In today’s difficult economic climate, franchisors are often faced with a decision to consolidate, not renew or terminate unprofitable franchises. Generally, franchise agreements have been entered into in better economic times and contain provisions that attempt to minimize adverse economic consequences to the franchisor arising from a non-renewal or termination. The termination decision often leads to legal challenges involving the validity of such provisions. These challenges include a determination of whether the termination is permitted by the contract, termination procedures, buy back issues and any damages that flow from the termination or non-renewal.
Louisiana has adopted a number of provisions that relate to the expiration, non-renewal or termination of particular types of franchise agreements. The general Louisiana rule is that unless the provisions of a business franchise provide otherwise, when the business to be conducted pursuant to a franchise and the location of the franchisee are exclusively within Louisiana, disputes shall be resolved in a Louisiana forum and in accordance with Louisiana law. Louisiana has also adopted specific termination provisions dealing with certain franchises.
La. R.S. 26:805, et seq, with regard to wholesalers and suppliers of beer, imposes certain mandatory conditions on amendments, modifications, cancellations, failure to renewals or termination with regard to the distribution agreements. The statute also contains provisions for reasonable compensation to the franchisee upon a violation of the statutory provisions.
La. R.S. 32:812 et seq. contains general provisions applicable to all recreational product dealers and manufacturers. These provisions also include specific provisions regarding manufacturer mandatory repurchase requirements dealing with motorcycles, ATV’s, marine products, recreational vehicles, travel trailers and utility trailers.
Issues related to motor vehicle franchises are addressed in both federal and state law. The federal Automobile Dealers Suits Against Manufacturers Act provides in part that an automobile dealer may bring suit against any automobile manufacturer engaged in commerce, in any district court of the United States in the district in which said manufacturer resides, or is found, or has an agent, without respect to the amount in controversy, and shall recover the damages sustained and the cost of suit by reason of the failure of said automobile manufacturer to act in good faith in performing or complying with any of the terms or provisions of the franchise, or in terminating, canceling, or not renewing the franchise with said dealer, provided that in any such suit the manufacturer shall not be barred from asserting in defense of any such action the failure of the dealer to act in good faith.
The federal Automotive Dealers Suit statute also, however, provides that its provisions shall not invalidate any provision of the laws of any State except insofar as there is a direct conflict between an express provision and an express provision of State law which can not be reconciled. Thus, it is important to also consider the provisions of La. R.S. 32:1251 et seq. as they pertain to the cancellation of motor vehicle franchises. The statute defines a “Franchise” as any written contract or agreement between a motor vehicle dealer, a motor vehicle lessor, or a specialty vehicle dealer and a manufacturer, motor vehicle lessor franchisor, or converter of a new motor vehicle or specialty vehicle or its distributor or factory branch by which the motor vehicle dealer, motor vehicle lessor, or specialty vehicle dealer is authorized to engage in the business of selling or leasing the specific makes, models, or classifications of new motor vehicles or specialty vehicles marketed or leased by the manufacturer, motor vehicle lessor franchisor, or converter and designated in the franchise agreement or any addendum thereto. It applies to, any written modification, amendment, or addendum to the original franchise agreement, which changes the rights and obligations of the parties to the original franchise agreement, shall constitute a new franchise agreement, effective as of the date of the modification, amendment, or addendum. These provisions include instances where there is a death or incapacity of the dealer and sets forth rights and obligations that are applicable to the termination of certain agreements. L ouisiana law also provides that any provision in a franchise agreement requiring arbitration or litigation conducted outside of Louisiana or which seeks to apply other than Louisiana law in connection with disputes is null and unenforceable; however, there is little reported case law interpreting the validity of such a provision.
The repurchase of farm, industrial, lawn and garden equipment by a wholesaler is governed by La. R.S. 51:481 et seq. Those statutes contain provisions that govern the death of a dealer, as well as a failure to renew, termination or cancellation of written contracts where by the dealer has agreed to maintain a stock of parts or equipment. T he provisions govern repurchase obligations for equipment and repair parts. With regard to these provisions, however, a federal court has found that a contractual choice of law provision other than Louisiana will govern.
La. R.S. 51:1451 et seq. – Service Stations Dealers Day in Court Act purportedly apply to a refiner/franchisor who cancels, terminates, or who refuses to renew a franchise agreement. However, it is important to note that Louisiana Service Station Dealer’s Day in Court Act, which imposes good faith standards upon franchisors and franchisees with regard to termination and non renewal of franchises, is preempted by the federal Petroleum Marketing Practices Act insofar as the Service Station Dealers Act imposes a greater duty of good faith than required by the federal Act.
Thus, whether franchisee or franchisor, it is important to remember that Louisiana law does contain both protections and obligations relative to the termination, non-renewal or cancellation of certain types of distributorship and franchise agreements.
* This article is limited to Louisiana law provisions and does not include federal law or regulation provisions, exceptas to preemption issues.