Franchise Litigation Lawyer - Federal Lawyer
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Franchise Litigation Lawyer

Dr. Nick Oberheiden
Attorney Nick OberheidenFranchise Litigation Team Lead
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Franchises are an important niche in the business world, providing franchisees with a business opportunity that taps into the power of a well-known national or even international brand name, while providing the franchisor with an opportunity to spread their business and earn royalties without getting into the day-to-day responsibilities. However, as with any other business relationship, things can go wrong, franchise disputes arise and lead to litigation.

The business litigation lawyers at the national law firm Oberheiden P.C. represent franchisees, franchisors, and even master franchises in the myriad types of legal claims that can crop up in these surprisingly complex business relationships.

How Franchising Works

The subtle complexities of franchising become apparent when you look at how the relationship in the franchise system is structured.

Basically, you have a large, brand name company, like the restaurant chain Subway (the national franchisor) signing a contract (the franchise agreement) with a local business owner or entrepreneur (the franchisee). The franchisee then gets to run a Subway restaurant – complete with all of the signage, marketing, equipment, and recipes that come with all other Subway restaurants – rather than an independent sandwich shop. The franchisee benefits from all of that brand recognition. The franchisor benefits from the expansion of its brand and from the fee that the franchisee must pay to run the shop, also known as royalties.

Some business owners run master franchises: They sign an agreement with the franchisor to run several or even dozens of stores in a geographical area, and then sign franchise agreements with the franchisees who would actually manage each particular store.

Unfortunately, the franchising structure creates several critical points of concern for the franchisee and franchisor. The franchisor wants to:

  • Control how the franchisee operates so that the products and services are uniform across all of its stores
  • Make its business brand as widespread as possible
  • Seize as much of the profit as possible from the franchisee without deterring other potential franchisees
  • Avoid any legal liability that the franchisee may incur

Meanwhile, the franchisee wants to:

  • Keep as much of its profit as possible
  • Run the store in a way that is appropriate and efficient for its particular circumstances
  • Protect itself from competition, including from other franchisees in the same brand

These conflicting interests can lead to a wide range of legal claims.

Put our highly experienced team on your side

Dr. Nick Oberheiden
Dr. Nick Oberheiden

Founder

Attorney-at-Law

Lynette S. Byrd
Lynette S. Byrd

Former DOJ Trial Attorney

Partner

Brian J. Kuester
Brian J. Kuester

Former U.S. Attorney

Amanda Marshall
Amanda Marshall

Former U.S. Attorney

Local Counsel

Joe Brown
Joe Brown

Former U.S. Attorney

Local Counsel

John W. Sellers
John W. Sellers

Former Senior DOJ Trial Attorney

Linda Julin McNamara
Linda Julin McNamara

Federal Appeals Attorney

Aaron L. Wiley
Aaron L. Wiley

Former DOJ attorney

Local Counsel

Roger Bach
Roger Bach

Former Special Agent (DOJ)

Chris Quick
Chris J. Quick

Former Special Agent (FBI & IRS-CI)

Michael S. Koslow
Michael S. Koslow

Former Supervisory Special Agent (DOD-OIG)

Ray Yuen
Ray Yuen

Former Supervisory Special Agent (FBI)

The Numerous Ways that Franchise Litigation Can Happen

The pressure points between franchisee and franchisor tend to boil over into litigation in one of the following ways:

  • The disclosure documents
  • The terms of the franchise agreement
  • Franchise encroachment
  • The right to renew

These are just the most common flash points, though. Other disputes can lead to litigation as well.

Disclosure Documents

Potential franchisees who are considering whether to open a franchised store or not will want lots of information from the franchisor before making the decision to move ahead. They need to know how difficult it will be to run the store, how profitable it will likely be, and how much help the franchisor will provide.

The franchisor has a vested interest in touting all of the benefits of opening the store, while also hiding or muting as many of the downsides as possible.

Because this is a serious point of contention – one that comes up before there is even a binding franchise relationship – the Federal Trade Commission (FTC) has enacted regulations for what information must be disclosed, as well as how it is disclosed and when. 16 C.F.R. § 436.5 requires the franchisor to include 23 different points of information in the franchise disclosure documents, including:

  • An estimate of the interested franchisee’s initial investment
  • Details about any pending litigation against the franchisor
  • Any restrictions on how the franchisee can run the store
  • Information about the franchisee’s exclusive territory, if any
  • The franchisee’s rights, including how the franchise agreement can be renewed
  • Dispute resolution rules

The disclosure documents must be provided at least 14 calendar days before the franchise agreement is signed or the franchisee makes a franchise-related payment.

Lots of franchise litigation revolves around the veracity of the information that is disclosed at this stage.

Franchise Agreement

The franchise agreement lays out the terms and rules that the franchisee and franchisor will play by in their business relationship. It includes things like:

  • Mandatory store rules
  • Intellectual property rights
  • Territorial rights
  • How franchisees can transfer the store to someone else
  • How much the franchisee will have to pay in franchise royalties

These are only a few of the things that will be covered in this extremely technical document that often runs over a hundred pages.

If the franchisor breaches a term in the agreement or the franchisee does not uphold its end of the bargain, it can lead to lawsuits getting filed.

Encroachment

A common way for the franchise agreement to get breached by the franchisor, or for the franchisee to face a potentially fatal loss of business due to the franchisor’s permissible conduct, is encroachment. Franchise encroachment happens when a new store in the brand opens nearby. It threatens the existing franchisee, who will likely lose business to the new storefront, but it is in the franchisor’s interests to open it and spread their brand and earn franchisee royalties from the new store owners.

Encroachment can breach the terms of the franchise agreement, but only if the agreement is clear on how much territory is exclusive to the franchisee. Many, if not most, franchise agreements do not grant any exclusive territory to its franchisees, or only give them an extremely small amount.

Renewal of the Franchise Agreement

A big point of contention is the franchise agreement renewal process.

Franchise agreements often last for numerous years, and when they expire the franchisee no longer has the right to operate the store under the franchisor’s brand. Renewing the agreement is often in both parties’ interests, but the process is often one that the franchisor uses as leverage to extract more value from the store, especially if the store was particularly successful and profitable. It is not uncommon for franchisors to use the threat of losing the successful store to increase the royalties they can recover from the franchisee in exchange for renewing the agreement.

Frequently Asked Questions About Oberheiden P.C. and Franchise Litigation Law

Is Franchise Law State or Federal?

Franchise law comes from both state and federal sources, litigation can be handled in state and federal courts, and reaches into a way array of different practice areas, including corporate law, contract law, business law, and even intellectual property law. Much of these areas of the law are mainly state-based, and can vary slightly depending on which state would hear your case. However, as mentioned above, the FTC has important regulations that govern the disclosure requirements that franchisors must meet.

Does Oberheiden P.C. Operate in My State?

Oberheiden P.C. is a national law firm with office locations in nearly every state in the U.S. No matter where your franchise is located or where the franchise agreement says the dispute must be resolved, we have experienced franchise and distribution law business lawyers on hand to see you through to the end.

What Makes Oberheiden P.C. Different from Other Franchise Litigation Firms?

One of the most important differences between the franchise attorneys at Oberheiden P.C. and our competitors is that you will only find senior-level attorneys at our firm. This might not sound like a big deal, but we think that it is the key to our success, as well as to the high regard that our clients often have for us.

When you need a franchise lawyer, you may be drawn to other firms that have exceptionally experienced senior associates or partners. The problem is that, when you hire these firms for your legal services, you will find that the vast majority of the work done on your case is performed by junior associates fresh out of law school or even some paralegals. The lawyer whose experience you thought you could count on will say that they are overseeing the work, but how closely they are involved can be difficult to tell. Even if they are closely involved, though, less experienced eyes can miss crucial details that can make or break your case, and no amount of oversight is going to change that.

This sort of thing cannot happen at Oberheiden P.C. Because we only employ senior lawyers with numerous years of experience handling cases similar to your own, all of the work to represent clients gets done by lawyers who have a deep understanding of what they are doing.

Why Don’t You Call Yourselves the Best Franchise Litigation Lawyers?

This is the sort of thing that means far more when other people say it about us. You can read our prior clients’ testimonials here.


The Franchise Litigation Lawyers at Oberheiden P.C.

Franchise litigation is unfortunately common – much more common than many people think. One point of great concern for franchisors is to keep legal disputes with its franchisees out of the public’s eye, as they can tarnish their all-important brand and make potential franchisees seek out a different company to be a part of. Franchisors solve this potential problem by including tight dispute resolution rules in their franchise agreements, funneling these disputes out of the public courtroom and into private arbitration rooms.

Just because it does not happen in a courtroom, though, does not mean that franchise litigation is not important. For franchisors, effectively managing these relationships is the life blood of the business. For franchisees, their livelihood is often on the line.

The franchise litigation lawyers at Oberheiden P.C. legally represent both franchisors and franchisees in these serious disputes whether in litigation, mediation or alternative dispute resolution procedures. Contact them online or call their national intake hotline at (888) 680-1745.

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