Source: https://www.goldlawgroup.com/franchise-laws/indiana/
Timestamp: 2019-04-21 06:38:20+00:00

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Indiana’s detailed regulation of the franchise relationship is included in the Indiana Deceptive Franchise Practices Act (“IDFPA”).
Section 1 of the IDFPA, focuses on forbidden provisions, and makes it unlawful for any franchise agreement to contain any of the following provisions: (1) Requiring goods, supplies, inventories, or services to be purchased exclusively from the franchisor or sources designated by the franchisor where such goods, supplies, inventories, or services of comparable quality are available from sources other than those designated by the franchisor. However, the publication by the franchisor of a list of approved suppliers of goods, supplies, inventories, or service or the requirement that such goods, supplies, inventories, or services comply with specifications and standards prescribed by the franchisor does not constitute designation of a source nor does a reasonable right of the franchisor to disapprove a supplier constitute a designation. The IDFPA explicitly exempts from this provision the principal goods, supplies, inventories, or services manufactured or trademarked by the franchisor; (2) Allowing the franchisor to establish a franchisor-owned outlet engaged in a substantially identical business to that of the franchisee within the exclusive territory granted the franchisee by the franchise agreement; or, if no exclusive territory is designated, permitting the franchisor to compete unfairly with the franchisee within a reasonable area; (3) Allowing substantial modification of the franchise agreement by the franchisor without the consent in writing of the franchisee; (4) Allowing the franchisor to obtain money, goods, services, or any other benefit from any other person with whom the franchisee does business, on account of, or in relation to, the transaction between the franchisee and the other person, other than for compensation for services rendered by the franchisor, unless the benefit is promptly accounted for, and transmitted to the franchisee; (5) Requiring the franchisee to prospectively assent to a release, assignment, novation, waiver, or estoppel which purports to relieve any person from liability to be imposed by the IDFPA, or requiring any controversy between the franchisee and the franchisor to be referred to any person, if referral would be binding on the franchisee. This prohibition does not apply to arbitration before an independent arbitrator; (6) Allowing for an increase in prices of goods provided by the franchisor which the franchisee had ordered for private retail consumers prior to the franchisee's receipt of an official price increase notification; (7) Permitting unilateral termination of the franchise if such termination is without “good cause” or in “bad faith”. Good cause is defined as including any material violation of the franchise agreement; (8) Permitting the franchisor to fail to renew a franchise without good cause or in bad faith. This chapter shall not prohibit a franchise agreement from providing that the agreement is not renewable upon expiration or that the agreement is renewable if the franchisee meets certain conditions specified in the agreement; (9) Requiring a franchisee to covenant not to compete with the franchisor for a period longer than three (3) years or in an area greater than the exclusive area granted by the franchise agreement or, in absence of such a provision in the agreement, an area of reasonable size, upon termination of or failure to renew the franchise; (10) Limiting litigation brought for breach of the agreement in any manner whatsoever; (11) Requiring the franchisee to participate in any: (A) advertising campaign or contest; (B) promotional campaign; (C) promotional materials; or (D) display decorations or materials; at an expense to the franchisee that is indeterminate, determined by a third party, or determined by a formula, unless the franchise agreement specifies the maximum percentage of gross monthly sales or the maximum absolute sum that the franchisee may be required to pay.
(1) Coercing the franchisee to: (i) order or accept delivery of any goods, supplies, inventories, or services which are neither necessary to the operation of the franchise, required by the franchise agreement, required by law, nor voluntarily ordered by the franchisee; (ii) order or accept delivery of any goods offered for sale by the franchisee which includes modifications or accessories which are not included in the base price of those goods as publicly advertised by the franchisor; (iii) participate in an advertising campaign or contest, any promotional campaign, promotional materials, display decorations, or materials at an expense to the franchisee over and above the maximum percentage of gross monthly sales or the maximum absolute sum required to be spent by the franchisee provided for in the franchisee agreement; in the absence of such provision for required advertising expenditures in the franchise agreement, no such participation may be required; or (iv) enter into any agreement with the franchisor or any designee of the franchisor, or do any other act prejudicial to the franchisee, by threatening to cancel or fail to renew any agreement between the franchisee and the franchisor. Notice in good faith to any franchisee of the franchisee's violation of the terms or provisions of a franchise or agreement does not constitute a violation of this subdivision.
(2) Refusing or failing to deliver in reasonable quantities and within a reasonable time after receipt of an order from a franchisee for any goods, supplies, inventories, or services which the franchisor has agreed to supply to the franchisee, unless the failure is caused by acts or causes beyond the control of the franchisor.
(3) Denying the surviving spouse, heirs, or estate of a deceased franchisee the opportunity to participate in the ownership of the franchise under a valid franchise agreement for a reasonable time after the death of the franchisee, provided that the surviving spouse, heirs, or estate maintains all standards and obligations of the franchise.
(4) Establishing a franchisor-owned outlet engaged in a substantially identical business to that of the franchisee within the exclusive territory granted the franchisee by the franchise agreement or, if no exclusive territory is designated, competing unfairly with the franchisee within a reasonable area. However, a franchisor shall not be considered to be competing when operating a business either temporarily for a reasonable period of time, or in a bona fide retail operation which is for sale to any qualified independent person at a fair and reasonable price, or in a bona fide relationship in which an independent person has made a significant investment subject to loss in the business operation and can reasonably expect to acquire full ownership of such business on reasonable terms and conditions.
(5) Discriminating unfairly among its franchisees or unreasonably failing or refusing to comply with any terms of a franchise agreement.
(6) Obtaining money, goods, services, or any other benefit from any other person with whom the franchisee does business, on account of, or in relation to, the transaction between the franchisee and the other person, other than compensation for services rendered by the franchisor, unless the benefit is promptly accounted for, and transmitted to the franchisee.
(7) Increasing prices of goods provided by the franchisor which the franchisee had ordered for retail consumers prior to the franchisee's receipt of a written official price increase notification.
(8) Using deceptive advertising or engaging in deceptive acts in connection with the franchise or the franchisor's business.
Section 3 of the IFPDA regulates notices of franchise terminations and simply states that unless otherwise provided in the franchise agreement, any termination of a franchise or election not to renew a franchise must be made on at least ninety (90) day's notice.
Section 3 of the IFPDA also discusses damages and reformation remedies to violations. Again, very succinctly, the Act states that any franchisee who is a party to a franchise agreement which contains any provision set forth in Section 1 of this chapter or who is injured by an unfair act or practice set forth in Section 2 of this chapter may bring an action to recover damages, or reform the franchise agreement.
Wright-Moore Corp. v. Ricoh Corp., United States District Court, N.D. Indiana, Fort Wayne Division, December 10, 1991, 794 F.Supp. 844 (“Defendant next argues that the limitations on renewal in Ind.Code § 23–2–2.7–1(8) do not apply in this case because plaintiff never had an expectation of a renewal. Indiana's limitation on non-renewals is explicitly made inapplicable in certain circumstances. Specifically, the following sentence was added to Ind.Code § 23–2–2.7–1(8): This chapter shall not prohibit a franchise agreement from providing that the agreement is not renewable upon expiration or that the agreement is renewable if the franchisee meets certain conditions specified in the agreement.Defendant argues that the Indiana act's limitation on non-renewal clauses was designed to preserve the reasonable expectations of the parties. Thus, if the franchise agreement provides for automatic renewals or otherwise indicates renewals will be forthcoming, thereby creating an expectation of renewal, the statute prohibits non-renewals without good cause. However, if the agreement provides it is non-renewable or renewable only if the franchisee meets certain conditions, thereby creating no expectations of renewal, the agreement is enforceable as written. Defendant points out that the Distributorship Agreement entered into between Ricoh and Wright–Moore has a provision relating to the term of the Agreement. Article 9(a) of the Agreement provides as follows: This Agreement shall commence as of the date hereof and, unless earlier terminated as provided herein, shall continue in effect for an initial period of one (1) year. Thereafter, this Agreement may be renewed for additional one (1) year periods by written agreement of both parties at least sixty (60) days prior to the expiration of the initial term or any annual renewal term. Defendant admits that Article 9(a) provides for the possibility of renewals, but argues that it does not provide for mandatory renewals or renewals which occur automatically. Defendant concludes that the language of the Agreement is no different than a provision simply stating that the contract was not renewable upon expiration, and, under the language of Article 9(a), the parties had to explicitly agree to the renewal, which is the exact same requirement that would apply if the Agreement simply specifically stated it was non-renewable. Defendant further argues that Mr. Wright has essentially admitted that the contractual language gave him no expectation of a long-term arrangement. In fact, Mr. Wright specifically asked Ricoh for a longer term contract but his request was rejected22. 10 Plaintiff counters with the argument that the court should endorse a very strict, literal reading of Ind.Code § 23–2–2.7–1(8). According to the plaintiff, the “good cause” requirement does not apply if the franchise agreement provides: (a) that it is not renewable upon expiration; or (b) that it is renewable if the franchisee meets certain conditions specified in the agreement. Plaintiff concludes that the Distributorship Agreement between plaintiff and defendant contains neither of these provisions and therefore the good cause requirement applies. The court finds that plaintiff's construction and application of the statute to the case at bar is incorrect. First, the clear intent of the parties was for the Distributorship Agreement to not be automatically renewable, but to be subject to renewal by express agreement of the parties. Second, it must be remembered that when the Distributorship Agreement was entered into, the parties intended for it to be governed by New York law. Thus, the parties would not have written Article 9(a) so as to conform to a strict reading of an Indiana statute and the court will not now impose a strict construction of the statute on the defendant. Consequently, the court concludes *862 that Ricoh did not have an obligation to renew the Agreement, and thus did not violate Ind.Code § 23–2–2.7–1(8) for any alleged failure to renew without good cause or in bad faith. Accordingly, the court will grant summary judgment for Ricoh on the issue of wrongful non-renewal of the Distributorship Agreement. E. Breach of Credit Terms (Substantial Modification) In Count III of its complaint, plaintiff alleges that the defendant breached the contract between the parties. Specifically, Count III alleges that “pursuant to the terms of the letter agreement between the parties, plaintiff properly exercised its option in January 1985 to purchase an additional 3,000 copiers” but that “defendant has shipped only approximately 1,000 of the copiers ordered under the letter agreement....”23 Under the terms of the July 23, 1984 letter agreement, defendant agreed to sell Wright–Moore 1,200 machines under special payment terms of 15% down and six months to pay the balance. Other special terms were incorporated as well. The letter agreement also gave Wright–Moore the option to purchase additional machines on the same terms until January 30, 1985. When Wright–Moore, however, attempted to exercise that option, defendant refused to sell the machines under the specific credit terms and instead insisted on cash in advance. In this court's order of July 27, 1989 summary judgment was granted in favor of the defendant on this issue. The court held: Under the distributorship agreement, the terms of sale of copiers were subject to unilateral change by Ricoh as it saw fit. In Article 2(b) of the distributorship agreement, Ricoh reserved the right “to change its prices and terms of sale of the products at any time without prior notice to the distributor.” Under that agreement, Ricoh's right to change the terms of sale was unfettered. Thus, when the two contemporaneously executed agreements are construed together, it is clear that plaintiff's option to purchase additional copiers was limited by Ricoh's reservation of right to change the terms of sales of the copiers. July 27, 1989 Order at 41. On appeal to the Seventh Circuit, the Court did not reach this issue, because the Court concluded that, if the Distributorship Agreement was an Indiana franchise, then one provision of the Indiana Deceptive Franchise Practices Act might apply to Article 2(b). The Seventh Circuit noted that Ind.Code § 23–2–2.7–1(3) provides that it is unlawful for a franchise contract to allow “substantial modification of the franchise agreement by the franchisor without the consent in writing of the franchisee.” Thus, the Seventh Circuit remanded this issue for further development of the record24.
Ford Motor Credit Co. v. Garner, United States District Court, N.D. Indiana, Fort Wayne Division, June 3, 1988688 F.Supp. 435 (“Unfair Discriminatory Practices -- 8 The Garners argue that FMCC unfairly discriminated against them in the enforcement of the guaranty. Indiana's “Motor Vehicle Manufacturers, Distributors, and Dealers” statute makes it unlawful for manufacturers or distributors to “[v]iolate the provisions of I.C. 23–2–2.7.” See I.C. 9–10–3–2. Indiana Code 23–2–2.7 is the “Deceptive Franchise Practices” Act and it prohibits franchisors from discriminating *444 unfairly among franchisees.11 Before reaching the question of unfair discrimination the court must decide whether FMCC is a manufacturer within the meaning of I.C. 9–10–3–2. FMCC did not brief the question of whether it is a manufacturer for purposes of I.C. 9–10–3–2. The statute defines manufacturer as a person engaged in manufacturing or assembling vehicles and selling vehicles.12 FMCC does neither and is not, therefore, a manufacturer within the plain meaning of the Act. It could have been argued, as has been argued under the Automobile Dealers Day in Court Act, 15 U.S.C. § 1221, et seq. (1976), that even non-manufacturers who are in reality only instrumentalities, or who are subject to the manufacturer's control, or who are alter egos, should be considered as manufacturers for purposes of the Act. See DeValk Lincoln Mercury, Inc. v. Ford Motor Co., 550 F.Supp. 1199, 1201–02 (N.D.Ill. 1982), and cases cited therein. But this argument would fail because of the important difference in the way the word manufacturer is defined under the two Acts. The federal statute defines a manufacturer as a person who manufactures or assembles cars or a corporation which “acts for and is under the control of such manufacturer....” 15 U.S.C. § 1221(a).
The state statute contains no similar language which would allow this court to hold that FMCC, as a non-manufacturer, is a manufacturer for the purposes of I.C. 9–10–3–2. 9 Assuming this initial hurdle was successfully jumped, so that I.C. 23–2–2.7–2(5) applied in this case, the Garners would be immediately confronted with a second obstacle. The Deceptive Practices Franchise Act prohibits unfair discrimination among franchisees or dealers as the Garners argue.13 Garner Lincoln–Mercury, Inc. is the franchisee (or dealer) in this case, the Garners are not. But the Garners cite a string of cases which hold that non-dealers may invoke the protections of the Federal Dealers Day in Court Act. See Kavanaugh v. Ford Motor Co., 353 F.2d 710 (7th Cir.1965); John Peterson Motors, Inc. v. General Motors Corp., 613 F.Supp. 887, 903 (D.Minn.1985); DeValk, 550 F.Supp. at 1203–04. As the following analysis will show, however, each of these cases represents instances in which departure from the general rule was well justified. The general rule under the federal statute is that only the corporation may seek protection under the Act when the dealer is a corporate entity. John Peterson, 613 F.Supp. at 903; Schmitt–Norton Ford, Inc. v. Ford Motor Co., 524 F.Supp. 1099, 1104–05 (D.Minn.1981). In Kavanaugh, the court pierced the corporate veil and held that Mr. Kavanaugh was a “dealer” within the meaning of the Act, given various contracts which considered him the dealer, given the fact that both parties considered him the intended dealer, and given the Act's fundamental purpose of balancing the power now weighted heavily in favor of manufacturers. Kavanaugh, 353 F.2d at 710. In John Peterson, the court held that Peterson was a “dealer” within the meaning of the Act because he was the president, the sole shareholder and *445 the director, so that the corporation was merely an alter ego of Peterson. John Peterson, 613 F.Supp. at 903. And in DeValk, the court held that dismissal of two shareholders would be improper, drawing all inferences in their favor. DeValk, 550 F.Supp. at 1203–04. Before looking at Mr. Garner's relationship to Garner Lincoln–Mercury, Inc., the court emphasizes that each of these cases dealt with the federal Act and are cited only as analogous authorities.

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