Opisso Dan Prelim 2 outline
I.
Franchising
A. Background 1. What is a Franchise? Is there a Franchise agreement? (don`t just assume no agreement if no trademark involved) Franchise Relations Act (a) Franchise means a contract or agreement between two or more persons either expressed or implied, oral or written in which (1) A franchisee is granted the right to engage in the business of offering, selling or distributing goods or services under a marketing plan or system prescribed in substantial part by a franchisor and (2) The operation of the franchisee`s business pursuant to such plan or system in substantially associated with the franchisor`s trademark, service mark, trade name, logotype, advertising or other commercial symbol designating the franchisor or its affiliate and (3) The franchisee is required to pay, directly or indirectly a franchise fee of $100 or more. Marketing plan: Plan relating to some aspect of the conduct of a party to a contract in conducting business including but not limited to: a. specification of price, or special pricing systems or discount plans b. use of particular sales or display equipment or merchandising devices c. use of specific sales techniques d. use of advertising or promotional materials or cooperation in efforts
*Mere licensing of a trade name does not necessarily create an agency relationship (Beck v. Murray) Standard Franchise relationship does not present a fiduciary relationship (Kienel v. Lanier)
2. Types of Franchises a. Restaurant Franchises McDonald`s b. Distributor Franchises Auto Dealership c. Processing Plant Franchise beer (Guiness) 3. Disclosure: (litigation history, credit history, how was it paid for) - Uniform Federal Offering Circular (UFOC) o Financial statements o Lists addresses, # of franchisee agreements o Rights and obligations o Fees and costs o Litigation *Dialist violated UFCO nondisclosure Blankenship gets $ if issue of, was there a franchise in first place- going to want to look at list of other franchisees, description of franchise fees, a financial statement of franchisor, litigation history (Dialist case)
4. Franchise agreements a. no need for written agreement (Blankenship)
Dan Opisso Prelim 2 outline b. implied covenant of good faith and fair dealing (Creek case) i.e no prohibition of Sheraton coming in, but court found violation of implied covenant i. Implied Covenant of Good Faith and Fair Dealing 1. Requires parties to contract to deal honestly and in good faith in the performance and enforcement of their agreements. (Fortune v National Cash Register) 2. To refrain from impairing the other party`s right to receive the fruits of the contract. 3. The covenant however may not be used to rewrite or override the express terms of the contract 4. An implied obligation of good faith exists by operation of law in every contract
(Camp Creek v. Sheraton) While there was no explicit prohibition of Sheraton opening a competing hotel, franchise agreement was silent on the issue, to jury gets to decide if Sheraton`s actions violate covenant of good faith and to deal honestly.
Covenant of Good Faith and Fair Dealing in Cases of encroachment (1) When the parties include contract language on the issue of competing franchises the implied covenant will not defeat those terms (2) When there is no such language the franchisor may not capitalize upon the franchisee`s business in bad faith (Piantes V Pepperidge Farm)
Franchisor did not engage in bad faith by locating another franchise outside the one mile exclusive territory granted to the franchisee of the contract Payne v McDonalds No Bad Faith when the license agreement clearly and unambiguously stated that franchisee can expect no exclusive territory A non exclusive franchise agreement implies the possibility of other franchises (Quality Inn v Dollar Inns) Rejecting a franchisee`s claim that the implied covenant of good faith prevents the franchisor from permitting competition expressly contemplated in agreement (Clark v Americas Fav Chicken)
B. Operational Issues 1. Liability of Franchisor for Franchisee operations *vicarious liability- attachment of responsibility to a person for harm or damages caused by another person in either a negligence lawsuit or criminal prosecution. Thus, an employer of an employee who injures someone through negligence while in the scope of employment (doing work for the employer) is vicariously liable for damages to the injured person i. Causes of Action a. actual agency- franchisor asserted too much control over method and manner of franchisees accomplishing goals set forth in Franchise Agreement (Seven eleven case- found no actual agency). Arthur Murray dance studio exerted power in everything from hiring and firing employees to training, to hours of operation, to classes etc. This made the franchisee more like an agent to the franchisor It is the right to control the means and manner in which the result is achieved that is significant in determining whether a principal-agency relationship exists Termination at will = strong evidence of a principal-agent relationship
Dan Opisso Prelim 2 outline Secondary factors indicating P&A relationship b) whether or not the one performing services is engaged in a distinct occupation or business c) wheater in the locality, the kind of occupation or biz is one in which the work is usually done under the direction of a P or by a specialist without supervision d) The skill required in the particular occupation or biz e) Whether the P supplies the instrumentalities, tools and the place of work f) The length of time for which the serves are to be performed g) The method of payment h) Whether or not the work is part of the regular biz of the P i) Whether the parties believe they are creating a relationship of P&A or independent contractor Agency Relationship exists where a franchise agreement gives the franchisor the right of complete or substantial control over the franchisee i. General Rule: Where a franchise agreement gives the franchisor the right of complete or substantial control over the franchisee, an agency relationship exists ii. Kuchta v. Allied Builders Corp: in the field of franchise agreements, the question of whether the franchisee is an independent contractor or an agent is ordinarily one of fact, depending on whether the franchisor exercises complete or substantial control over franchisee iii. Beck v. Arthur Murray Inc.: mere licensing of trade names does not create actual agency relationships either ostensible or actual iv. The most important factor in determining whether one is an agent or independent contractor is whether the principal has the right to control the manner and means of accomplishing the result desired Agency v. Independent Contractor: Both independent contractors and agents work for another person but... An agent is authorized to act for or in place of the principal and is subject to the right of the principal to control his/her actions An independent contractor is one who, in rendering services, exercises an independent employment or occupation, and represents his/her employer only as to the results of his/her work, and not as to the means as to how its accomplished In the field of franchise agreements, the question of whether the franchisee is an independent contractor or an agent is ordinarily one of fact, depending on whether the franchisor exercises complete or substantial control over the franchisee. The right to control the result is inherent in both independent contractor relationships and principal-agency relationships; it is the right to control the means and manner in which the result is achieved that is significant in determining whether a principal-agency relationship exists.
Dan Opisso Prelim 2 outline b. apparent agency- a principle is also bound by acts and contracts which are within the apparent authority of its agents (holiday inn); measured through 3 rd persons eyes; i.e reputation of safety, etc. i. Three elements needed to establish apparent agency: 1. a representation by the principle 2. reliance on that representation by a third person 3. a change of position by the third person in reliance upon such representation to his detriment (i.e going to holiday inn instead of someplace else based on reliance on reputation) ii. The proprietor of a place of public entertainment owe an invitee a duty to use due care to maintain the premise in a reasonably safe condition commensurate with the activities conducted thereon. Central Theaters v. Wilkinson, 1944 ii. ...is bound to use every reasonable effort to maintain order among the patrons, employees, or those who come upon the premises and are likely to produce disorder to the injury or inconvenience of patrons lawfully in the place of business. Stevens v. Jefferson 1983
From perspective of 3rd party: Is reliance reasonable? -The doctrine of apparent authority rests on appearance created by principal, not the agent -The existence of an agency relationship is a question of fact and circumstance -representations that allow the public to assume under the same ownership -Even if franchise agreement provides franchisor & franchisee separate entities, if requisite authority is established, the principal is estopped from denying agency relationship Negligence: (1) Duty of care (2) Breach (3) Causation (4) Damage Duty to Care: the proprietor of a place of public entertainment owes an invitee a duty to use due care to maintain the premises in a reasonable safe condition commensurate w/ the activities conducted thereon. Central Theatre v Wilkinson Duty to Protect: landowner must have prior knowledge of similar criminal acts in order to impose a duty to protect invitees from criminal acts of a third person. Foreseeability -Knowledge of a particular assailant`s propensity for violence -An owners` actual or constructive knowledge, based upon past experience, that there is a likelihood of disorderly conduct by third persons in general which may endanger the safety of his patrons is also sufficient c. direct liability- (voluntary assumption of duty; Martino v. McDonalds) instituting safety program, but don`t show up and train; negligence cause of action- duty, breach, causation, damage; critical question was DUTY--voluntarily assumed duty i. To recover on a theory of negligence, plaintiffs must establish that there was: i. A duty owed, ii. Breach, injury, and
Dan Opisso Prelim 2 outline iii. Defendant`s breach was the proximate cause for their injury ii. Liability can arise from the negligent performance of a voluntary undertaking. Nelson v. Union Wire Rope Corp iii. the scope of the voluntarily assumed duty is not limited to situations where the undertaking increases the danger or creates a new risk of harm. The failure to properly complete or carryout an assumed duty imposes liability in the same manner as for dangers affirmatively created during the course of the assumed undertaking Phillips v. Chicago Housing Authority * Negligence can arise from the negligent performance of a voluntary undertaking. C. Termination of Franchise Agreement 1. Termination for cause without notice- going to have to be intentional misconduct 2. Termination for cause with opportunity to cure El Pollo Loco, DD, Pizza Hut; i. In El Pollo, immediate termination without opportunity to cure was made pursuant of provisions in Franchise agreement; Franchise agreement provides for immediate termination without prior notice for any material representation made by Franchisee in connection with the acquisition of the Franchise -If opportunity is not expressly stated, still get opportunity. a. Wrongful Termination= not based on good cause upon a material breach, franchisee entitled to recover compensatory or expectancy damage including lost future profits Sullivan v OConnor A material breach does no automatically end a contract, instead gives injured party the right to end the agreement. Either cancel the contract or continue it. If plaintiff decides to close contract, both parties are relieved of further obligations and the injured party is entitled to damages. If P chooses to continue K, injured party may retain only a claim for damages for partial breach. Injured party may continue performance and reserve right to claim a material breach later. Termination of Franchise Agreement as Independent Contractors Independent contractors are not terminable @ will
Cislaw v. Southland: franchise agreement not terminable @will->independent contractors status, not
b.
ii. Preliminary injunctive relief is available to a party who demonstrates either: (Napster, Inc) 1. a combination of probable success on the merits and the possibility of irreparable harm OR 2. that serious questions are raised and the balance of hardships tips in its favor
Dan Opisso Prelim 2 outline iii. Pre-requisites for granting injunctive relief: Canal Authority of the State of Florida v. Callaway Plaintiff must establish that: 1. there is a substantial likelihood that it will prevail on the merits; 2. there is a substantial threat that irreparable harm will result if the injunction is not granted 3. the threatened injury outweighs the threatened harm to Defendant; and 4. a preliminary injunction or temporary restraining order will not disserve the public interest iv. Trade mark infringement: 15 U.S.C 1114(a) Falsely suggests affiliation: -Proscribes the unauthorized use in commerce of a registered trademark when that use is likely to cause confusion or to cause mistake or to deceive a) b) Its mark was used in commerce by the defendant without consent The unauthorized use is likely to cause confusion, mistake, deceive
v. Irreparable injury
Ramada Franchise Sys., Inc. v. Jacobcart, Inc., 2001
In a trademark infringement case, "a substantial likelihood of confusion constitutes irreparable injury." (When a likelihood of confusion exists, the plaintiff's lack of control over the quality of the defendant's goods constitutes immediate and irreparable harm, regardless of the actual quality of the defendant's goods.") When a defendant improperly uses a plaintiff's trademark, the threatened harm to the plaintiff outweighs the threatened harm to the defendants. (Likely that the injunction will hurt the defendant but not as much as the absence of an injunction would hurt the plaintiff.) Ramada The public interest promotes the protection of valuable trademarks. Ramada To get a Preliminary injunction for Trademark Infringement plaintiff must establish 1. Probable success on the merits and 2. The possibility of irreparable harm i. substantial likelihood that it will prevail on the merits ii. there is a substantial threat that irreparable harm will result if the injunction is not granted (loss goodwill & reputation b/c there is little incentive to promote the value of the franchise as a whole. Conduct unregulated. Could dilute value of mark) iii. the threatened injury outweighs the threatened harm to D iv. (when a defendant improperly uses a trademark, the threatened harm to the plaintiff outweighs) v. the injunction will not disserve the public interest (capital based economy rewards success through competition, the public interest promotes protection of valuable trademarks so that consumers can make informed decisions)
vi. Implied obligation of good faith (Dunkin Donuts) An implied obligation of good faith exits by operation of law in every contract
Dan Opisso 2 Prelim outline 3. Disparity in economic bargaining power between franchisor and franchisee ==relative equities *whenever franchisee was properly terminated or in event of default, but continued to use logos and name, court granted immediate relief to franchisor
Dan Opisso Prelim 2 outline
II.
Other
Antitrust Three causes of action in Microsoft; 3 causes, using same evidence Must have to actually have monopoly to maintain it: The offense of monopoly power under 2 of the Sherman Act has two elements: (1) The possession of monopoly power in the relevant market and (see Microsoft brief for relevant market determinations-hint: avail. Substitutes/ barriers to entry) (2) The willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident (Kodak v Image Technical Services) Possession of substantial market power, combined w/ his exclusionary or anticompetitive behavior, threatens to defeat or forestall the corrective forces of competition and thereby sustain or extended the agglomeration of power. Control prices and exclude competition. 3 CAUSES OF ACTION: i. Maintain a monopoly (they already have 2 elements) 1. tends to impair the opportunities of rivals, but also 2. either does not further competition on the merits or does so in an unnecessarily restrictive way Exclusionary Behavior: when a monopoly has restricted significant, or threatens to restrict significantly, the ability of other firms to compete in the relevant market on the merits of what they offer customers. -Intent important * If defendant`s conduct motivated by a desire to prevent other firms from competingsuggests exclusion (Ex. IE was offered on computers at NO CHARGE) Exception: D must prove exclusionary behavior pro-competitive biz motivations. Predatory Behavior: Tends to impair the opportunities of rivals and does not further competition or does so in an unnecessarily restrictive way Legal Definition of Predation: involves aggression against business rivals through the use of business practices that would not be considered profit maximizing except for the expectation that (1) Actual rivals will be driven from the market, or the entry of potential rivals blocked or delayed, so that the predator will gain or retain a market share sufficient to command monopoly profits or (2) Rivals will be chastened sufficiently to abandon competitive behavior the predator finds threatening to its realization of monopoly profits
ii. Acquiring a new monopoly through anti-competitive means (must show all 3) 1. the defendant has engaged in predatory or anticompetitive conduct with 2. a specific intend to monopolize, and 3. that there is a dangerous probability` that the defendant will succeed in achieving monopoly power.
Dan Opisso Prelim 2 outline (i.e: We won`t allow you to buy operating system unless you agree to use Internet Explorer, not use Netscape, AND made it difficult to switch. Should have focused on making their browser product better in order to get people to buy it w/o coercing them by holding OS hostage.) Once it is proved that the defendant possesses monopoly power in a relevant market, liability for monopolization depends on a showing that the defendant used anticompetitive methods to achieve or maintain its position. Anticompetitive means are determined by whether the defendant's conduct is "exclusionary" that is, whether it has restricted significantly, or threatens to restrict significantly, the ability of other firms to compete in the relevant market on the merits of what they offer customers Proof that the defendant's conduct was motivated by a desire to prevent other firms from competing on the merits can contribute to a finding that the conduct has had, or will have, the intended, exclusionary effect. UNREASONABLE RESTRAINT ON COMPETITION: Unlawful Tying & Exclusive Dealing iii. Illegal tie-in arrangement (4 elements of) 1. existence of a tie-in product: For this to be illegal there has to be some sort of holding consumers hostage. I know you want the thing I have mkt. Power in and in order to get that to you have to take this other thing which we don`t have mkt. strength in. Microsoft was liable on these claims b/c commercial reality is that consumers today perceive operating systems and browsers as separate "products," for which there is separate demand. Supreme Court has stated :the "essential characteristic" of an illegal tying arrangement is a seller's decision to exploit its market power over the tying product "to force the buyer into the purchase of a tied product that the buyer either did not want at all, or might have preferred to purchase elsewhere on different terms." 2. Forced bundling: defendant affords customers no choice but to take the tied product in order to obtain the tying product. (The proper market definition is determined by commercial realities faced by consumers. The demand for the constituent products, not their functional relationship determines whether separate products were actually involved) -Martino v McDonalds: In the absence of direct proof of price discrimination, requires a market share in the tying product of more than 30% so as to command an ability to control price in the tied product. 3. effects interstate commerce (presume this unless otherwise stated) 4. defendant has/will acquire market power in the tying product market Rule of Law: Tying requires a substantial danger that the tying seller will acquire mkt. Power in the tied product.
Dan Opisso Prelim 2 outline Exclusive Dealing Arrangements: For a defendant to be found liable, plaintiffs must prove a forty percent foreclosure rate in a given market, as a result of contracts in restraint of trade or commerce. Liability depends on whether a company was actually shut out of the market or at least whether it was forced to reduce output below a subsistence level. To evaluate an arrangements` anticompetitive effects courts have used these factors: (1) The degree of exclusivity and the relevant line of commerce implicated by the agreement`s terms (2) Whether the percentage of the market foreclosed by the contracts is substantial enough to import that rivals will be largely excluded from competition (3) The agreements actual anticompetitive effect is the relevant line of commerce (4) The existence of any pro-competitive business justifications (5) The length and irrevocability of the agreements (6) The availability of any less restrictive means for achieving the same benefits Copyright Defense: Shot Down! Copyright Act endows the holder of a valid copyright in software w/ an absolute right to prevent licensees from shipping modified versions of its product w/out express permission A copyright holder is not by reason entitled to employ the perquisites in ways that directly threaten competition Constitution privileges confer no immunity when they are abused for anticompetitive purposes
Dan Opisso Prelim 2 outline
II. OTHER CONT'D Deceptive Trade/ Product Liability
Deceptive trade(fat case--Pelham V. McDonalds) Two main groupings of claims: i. Actively concealing information or iii. Deceiving public about products 1. Deceptive trade NYS law, you are liable if you are lying by concealing or putting out mistruths (the key to the courts opinion was that they weren`t really telling lies, they were doing puffery) puffery: defined as exaggerated general statements that make no specific claims on which consumers could rely. 2. To state a claim for deceptive practices under either section, a plaintiff must show: That the act, practice or advertisement was consumer-oriented That the act, practice or advertisement was misleading in material respect That the plaintiff was injured as a result of the deceptive practice, act or advertisement. 3. Concealing information: Here the court said that they are not concealing anything that you did not know (everyone knows McDonald`s is not healthy.) 4. To show that a company deceived through concealing information: i. You must have plead a sufficient specificity ii. Acts or practices cannot be deceptive if the consuming public is already aware of the concealed characteristics and therefore is not deceived.
Products liability claims; stem from argument that this is an unreasonably dangerous product; should be taken off market all together or at least give proper warning *something is not unreasonably dangerous if RISKS ARE KNOWN, open and obvious Rules of Law: 1. A product is unreasonably dangerous if: by its very nature has a dangerous attribute, liability is imposed only when the product has an attribute not reasonably contemplated by the purchaser or is unreasonably dangerous for its intended use. 2. The article sold must be dangerous to an extent beyond that which would be contemplated by the ordinary consumer who purchases it, with the ordinary knowledge common to the community as to its characteristics. i. Pg. 4: legal consequences should not attach to the consumption of hamburgers or other fast food fare unless consumers are unaware of the dangers of eating such food ii. Court recognizes its duty to limit the legal consequences of wrongs to a controllable degree and to protect against crushing exposure to liability (McCarthy v. Olin Corp) ****iii. Under NY law, a wholesaler, retailer, or distributor can be held liable for negligence in the sale of a defective product or for failure to warn only if it fails to
Dan Opisso Prelim 2 outline detect a dangerous condition that could have been discovered during the course of a normal inspection while the product was in its possession iv. deceptive acts or practices in the conduct of any business trade or commerce or tin the furnishing of any service in this state unlawful under Section 349 of NY General Business Law Section 350 prohibits against "false advertising in the conduct of any business v. The standard for whether an act or practice is misleading is objective, requiring a showing that a reasonable consumer would have been misled by the defendant`s conduct vi. In pleading a claim under the Consumer Protection Act, a plaintiff is required to set forth specific details regarding the allegedly deceptive acts or practices; Moses v. Citicorp Mortgage Inc. Negligence Duty no duty to warm Breach Duty Proximate Cause impossible to prove products alone caused obesity Damage But For....
Dan Opisso Prelim 2 outline
III.
OTHER CONT'D
FCC case (Bono indecent content on airwaves) Rule for indecency on airwaves: 1. The Commission defines indecent speech as language that, in context, depicts or describes sexual or excretory activities or organs in terms patently offensive as measured by contemporary community standards for the broadcast medium. 2. In making indecency determinations, the Commission has indicated that the "full context in which the material appeared is critically important and it uses 3 rules in its analysis i. ii. iii. The explicitness or graphic nature of the description or depiction of sexual or excretory organs or activities The material dwells on or repeats at length descriptions of sexual or excretory organs or activities The material appears to pander or is used to titillate, or the material appears to have been presented for its shock value
First Amendment prohibits commission from censoring program material and from interfering w/ broadcaster`s freedom of expression Has the authority to restrict obscenity, indecency and profanity may impose monetary forfeiture Indecent speech = language that, in context... (2) alleged indecent material must fall within the subject matter scope of indecency definition that is the material must describe or depict sexual or excretory organs or activities (3) the broadcast must be patently offensive as measured by contemporary community standards for the broadcast medium Obscene speech = 3 prong test (1) the average person applying contemporary community standards finds the material as a whole appeals to the prurient interest (2) the material must depict or describe in a patently offensive way sexual conduct (3) the material taken as a whole must lack serious literary, artistic, political or scientific value Complaints against various Broadcast Licensees Regarding airing of Golden Globe Awards NBC responsible b/c curse foreseeable. Feasible to be on 5sec delay The F word inherently has a sexual connotation and is thus w/in the subject matter of indecent material. The fact that this word was used unintentionally is irrelevant. It is patently offensive to expose nation`s children to indecent language. Single, isolated use, sufficient F work now considered Profane= vulgar, irreverent, coarse Sets Precedent: from now on broadcasters must successfully implement a delay/bleeping system for live broadcasts to prevent this from happening of be subject to penalty.
Dan Opisso Prelim 2 outline Consumer Protection Act
DEFINITIONS
(i)"goods" means goods as defined in the State of Goods Act, 1930 (3 of 1930).According to the Sale of Goods Act, 1930. "goods" means every kind of movable property other than actionable claims and money, and includes stock and shares, growing crops, grass, and this attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale. (ii)"service" means service of nay description which is made available to potential users and includes the provision of facilities in connection with banking, financing, insurance, transport, processing, supply of electrical or other energy, board or lodging or both, housing construction, entertainment, amusement or the purveying of news or other information, but does not include the rendering of any service free of charge or under a contract of personal service; (iii)"restrictive trade practice" means any trade practice which requires a consumer to buy, hire or avail of any goods or, as the case may be, services as a condition precedent for buying, hiring or availing of other goods or services; (iv)"defect" means any fault, imperfection or shortcoming in the quality, quantity, potency, purity or standard which is required to be maintained by or under any law for the time being in force or under any contract express or implied or as is claimed by the trader in any manner whatsoever in relation to any goods. (v)"deficiency" means any fault, imperfection, shortcoming or inadequacy in the quality, nature and manner of performance which is required to be maintained by or under any law for the time being in force or has been undertaken to be performed by a person in pursuance of a contract or otherwise in relation to any service. (vi)"unfair trade practice" the detailed definition is given in the Consumer Protection Act, 1986 as amended by the Consumer Protection (Amendment) Act. 1993. It means a trade practice which, for the purpose of promoting the sale, use or supply of any goods or for the provision of any service, adopts any unfair method or unfair or deceptive practice including any of the following practices, namely :(a)false or misleading representation, (b)bargain price (c)offering of gifts, prize, contest etc. (d)non compliance of product safety standard. (e)hoarding or destruction of goods. The Act may be consulted before filing a complaint for unfair trade practice.