SB 246 - Georgia Franchise Act - enact

First Reader Summary

A bill to amend Chapter 1 of Title 10 of the Official Code of Georgia Annotated, relating to selling and other trade practices, so as to enact the "Georgia Franchise Act"; to provide a short title; to provide definitions; to provide for applicability; to provide for jurisdiction and nonjudicial resolution of disputes; to provide that certain waivers are void; to provide for the transfer of a franchise.

James, Donzella (35th)
Status Summary HC: SC: Judy LA: 02/10/97 S - Read 1st time
Page Numbers - 1/ 2/ 3/ 4/ 5/ 6/ 7/ 8/ 9/ 10/ 11/ 12/ 13/ 14/ 15/ 16
Code Sections - 10-1-901/ 10-1-902/ 10-1-903/ 10-1-904/ 10-1-905/ 10-1-906/ 10-1-907/ 10-1-908/ 10-1-909/ 10-1-910/ 10-1-911/ 10-1-912/ 10-1-913/ 10-1-914/ 10-1-915/ 10-1-916/ 10-1-917/ 10-1-918/ 10-1-919
Senate Action House
2/10/97 Read 1st time

SB 246 97                                          LC 19 3327 
      SENATE BILL 246 
      By:  Senator James of the 35th 
                        A BILL TO BE ENTITLED 
                               AN ACT 
  1- 1  To amend Chapter 1 of Title 10 of the Official Code of 
  1- 2  Georgia Annotated, relating to selling and other trade 
  1- 3  practices, so as to enact the "Georgia Franchise Act"; to 
  1- 4  provide a short title; to provide definitions; to provide 
  1- 5  for applicability; to provide for jurisdiction and 
  1- 6  nonjudicial resolution of disputes; to provide that certain 
  1- 7  waivers are void; to provide for the transfer of a 
  1- 8  franchise; to provide for encroachment; to provide for 
  1- 9  termination; to provide for nonrenewal of a franchise; to 
  1-10  provide for a franchise's right to associate; to provide for 
  1-11  a duty of good faith; to provide for the repurchase of 
  1-12  assets; to provide for independent sourcing; to provide for 
  1-13  private civil actions; to provide for choice of law; to 
  1-14  provide for construction; to provide for severability; to 
  1-15  provide for related matters; to provide an effective date; 
  1-16  to repeal conflicting laws; and for other purposes. 
  1-18                           SECTION 1. 
  1-19  Chapter 1 of Title 10 of the Official Code of Georgia 
  1-20  Annotated, relating to selling and other trade practices, is 
  1-21  amended by adding at the end thereof a new Article 34 to 
  1-22  read as follows: 
  1-23    10-1-901. 
  1-24    This article shall be known and may be cited as the 
  1-25    'Georgia Franchise Act.' 
  1-26    10-1-902. 
  1-27    As used in this article, the term: 
  1-28      (1) 'Affiliate' means a person controlling, controlled 
  1-29      by, or under common control with another person, every 
  1-30      officer or director of such a person, and every person 
  2- 1      occupying a similar status or performing similar 
  2- 2      functions. 
  2- 3      (2) 'Business day' means a day other than a Saturday, 
  2- 4      Sunday, or federal holiday. 
  2- 5      (3) 'Franchise' means either of the following: 
  2- 6        (A) An oral or written agreement, either express or 
  2- 7        implied, which provides all of the following: 
  2- 8          (i) Grants the right to distribute goods or provide 
  2- 9          services under a marketing plan prescribed or 
  2-10          suggested in substantial part by the franchisor; 
  2-11          (ii) Requires payment of a franchise fee to a 
  2-12          franchisor or its affiliate; and 
  2-13          (iii) Allows the franchise business to be 
  2-14          substantially associated with a trademark, service 
  2-15          mark, trade name, logotype, advertisement, or other 
  2-16          commercial symbol of or designating the franchisor 
  2-17          or its affiliate; or 
  2-18        (B) A master franchise. 
  2-19      The term 'franchise' does not include any business that 
  2-20      is operated under a lease or license on the premises of 
  2-21      the lessor or licensor as long as such business is 
  2-22      incidental to the business conducted by the lessor or 
  2-23      licensor on such premises, including, without 
  2-24      limitation, leased departments, licensed departments, 
  2-25      and concessions; and the leased or licensed department 
  2-26      operates only under the trademark, trade name, service 
  2-27      mark, or other commercial symbol designating the lessor 
  2-28      or licensor.  'Franchise' also does not include any 
  2-29      contract under which a petroleum retailer or petroleum 
  2-30      distributor is authorized or permitted to occupy leased 
  2-31      marketing premises, which premises are to be employed in 
  2-32      connection with the sale, consignment, or distribution 
  2-33      of motor fuel under a trademark which is owned or 
  2-34      controlled by a refiner which is regulated by the 
  2-35      federal Petroleum Marketing Practices Act, 15 U.S.C. 
  2-36      Section 2801 et seq.  The term 'refiner' means any 
  2-37      person engaged in the refining of crude oil to produce 
  2-38      motor fuel and includes any affiliate of such person. 
  2-39      'Franchise' also does not include a contract 
  2-40      establishing a franchise relationship with respect to 
  2-41      the sale of tractors, farm equipment, heavy equipment, 
  2-42      and motor vehicles. 
  3- 1      (4) 'Franchise fee' means a direct or indirect payment 
  3- 2      to purchase or operate a franchise.  Franchise fee does 
  3- 3      not include any of the following: 
  3- 4        (A) Payment of a reasonable service charge to the 
  3- 5        issuer of a credit card by an establishment accepting 
  3- 6        the credit card; 
  3- 7        (B) Payment to a trading stamp company by a person 
  3- 8        issuing trading stamps in connection with a retail 
  3- 9        sale; 
  3-10        (C) An agreement to purchase at a bona fide wholesale 
  3-11        price a reasonable quantity of tangible goods for 
  3-12        resale; 
  3-13        (D) The purchase or agreement to purchase, at a fair 
  3-14        market value, any fixtures, equipment, leasehold 
  3-15        improvements, real property, supplies, or other 
  3-16        materials reasonably necessary to enter into or 
  3-17        continue a business; 
  3-18        (E) Payments by a purchaser pursuant to a bona fide 
  3-19        loan from a seller to the purchaser; 
  3-20        (F) Payment of rent which reflects payment for the 
  3-21        economic value of leased real or personal property; or 
  3-22        (G) The purchase or agreement to purchase promotional 
  3-23        or demonstration supplies, materials, or equipment 
  3-24        furnished at fair market value and not intended for 
  3-25        resale. 
  3-26      (5) 'Franchisee' means a person to whom a franchise is 
  3-27      granted.  Franchisee includes the following: 
  3-28        (A) A subfranchisor with regard to its relationship 
  3-29        with a franchisor; and 
  3-30        (B) A subfranchisee with regard to its relationship 
  3-31        with a subfranchisor. 
  3-32      (6) 'Franchisor' means a person who grants a franchise 
  3-33      or master franchise or an affiliate of such a person. 
  3-34      Franchisor includes a subfranchisor with regard to its 
  3-35      relationship with a franchisee, unless stated otherwise 
  3-36      in this article. 
  3-37      (7) 'Marketing plan' means a plan or system concerning a 
  3-38      material aspect of conducting business.  Indicia of a 
  3-39      marketing plan include any of the following: 
  4- 1        (A) Price specification, special pricing systems, or 
  4- 2        discount plans; 
  4- 3        (B) Sales or display equipment or merchandising 
  4- 4        devices; 
  4- 5        (C) Sales techniques; 
  4- 6        (D) Promotional or advertising materials or 
  4- 7        cooperative advertising; 
  4- 8        (E) Training regarding the promotion, operation, or 
  4- 9        management of the business; or 
  4-10        (F) Operational, managerial, technical, or financial 
  4-11        guidelines or assistance. 
  4-12      (8) 'Master franchise' means an agreement by which a 
  4-13      person pays a franchisor for the right to sell or 
  4-14      negotiate the sale of franchises. 
  4-15      (9) 'Offer' or 'offer to sell' means every attempt to 
  4-16      offer or to dispose of, or solicitation of an offer to 
  4-17      buy, a franchise or interest in a franchise for value. 
  4-18      (10) 'Person' means an individual, partnership, 
  4-19      corporation, association, trust, estate, or any other 
  4-20      legal entity. 
  4-21      (11) 'Sale' or 'sell' means every contract or agreement 
  4-22      of sale of, contract to sell, or disposition of a 
  4-23      franchise or interest in a franchise for value. 
  4-24      (12) 'Subfranchise' means an agreement by which a person 
  4-25      pays a franchisor for the right to sell or negotiate the 
  4-26      sale of franchises. 
  4-27      (13) 'Subfranchisee' means a person who is granted a 
  4-28      franchise from a subfranchisor. 
  4-29      (14) 'Subfranchisor' means a person who is granted a 
  4-30      master franchise. 
  4-31    10-1-903. 
  4-32    (a) This article applies to a new or existing franchise 
  4-33    that is operated in the State of Georgia.  For purposes of 
  4-34    this article, the franchise is operated in this state only 
  4-35    if the premises from which the franchise is operated are 
  4-36    physically located in this state.  For purposes of this 
  4-37    article, a franchise including marketing rights in or to 
  4-38    this state is deemed to be operated in this state only if 
  4-39    the franchisee's principal business office is physically 
  5- 1    located in this state.  This article shall not apply to a 
  5- 2    franchise solely because an agreement relating to the 
  5- 3    franchise provides that the agreement is subject to or 
  5- 4    governed by the laws of this state.  The provisions of 
  5- 5    this article shall not apply to any existing or future 
  5- 6    contracts between Georgia franchisors and franchisees who 
  5- 7    operate franchises located outside this state. 
  5- 8    (b) This article shall not be construed to alter any 
  5- 9    substantative rights in any existing franchise agreement 
  5-10    which is in writing and which is currently in effect in 
  5-11    this state, to the extent that such written agreement is 
  5-12    in direct conflict with any provision of this article. 
  5-13    However, to the extent that there is no direct conflict 
  5-14    between any provision of this article and any substantive 
  5-15    right in an existing written franchise agreement, the 
  5-16    nonconflicting provisions of this article shall apply. 
  5-17    This article shall apply to all existing oral franchise 
  5-18    agreements. 
  5-19    10-1-904. 
  5-20    (a) A provision in a franchise agreement restricting 
  5-21    jurisdiction to a forum outside this state is void with 
  5-22    respect to a claim otherwise enforceable under this 
  5-23    article. 
  5-24    (b) A civil action or proceeding arising out of a 
  5-25    franchise may be commenced wherever jurisdiction over the 
  5-26    parties or subject matter exists, even if the agreement 
  5-27    limits actions or proceedings to a designated 
  5-28    jurisdiction. 
  5-29    (c) Parties to a franchise may agree to independent 
  5-30    arbitration, mediation, or other nonjudicial resolution of 
  5-31    an existing or future dispute. 
  5-32    10-1-905. 
  5-33    A condition, stipulation, or provision requiring a 
  5-34    franchisee to waive compliance with or relieving a person 
  5-35    of a duty or liability imposed by or a right provided by 
  5-36    this article or a rule or order issued under this article 
  5-37    is void.  This Code section shall not affect the 
  5-38    settlement of disputes, claims, or civil lawsuits arising 
  5-39    or brought pursuant to this article. 
  6- 1    10-1-906. 
  6- 2    (a) A franchisee may transfer the franchised business and 
  6- 3    franchise to a transferee, provided that the transferee 
  6- 4    satisfies the reasonable current qualifications of the 
  6- 5    franchisor for new or existing franchisees.  For the 
  6- 6    purposes of this Code section, a reasonable current 
  6- 7    qualification for a new franchisee is a qualification 
  6- 8    based upon a legitimate business reason.  If the proposed 
  6- 9    transferee does not meet the reasonable current 
  6-10    qualifications of the franchisor, the franchisor may 
  6-11    refuse to permit the transfer, provided that the refusal 
  6-12    of the franchisor to consent to the transfer is not 
  6-13    arbitrary or capricious. 
  6-14    (b) Except as otherwise provided in this Code section, a 
  6-15    franchisor may exercise a right of first refusal contained 
  6-16    in a franchise agreement after receipt of a proposal from 
  6-17    the franchisee to transfer the franchise. 
  6-18    (c) As a condition of a transfer, a franchisor may require 
  6-19    that: 
  6-20      (1) The transferee successfully complete a reasonable 
  6-21      training program; 
  6-22      (2) A reasonable transfer fee be paid to reimburse the 
  6-23      franchisor for the franchisor's reasonable and actual 
  6-24      expenses directly attributable to the transfer; 
  6-25      (3) The franchisee pay or make provision reasonably 
  6-26      acceptable to the franchisor to pay any amount due the 
  6-27      franchisor or the franchisor's affiliate; or 
  6-28      (4) The financial terms of the transfer comply at the 
  6-29      time of the transfer with the franchisor's current 
  6-30      financial requirements for franchisees. 
  6-31    (d) A franchisee may transfer the franchisee's interest in 
  6-32    the franchise for the unexpired term of the franchise 
  6-33    agreement, and a franchisor shall not require the 
  6-34    franchisee or the transferee to enter into a new or 
  6-35    different franchise agreement as a condition of the 
  6-36    transfer. 
  6-37    (e) A franchisee shall give the franchisor no less than 60 
  6-38    days' written notice of a transfer which is subject to the 
  6-39    provisions this Code section and on request from the 
  6-40    franchisor shall provide in writing the ownership 
  6-41    interests of all persons holding or claiming an equitable 
  7- 1    or beneficial interest in the franchise subsequent to the 
  7- 2    transfer or the franchisee, as appropriate. 
  7- 3    (f) A franchisor shall not transfer its interest in a 
  7- 4    franchise unless the franchisor makes reasonable provision 
  7- 5    for the performance of the franchisor's obligations under 
  7- 6    the franchise agreement by the transferee.  For purposes 
  7- 7    of this subsection, 'reasonable provision' means that upon 
  7- 8    the transfer, the entity assuming the franchisor's 
  7- 9    obligations has the financial means to perform the 
  7-10    franchisor's obligations in the ordinary course of 
  7-11    business but does not mean that the franchisor 
  7-12    transferring the franchise is required to guarantee 
  7-13    obligations of the underlying franchise agreement. 
  7-14    (g) A transfer by a franchisee is deemed to be approved 60 
  7-15    days after the franchisee submits the request for consent 
  7-16    to the transfer unless the franchisor withholds consent to 
  7-17    the transfer as evidenced in writing, specifying the 
  7-18    reason or reasons for withholding the consent.  The 
  7-19    written notice must be delivered to the franchisee prior 
  7-20    to the expiration of the 60 day period.  Any such notice 
  7-21    is privileged and is not actionable based upon a claim of 
  7-22    defamation. 
  7-23    (h) A franchisor shall not discriminate against a proposed 
  7-24    transferee of a franchise on the basis of race, color, 
  7-25    national origin, religion, sex, or disability. 
  7-26    (i) A franchisor, as a condition to a transfer of a 
  7-27    franchise, shall not obligate a franchisee to undertake 
  7-28    obligations or relinquish any rights unrelated to the 
  7-29    franchise proposed to be transferred or to enter into a 
  7-30    release of claims broader than a similar release of claims 
  7-31    by the franchisor against the franchisee which is entered 
  7-32    into by the franchisor. 
  7-33    (j) A franchisor, after a transfer of a franchise, shall 
  7-34    not seek to enforce any covenant of the transferred 
  7-35    franchise against the transferor which prohibits the 
  7-36    transferor from engaging in any lawful occupation or 
  7-37    enterprise.  However, this subsection shall not prohibit 
  7-38    the franchisor from enforcing a contractual covenant 
  7-39    against the transferor not to exploit the franchisor's 
  7-40    trade secrets or intellectual property rights, unless 
  7-41    otherwise agreed to by the parties. 
  8- 1    (k) For purposes of this Code section, 'transfer' means 
  8- 2    any change in ownership or control of a franchise, 
  8- 3    franchised business, or a franchisee. 
  8- 4    (l) The following occurrences shall not be considered 
  8- 5    transfers requiring the consent of the franchisor under a 
  8- 6    franchise agreement and shall not result in the imposition 
  8- 7    of any penalties or make applicable any right of first 
  8- 8    refusal by the franchisor: 
  8- 9      (1) The succession of ownership of a franchise upon the 
  8-10      death or disability of a franchisee, or of an owner of a 
  8-11      franchise, to the surviving spouse, heir, or a partner 
  8-12      active in the management of the franchisee unless the 
  8-13      successor fails to meet within one year the then current 
  8-14      reasonable qualifications of the franchisor for 
  8-15      franchisees and the enforcement of the reasonable 
  8-16      current qualifications is not arbitrary or capricious; 
  8-17      (2) Incorporation of a proprietorship franchisee, 
  8-18      provided that such incorporation does not prohibit a 
  8-19      franchisor from requiring a personal guaranty by the 
  8-20      franchisee of obligations related to the franchise; 
  8-21      (3) A transfer within an existing ownership group of a 
  8-22      franchise provided that more than 50 percent of the 
  8-23      franchise is held by persons who meet the franchisor's 
  8-24      reasonable current qualifications for franchisees.  If 
  8-25      less than 50 percent of the franchise would be owned by 
  8-26      persons who meet the franchisor's reasonable current 
  8-27      qualifications, the franchisor may refuse to authorize 
  8-28      the transfer, provided that enforcement of the 
  8-29      reasonable current qualifications is not arbitrary or 
  8-30      capricious; 
  8-31      (4) A transfer of less than a controlling interest in 
  8-32      the franchise to the franchisee's spouse or child or 
  8-33      children, provided that more than 50 percent of the 
  8-34      entire franchise is held by those who meet the 
  8-35      franchisor's reasonable current qualifications. If less 
  8-36      than 50 percent of the entire franchise would be owned 
  8-37      by persons who meet the franchisor's reasonable current 
  8-38      qualifications, the franchisor may refuse to authorize 
  8-39      the transfer, provided that enforcement of the 
  8-40      reasonable current qualifications is not arbitrary or 
  8-41      capricious; 
  8-42      (5) A transfer of less than a controlling interest in 
  8-43      the franchise of an employee stock ownership plan or 
  9- 1      employee incentive plan, provided that more than 50 
  9- 2      percent of the entire franchise is held by those who 
  9- 3      meet the franchisor's reasonable current qualifications 
  9- 4      for franchisees.  If less than 50 percent of the entire 
  9- 5      franchise would be owned by persons who meet the 
  9- 6      franchisor's reasonable current qualifications, the 
  9- 7      franchisor may refuse to authorize the transfer, 
  9- 8      provided that enforcement of the reasonable current 
  9- 9      qualifications is not arbitrary or capricious; or 
  9-10      (6) A grant or retention of a security interest in the 
  9-11      franchised business or its assets or of an ownership 
  9-12      interest in the franchisee, provided the security 
  9-13      agreement establishes an obligation on the part of the 
  9-14      secured party enforceable by the franchisor to give the 
  9-15      franchisor notice of the secured party's intent to 
  9-16      foreclose on the collateral simultaneously with notice 
  9-17      to the franchisee and a reasonable opportunity to redeem 
  9-18      the interests of the secured party and to recover the 
  9-19      secured party's interest in the franchise or franchised 
  9-20      business by paying the secured obligation. 
  9-21    (m) A franchisor shall not interfere or attempt to 
  9-22    interfere with any disposition of an interest in a 
  9-23    franchise or franchised business as described in 
  9-24    paragraphs (1) through (6) of subsection (l) of this Code 
  9-25    section. 
  9-26    10-1-907. 
  9-27    (a) If a franchisor develops, or grants to a franchisee 
  9-28    the right to develop, a new outlet or location which sells 
  9-29    essentially the same goods or services under the same 
  9-30    trademark, service mark, trade name, logotype, or other 
  9-31    commercial symbol as an existing franchisee and the new 
  9-32    outlet or location has an adverse effect on the gross 
  9-33    sales of the existing franchisee's outlet or location, the 
  9-34    existing adversely affected franchisee has a cause of 
  9-35    action for monetary damages in an amount calculated 
  9-36    pursuant to subsection (c) of this Code section, unless 
  9-37    either of the following apply: 
  9-38      (1) The franchisor has first offered the new outlet or 
  9-39      location to the existing franchisee on the same basic 
  9-40      terms and conditions available to the other potential 
  9-41      franchisee or, if the new outlet or location is to be 
  9-42      owned by the franchisor, on the terms and conditions 
 10- 1      that would ordinarily be offered to a franchisee for a 
 10- 2      similarly situated outlet or location; or 
 10- 3      (2) The adverse impact on the existing franchisee's 
 10- 4      annual gross sales, based on a comparison to the annual 
 10- 5      gross sales from the existing outlet or location during 
 10- 6      the 12 month period immediately preceding the opening of 
 10- 7      the new outlet or location, is determined to have been 
 10- 8      less than 5 percent during the first 12 months of 
 10- 9      operation of the new outlet or location. 
 10-10    (b) In establishing damages under a cause of action 
 10-11    brought pursuant to this Code section, the franchisee has 
 10-12    the burden of proving the amount of lost profits 
 10-13    attributable to the compensable sales.  In any action 
 10-14    brought under this Code section, the damages payable shall 
 10-15    be limited to no more than five years of the proven lost 
 10-16    profits.  For the purposes of this subsection, 
 10-17    'compensable sales' means the annual gross sales from the 
 10-18    existing outlet or location during the 12 month period 
 10-19    immediately preceding the opening of the new outlet or 
 10-20    location, less  the actual gross sales from the operation 
 10-21    of the existing outlet or location for the 12 month period 
 10-22    immediately following the opening of the new outlet or 
 10-23    location. 
 10-24    (c) Compensable sales shall exclude any amount 
 10-25    attributable to factors other than the opening and 
 10-26    operation of the new outlet or location. 
 10-27    (d) Upon petition by the franchisor the franchisee, the 
 10-28    district court may grant a permanent or preliminary 
 10-29    injunction to prevent irreparable injury or threatened 
 10-30    injury for a violation of this Code section. 
 10-31    10-1-908. 
 10-32    (a) Except as otherwise provided by this article, a 
 10-33    franchisor shall not terminate a franchise prior to the 
 10-34    expiration of its term except for good cause.  For the 
 10-35    purposes of this section, 'good cause' is cause based upon 
 10-36    a legitimate business reason.  'Good cause' includes the 
 10-37    failure of the franchisee to comply with any material 
 10-38    lawful requirement of the franchise agreement, provided 
 10-39    that the termination by the franchisor is not arbitrary or 
 10-40    capricious when compared to the actions of the franchisor 
 10-41    in other similar circumstances.  The burden of proof of 
 10-42    showing that action of the franchisor is arbitrary or 
 10-43    capricious shall rest with the franchisee. 
 11- 1    (b) Prior to termination of a franchise for good cause, a 
 11- 2    franchisor shall provide a franchisee with written notice 
 11- 3    stating the basis for the proposed termination. After 
 11- 4    service of written notice, the franchisee shall have a 
 11- 5    reasonable period of time to cure the default, which in no 
 11- 6    event shall be less than 60 days.  In the event of 
 11- 7    nonpayment of moneys due under the franchise agreement, 
 11- 8    the period to cure shall be no less than 30 days.  The 
 11- 9    franchisor has an obligation and duty to act in good faith 
 11-10    when declaring a franchisee in default.  Moreover, the 
 11-11    franchisor may not declare a franchisee in default when 
 11-12    doing so would be arbitrary and capricious when compared 
 11-13    to the actions of the franchisor in other similar 
 11-14    circumstances. 
 11-15    (c) Notwithstanding subsection (b) of this Code section, a 
 11-16    franchisor may terminate a franchisee upon written notice 
 11-17    and without an opportunity to cure if any of the following 
 11-18    apply: 
 11-19      (1) All or a substantial part of the assets of the 
 11-20      franchise or the business to which the franchisee 
 11-21      relates are assigned to or for the benefit of any 
 11-22      creditor.  An assignment for the benefit of any creditor 
 11-23      pursuant to this paragraph does not include the granting 
 11-24      of a security interest in the normal course of business; 
 11-25      (2) The franchisee voluntarily abandons the franchise by 
 11-26      failing to operate the business for five consecutive 
 11-27      days during which the franchisee is required to operate 
 11-28      the business under the terms of the franchise or any 
 11-29      shorter period after which it is not unreasonable under 
 11-30      the facts and circumstances for the franchisor to 
 11-31      conclude that the franchisee does not intend to continue 
 11-32      to operate the franchise, unless the failure to operate 
 11-33      is due to circumstances beyond the control of the 
 11-34      franchisee; 
 11-35      (3) The franchisor and franchisee agree in writing to 
 11-36      terminate the franchise; 
 11-37      (4) The franchisee knowingly makes any material 
 11-38      misrepresentations or knowingly omits to state any 
 11-39      material facts relating to the acquisition or ownerhsip 
 11-40      or operation of the franchise business; 
 11-41      (5) After three material breaches of a franchise 
 11-42      agreement occurring within a 12 month period for which 
 11-43      the franchisee has been given notice and an opportunity 
 12- 1      to cure, the franchisor may terminate upon any 
 12- 2      subsequent material breach within the 12 month period 
 12- 3      without providing an opportunity to cure, provided that 
 12- 4      the action is not arbitrary and capricious; 
 12- 5      (6) The franchised business or business premises of the 
 12- 6      franchisee are lawfully seized, taken over, or 
 12- 7      foreclosed by a government authority or official; 
 12- 8      (7) The franchisee is convicted of a felony or any other 
 12- 9      criminal misconduct which materially and adversely 
 12-10      affects the operation, maintenance, or goodwill of the 
 12-11      franchise in the relevant market; or 
 12-12      (8) The franchisee operates the franchised business in a 
 12-13      manner that imminently endangers the public health and 
 12-14      safety.  The franchisor has an obligation and duty to 
 12-15      act in good faith when declaring a franchisee terminated 
 12-16      under this paragraph.  Moreover, the franchisor may not 
 12-17      declare a franchisee terminated under this paragraph 
 12-18      when doing so would be arbitrary and capricious when 
 12-19      compared to the actions of the franchisor in other 
 12-20      similar circumstances. 
 12-21    10-1-909. 
 12-22    (a) A franchisor shall not refuse to renew a franchise 
 12-23    unless both of the following apply: 
 12-24      (1) The franchisee has been notified of the franchisor's 
 12-25      intent not to renew at least six months prior to the 
 12-26      expiration date or any extension of the franchise 
 12-27      agreement; and 
 12-28      (2) Any of the following circumstances exist: 
 12-29        (A) Good cause exists, provide that the refusal of the 
 12-30        franchisor to renew is not arbitrary or capricious. 
 12-31        For purposes of this Code section, 'good cause' means 
 12-32        cause based on a legitimate business reason; 
 12-33        (B) The franchisor and franchisee agree not to renew 
 12-34        the franchise; or 
 12-35        (C) The franchisor completely withdraws from directly 
 12-36        or indirectly distributing its products or services in 
 12-37        the geographic market served by the franchisee, 
 12-38        provided that upon expiration of the franchise, the 
 12-39        franchisor agrees not to seek to enforce any covenant 
 12-40        of the nonrenewed franchisee not to compete with the 
 12-41        franchisor or franchisees of the franchisor. 
 13- 1    (b) As a condition of renewal of the franchise, a 
 13- 2    franchise agreement may require that the franchisee meet 
 13- 3    the then current requirements for franchises and that the 
 13- 4    franchisee execute a new agreement incorporating the then 
 13- 5    current terms and fees for new franchises. 
 13- 6    10-1-910. 
 13- 7    A franchisor shall not restrict a franchisee from 
 13- 8    associating with other franchisees or from participating 
 13- 9    in a trade association and shall not retaliate against a 
 13-10    franchisee for engaging in these activities. 
 13-11    10-1-911. 
 13-12    A franchise imposes on the parties a duty of good faith in 
 13-13    performance and enforcement of the franchise agreement. 
 13-14    As used in this Code section, 'Good faith' means honesty 
 13-15    in fact and the observance of reasonable commercial 
 13-16    standards of fair dealing in the trade. 
 13-17    10-1-912. 
 13-18    (a) A franchisor shall not prohibit a franchisee from, or 
 13-19    enforce a prohibition against a franchisee for, engaging 
 13-20    in any lawful business at any location after a termination 
 13-21    or refusal to renew by a franchisor, unless it is one 
 13-22    which relies on a substantially similar marketing program 
 13-23    as the terminated or nonrenewed franchise or unless the 
 13-24    franchisor offers in writing no later than ten business 
 13-25    days before expiration of the franchise to purchase the 
 13-26    assets of the franchised business for its fair market 
 13-27    value as a going concern.  The value of the assets shall 
 13-28    not include the goodwill of the business attributable to 
 13-29    the trademark licensed to the franchisee in the franchise 
 13-30    agreement.  The offer may be conditioned upon the 
 13-31    ascertainment of a fair market value by an impartial 
 13-32    appraiser. 
 13-33    (b) If the premises upon which a franchise is located are 
 13-34    leased to the franchisee by the franchisor or any 
 13-35    affiliate, subsidiary, or agent of the franchisor, then 
 13-36    the lease agreement may not contain a cross-default 
 13-37    provision such that the mere termination of the franchise 
 13-38    agreement creates a termination of the lease agreement. 
 13-39    So long as the franchisee is in compliance with those 
 13-40    terms of the lease agreement that are not related to or 
 13-41    tied to the franchise business, the franchisee may use the 
 13-42    property for any use set forth in subsection (a) of this 
 14- 1    Code section.  In the event the franchisor seeks to 
 14- 2    purchase the assets of the business pursuant to subsection 
 14- 3    (a) of this Code section, the value of the assets shall 
 14- 4    include the fair market value of the leasehold interest. 
 14- 5    10-1-913. 
 14- 6    (a) Except as provided in subsection (b) of this Code 
 14- 7    section, a franchisor shall allow a franchisee to obtain 
 14- 8    equipment, fixtures, supplies, and services used in the 
 14- 9    establishment and operation of the franchised business 
 14-10    from sources of the franchisee's choosing, provided that 
 14-11    such goods and services meet standards as to their nature 
 14-12    and quality promulgated by the franchisor. 
 14-13    (b) The provisions of subsection (a) of this Code section 
 14-14    shall not apply to reasonable quantities of inventory 
 14-15    goods or services, including display and sample items, 
 14-16    that the franchisor requires the franchisee to obtain from 
 14-17    the franchisor or its affiliate, but only if the goods or 
 14-18    services are central to the franchised business and either 
 14-19    are actually manufactured or produced by the franchisor or 
 14-20    its affiliate or incorporate a trade secret owned by the 
 14-21    franchisor or its affiliate. 
 14-22    10-1-914. 
 14-23    In selling or establishing a franchise, a franchisor or 
 14-24    its agent shall not misrepresent: 
 14-25      (1) By failure to disclose or otherwise the known 
 14-26      required total investment of a franchise; 
 14-27      (2) Or fail to disclose efforts, plans, or intentions to 
 14-28      sell or establish more franchises than it is reasonable 
 14-29      to expect the market or market area for the particular 
 14-30      franchise opportunity to sustain; 
 14-31      (3) Or fail to disclose efforts, plans, or intentions to 
 14-32      sell or establish other franchises within the market or 
 14-33      market area; 
 14-34      (4) The training and management assistance available to 
 14-35      the franchisee; 
 14-36      (5) The amount of profits, net or gross, which the 
 14-37      franchisee can expect from the operation of the 
 14-38      franchise business; 
 14-39      (6) The prospects or chances for success of a proposed 
 14-40      or existing franchise; or 
 15- 1      (7) Or fail to disclose a material fact or create a 
 15- 2      false or misleading impression in the sale of a 
 15- 3      franchise. 
 15- 4    10-1-915. 
 15- 5    A franchisor shall not discriminate on the basis of race, 
 15- 6    color, national origin, religion, sex, or disability 
 15- 7    against a franchisee or potential franchisee in entering 
 15- 8    into a franchise agreement, providing franchise 
 15- 9    opportunities, and in interpreting, fulfilling, 
 15-10    exercising, or otherwise carrying out any obligation, 
 15-11    right, or duty under any franchise agreement or franchise 
 15-12    relationship. 
 15-13    10-1-916. 
 15-14    A person who violates a provision of this article or order 
 15-15    issued under this article shall be liable for damages 
 15-16    caused by the violation, including but not limited to 
 15-17    costs and reasonable attorneys' and experts' fees and 
 15-18    shall be subject to other appropriate relief, including 
 15-19    injunctive and other equitable relief. The parties shall 
 15-20    have a right to a jury trial on any action for damages for 
 15-21    violation of this article.  If the finder of fact 
 15-22    determines that the violation by the franchisor was in bad 
 15-23    faith, wanton, willful, or in reckless disregard of the 
 15-24    rights of the franchisee, the court shall award the 
 15-25    franchisee treble damages.  No punitive damages shall be 
 15-26    awarded under this article. 
 15-27    10-1-917. 
 15-28    A condition, stipulation, or provision requiring the 
 15-29    application of the law of another state in lieu of this 
 15-30    article is void. 
 15-31    10-1-918. 
 15-32    This article shall be liberally construed to effectuate 
 15-33    its purposes. 
 15-34    10-1-919. 
 15-35    This article shall not be construed to limit any liability 
 15-36    that may exist under another statute or at common law." 
 15-37                           SECTION 2. 
 15-38  This Act shall become effective on July 1, 1997. 
 16- 1                           SECTION 3. 
 16- 2  All laws and parts of laws in conflict with this Act are 
 16- 3  repealed. 

Clerk of the House
Robert E. Rivers, Jr., Clerk
Last Updated on 04/20/98