Source: https://www.goldlawgroup.com/franchise-laws/washington/
Timestamp: 2019-04-19 14:56:46+00:00

Document:
Washington state’s Franchise Investment Protection Act (“FIPA”) governs franchise relationship issues, including terminations, non-renewals and transfers. Relative to other state franchise relationship statutes, the FIPA is broad-reaching in scope and detail.
(b) Require a franchisee to purchase or lease goods or services of the franchisor or from approved sources of supply unless and to the extent that the franchisor satisfies the burden of proving that such restrictive purchasing agreements are reasonably necessary for a lawful purpose justified on business grounds, and do not substantially affect competition. Strangely, the Act specifically states that in determining liability under this section courts must be guided by the decisions of the courts of the United States interpreting and applying the antitrust laws of the United States.
(f) If the franchise provides that the franchisee has an exclusive territory, which exclusive territory must be specified in the franchise agreement, for the franchisor to compete with the franchisee in an exclusive territory or to grant competitive franchises in the exclusive territory area previously granted to another franchisee.
(g) Require the franchisee to assent to a release, assignment, novation, or waiver which would relieve any person from liability imposed by this chapter, except as otherwise permitted by RCW 19.100.220.
(i) Refuse to renew a franchise without fairly compensating the franchisee for the fair market value, at the time of expiration of the franchise, of the franchisee's inventory, supplies, equipment, and furnishings purchased from the franchisor, and good will (not including personalized materials which have no value to the franchisor, and inventory, supplies, equipment and furnishings not reasonably required in the conduct of the franchise business). However, with regard to good will, the FIPA states that compensation need not be made to a franchisee for good will if (i) the franchisee has been given one year's notice of nonrenewal and (ii) the franchisor agrees in writing not to enforce any covenant which restrains the franchisee from competing with the franchisor. This provision does not prohibit a franchisor from offsetting against these amounts any amounts owed by the franchisee to the franchisor.
(j) Terminate a franchise prior to the expiration of its term except for “good cause.” In turn, good cause is defined as including, without limitation, the failure of the franchisee to comply with lawful material provisions of the franchise or other agreement between the franchisor and the franchisee and to cure such default after being given written notice thereof and a reasonable opportunity, which in no event need be more than thirty days, to cure such default, or if such default cannot reasonably be cured within thirty days, the failure of the franchisee to initiate within thirty days substantial and continuing action to cure such default. One explicit exception to these termination requirements is where the franchisee is a repeat offender, to wit: “after three willful and material breaches of the same term of the franchise agreement occurring within a twelve-month period, for which the franchisee has been given notice and an opportunity to cure as provided in this subsection, the franchisor may terminate the agreement upon any subsequent willful and material breach of the same term within the twelve-month period without providing notice or opportunity to cure.” A second exception to the termination obligations is that a franchisor may terminate a franchise without giving prior notice or opportunity to cure a default if the franchisee: (i) Is adjudicated a bankrupt or insolvent; (ii) makes an assignment for the benefit of creditors or similar disposition of the assets of the franchise business; (iii) voluntarily abandons the franchise business; or (iv) is convicted of or pleads guilty or no contest to a charge of violating any law relating to the franchise business. The FIPA also establishes purchase requirements upon termination for good cause, requiring that the franchisor purchase from the franchisee at a fair market value at the time of termination, the franchisee's inventory and supplies, exclusive of (i) personalized materials which have no value to the franchisor; (ii) inventory and supplies not reasonably required in the conduct of the franchise business; and (iii), if the franchisee is to retain control of the premises of the franchise business, any inventory and supplies not purchased from the franchisor or on his express requirement. Again, as before, under the termination provisions a franchisor is explicitly permitted to offset against amounts owed to a franchisee under this subsection any amounts owed by such franchisee to the franchisor.
Defendant argues that the Franchise Agreement and Franchise Termination Agreement expressly prohibit Mr. Rozmus from selling his franchise rights if he was in default. It is undisputed that Mr. Rozmus was in default under the Franchise *1274 Agreement and Franchise Termination Agreement at the time of this alleged application. Defendant explains that because Mr. Rozmus did not satisfy his financial obligations under the contracts, he was contractually prohibited from selling his franchise rights. Defendant concludes there is no factual or legal support for the claim that Stanley Steemer breached any contractual obligations. Stanley Steemer has performed all of its obligations under the contracts.
9 The Court has found, that Stanley Steemer properly exercised its contractual right to terminate Mr. Rozmus's franchise rights. Plaintiffs have not shown that Defendant arguably breached its contractual obligations under the facts of this case. As for the alleged breach of the implied covenant of good faith and fair dealing portion of this claim, the Plaintiffs appear to be arguing the common law principle, inasmuch as the duty of “good faith and fair dealing” is inherent in every business relationship.
10 The covenant of good faith and fair dealing is applied in franchising as a litigation tool because of the doctrine's malleable nature and uncertainties inherent in franchise relationships.13 The covenant is also applied to both parties to a franchise agreement. The courts recognize that the good faith obligation is most often applied to the party assuming discretionary control in the agreement. Id. In this case, Stanley Steemer terminated Plaintiffs for good cause, and specifically for defaulting on their obligations. Under FIPA, the franchisor needs “good cause” to terminate the franchise. “Good cause” is often defined to be the failure of the franchisee to comply with a lawful provision of the franchise agreement after being given the opportunity to cure that failure. RCW 19.100.180(2)(j).
Fleetwood v. Stanley Steemer Intern., Inc., United States District Court, E.D. Washington. July 2, 2010725 F.Supp.2d 1258 (“Mr. Rozmus's first contention that FIPA was violated regarding lack of notice and opportunity to cure has been analyzed *1276 above, in which the Court found no violation. The second allegation of a FIPA violation concerns the good faith provision of 19.100.180(1) of FIPA. This provisions reads: “The parties shall deal with each other in good faith.” Section (1), however, does not override express terms of a written contract: “While the scope of the contractual duty of good faith may have been unclear when FIPA was enacted, Washington courts have since recognized that the duty of good faith does not operate to create rights not contracted for, nor does it override the express terms of a contract.” Doyle v. Nutrilawn U.S., Inc., 2010 WL 1980280, at *8 (W.D.Wash. May 17, 2010) (citations omitted).
16 Plaintiffs have presented no evidence to demonstrate that Stanley Steemer violated its good faith obligations. The Plaintiffs argue predominantly that between Mr. Fleetwood and Mr. Bates (the CEO whom Mr. Fleetwood considered to be a friend), the latter made repeated assurances that he would protect Mr. Fleetwood's franchise from termination, that he was the only person at Stanley Steemer with the power to terminate, and that Stanley Steemer would make his franchise work. In the opposition brief to Defendant's summary judgment motion regarding Rozmus Plaintiffs, Mr. Rozmus argues that he too trusted and relied on Stanley Steemer's assurances that it would “make it work” and everything would be “ok.” Ct. Rec. 119, at 34.
Madison House, Ltd. v. Sotheby's Intern. Realty Affiliates, United States District Court, W.D. Washington, at Seattle.February 20, 2007, 2007 WL 564151 (“FIPA “discrimination” claim -- Cendant Real Estate Services Group and Cendant Corporation are claimed to violate RCW 19.100.180(2)(c) of FIPA. The statute makes it unlawful for a franchisor to discriminate between franchisees in “the charges made or offered or royalties, goods, services, equipment, rentals, advertising services, or any other business dealing” unless there is a reasonable justification for discrimination. Plaintiffs claim Cendant violates this statute by charging different rates among their various real estate brokerage franchises. There is no allegation that Sotheby's (Plaintiffs' direct franchisor) discriminated between the different Sotheby's franchisees. *3 There is no case law interpreting RCW 19.100.180 in the context of separate franchises owned by a single company. Although Defendants make an attempt to analogize their situation to a Florida case involving car dealerships (Bert Smith Oldsmobile, Inc. v. General Motors Corp., 2005 WL 1210993, Bus. Franchise Guide (CCH) ¶ 13, 094 (M.D.Fla. May 20, 2005)), it is not an analogy which survives scrutiny. The Smith case concerns a statutory scheme aimed at automobile dealers who had been licensed “to transact business pertaining to motor vehicles of a particular line-make.” Fla. Stat. § 320.60(1), (11). The franchise structure defined by FIPA is not as specific or definitive as the Florida statute, and the Smith case factually does not fit the circumstances of this litigation. Nevertheless, the Court finds that, under the FIPA statute, a parent company cannot be held liable for creating different rate structures among franchises operated under wholly separate trademarks. FIPA defines “franchisor” was “the person who grants a franchise to another person.” Sotheby's is the franchisor of Plaintiffs. One of the statutory requirements of a “franchise” is that “the operation of the business is substantially associated with a trademark ...” (RCW 19.100.010(4)(a)(ii)). Case law recognizes that “the franchisor grants the right to produce and sell goods or services under its trade name and trademark.” Lobdell v. Sugar ‘n Spice, Inc., 33 Wn.App. 881, 887–88 (1983). Within these statutory and case parameters, none but Sotheby's can be held to be the franchisor of Plaintiffs. It is the Sotheby's trade name and trademark that Plaintiffs paid for. Cendant at one time operated franchises in the real estate, hotel and car rental businesses. Creating uniform rate structures among these unrelated enterprises would not make sense. Plaintiffs also attempt to argue that the parties should be viewed as “franchisors” and “sub-franchisors” and the anti-discrimination statute should apply to both of those categories of entrepreneurs. But there is a very specific statutory definition of “sub-franchise” and “sub-franchisor” (see RCW 19.100.010) and there are no allegations in the complaint sufficient to establish a franchisor/sub-franchisor relationship between Sotheby's and the Cendant defendants (who are described only as parent or indirect parent companies of Sotheby's; Complaint, ¶¶ 4.1, 4.5)).

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