nonrenewal or expiration. Cal. Bus. & Prof Code § 20030. The termination letter appears to have been sent by express mail, and it stated that the termination was “effective immediately.” Pl.Ex. 70. With respect to the reasons for termination, the letter merely recited that “[a]fter full and complete consideration of the information provided, it was the decision [of the board] to cancel all aspects of the property's membership effective immediately. Pl.Ex. 70 at 1. This letter did not state with adequate specificity the reasons for the termination. At trial, BWI's witness admitted that the termination notice was a “form letter.” Tr. Trans. 833. Accordingly, the notice of termination did not meet the requirements of § 20030. “In the event a franchisor terminates or fails to renew a franchise other than in accordance with the provisions of this chapter, the franchisor shall offer to repurchase from the franchisee the franchisee's resalable current inventory meeting the franchisor's present standards that is required by the franchise agreement or commercial practice and held for use or sale in the franchised business at the lower of the fair wholesale market value or the price paid by the franchisee.” Cal. Bus. & Prof.Code § 20035. Interpreting California law, the Ninth Circuit has held that the repurchase remedy is the sole civil remedy available to an aggrieved franchisee under the CFRA. See Boat & Motor Mart v. Sea Ray Boats, Inc., 825 F.2d 1285, 1291 (9th Cir.1987). The CFRA itself does not provide for an award of damages. See id. (“The legislature has known how to give damage actions to injured franchisees. In the California Franchise Relations Act it has not accorded such protection.”).
Dale Carnegie & Associates, Inc. v. King, United States District Court, S.D. New York, December 30, 199831 F.Supp.2d 359 (“Section 20030 states that: “All notices of termination or non-renewal required by this chapter: “(a) Shall be in writing; * * * * * * “(c) Shall contain a statement of intent to terminate or not renew the franchise: “(1) Together with a statement of reasons therefor ...” Defendants contend that DCA's notice of non-renewal did not contain a statement of reasons and that the notice therefore violated CFRA and was ineffective. Accordingly, in their view, the franchise has renewed for another year because a new notice declining to renew could not become effective under the terms of the Sponsor's Agreement until December 31, 1999. Plaintiffs, for their part, argue that DCA's notice was effective, even assuming arguendo that CFRA applies here,24 because (a) its requirement of a statement of reasons is inapplicable to this notice of non-renewal, (b) the statute in any case was satisfied by DCA's notice, and (c) the non-renewal was effective even if the notice failed to comply with Section 20030 of CFRA. Defendants' contention that DCA's notice of non-renewal failed to comply with Section 20030 depends in the first instance on the proposition that Section 20030 required a statement of reasons in this notice. While Section 20030, if read in isolation, seems to do so, that is an overly simplistic view of the statute because Section 20030 cannot be read apart from the rest of CFRA. Article 3 of CFRA sets forth permissible grounds for termination of a franchisee prior to expiration of the franchise term as well as the circumstances in which the franchisor may terminate without affording the franchisee an opportunity to cure any breach.25 Broadly speaking, it forbids termination prior to the expiration of the franchise term absent good cause, bankruptcy, abandonment or fraud.26 Article 4 governs non-renewal, which does not necessarily require cause. And Article 5, which consists of Section 20030, prescribes the contents of notices required under CFRA. The critical provision for purposes of this case is Section 20025, which relates to non-renewal. It provides in part that: “No franchisor may fail to renew a franchise unless such franchisor provides the franchisee at least 180 days prior written notice of its intention not to renew; and “(a) During the 180 days prior to expiration of the franchise the franchisor permits the franchisee to sell his business to a purchaser meeting the franchisor's then current requirements for granting new franchises, or if the franchisor is not granting a significant number of new franchises, the then current requirements for granting renewal franchises; or (b)(1) The refusal to renew is not for the purpose of converting the franchisee's business premises to operation by employees or agents of the franchisor for such franchisor's own account ...; and (2) Upon expiration of the franchise, the franchisor agrees not to seek to enforce any covenant of the non-renewed franchisee not to compete with the franchisor or franchisee's of the franchisor; or (c) Termination would be permitted pursuant to Section 20020 or 20021 ...” Thus, non-renewal pursuant to Sections 20025(a) and (b) is permissible without cause. The only constraint under (a) is that the franchisor afford the franchise an appropriate opportunity to sell its business. The only constraints under (b) are that the non-renewal not be for the forbidden purpose of conversion of the franchisee's business premises and that the franchisor agree not to enforce any restrictive covenant. Non-renewal pursuant to Section 20025(c), on the other hand, is quite a different matter. It is permissible only in circumstances in which termination prior to the end of the franchise term would be permitted by Sections 20020 and 20021, which typically require good cause and that the franchisee be given the opportunity to cure.

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