Dealer Termination and Franchise Litigation

The purchase of a franchise allows a small businessperson to acquire a business with a full business plan including operating manuals, marketing and advertising strategies and an established trade mark or trade name. In return the franchisee must pay royalties. When a franchise is sold, in many states including Illinois, form disclosures are required by way of a disclosure statement. If there are any materially false statements, the franchisee can later bring suit either in court or in arbitration as is typically required by most franchise agreement. Suit generally seeks to unwind the transaction and return of the franchise fee. The Illinois Franchise Disclosure Act also prohibits termination of a franchise without good cause. Violations of the Act either for failure to make truthful disclosures or for termination without good cause allows for the award of attorneys’ fees.

Ordinary dealerships or distributorships have some but not all of the features of a franchise. Sometimes a plaintiff can argue that a dealership should be treated like a franchise and that therefore a contractual provision allowing termination without cause can be overridden requiring termination of the dealership only with cause. One such case which the lawyers at our firm won can be viewed here.

A franchise agreement creates many obligations for the franchisee to properly manage the business and pay the royalties in full and on time. Certain breaches can result in termination but they must be material and the franchisor must demonstrate good cause for terminating an Illinois franchisee. Provisions in the franchise agreement trying to escape the requirements of the Illinois Franchise Disclosure Act are illegal and violate public policy.

Our Chicago franchise litigation lawyers have represented franchisors and franchisees in business litigation involving claims for false representations in the operating agreement or wrongful termination. We have also handled many dealership and distributorship disputes outside the franchise area. You can view our record in these types of the cases here.

The Federal Trade Commission (FTC) regulates franchise sales. The FTC and the Illinois Attorney General’s Franchise Division call for franchisors to provide material information regarding the franchise in a document known as Franchise Disclosure Document (FDD). This document in the past was referred to as the Uniform Franchise Offering Circular (UFOC). The following information must be disclosed:

• The name of the franchisor or the service name it holds itself out udner;
• A description of all trademarks, copyrights and intellectual property that identify the franchisor’s goods or services;
• The period of time the franchisor has been in existence;
• Prior franchise sales or offerings;
• Recent litigation with franchisees and others include deception related judgments or settlements; and
• A complete description of the royalty and other required compensation and fees that must be paid by the franchisee to the franchisor.

Many disputes between the franchisee and franchisor involve claim that the franchisor made materially false statements to induce purchase of the franchise in the FDD. Other disputes can concern geographic restrictions and allowing other franchisees to compete in the franchisee’s territory. Our franchise litigation lawyers have considerable experience advising both franchisees and franchisors how to handle and resolve these and other contested issues.

Disputes between franchisors and franchisees or dealers and manufacturers that often result in litigation include:

• Wrongful Termination Without Good Cause;
• Claims that a terminated dealer or franchisee engaged in copyright or trademark infringement;
• Failure to register franchise offerings;
• Conduct constituting breach of a dealership franchise agreement;
• Material misstatements in FDD;
• Fraud claims;
• Violation of a non-compete agreement or confidentiality agreement and injunctive relief arising therefrom.

When a franchisor sells a large number of franchises with the same misstatements or when it violates the franchise agreement in the same basic manner sometimes, absent a class action waiver, a class action can be brought. A group of franchisees can also get together and file a single lawsuit where they are all plaintiffs. The Chicago franchise and dealership termination lawyers in our firm have handled class actions and have represented large groups of franchisees in a single lawsuit, including representing thirteen franchisees in a breach of contract action. You can review our experience in these types of cases here.

Lubin Austermuehle, P.C.’s Chicago franchise litigation lawyers have offices in Elmhurst, Wilmette and Chicago. We represent business litigation clients throughout Illinois, including the Chicago metro area and DuPage County, as well as Indiana and Wisconsin. To set up a free consultation, contact us online or at 630-333-0333.