n-j-federal-court-dismisses-franchise-practice-claim-as-contract-a-distribution-agreement-had-not-been-terminatedThe Plaintiff was a distributor of Defendant’s products in New Jersey and throughout the northeast. Plaintiff filed its initial Complaint in the State Superior Court, but the Defendant had it removed to the Federal District Court. The Defendant filed two motions to dismiss Plaintiff’s claims, both of which applications the Court granted (the second motion was filed after Plaintiff submitted an Amended Complaint in an effort to address pleading deficiencies). This article addresses only the count alleging a violation of the New Jersey Franchise Practices Act (“NJFPA”).

The Court noted that the NJFPA was enacted “to remedy the disparity in bargaining power between franchisors and franchisees by protecting franchisees against indiscriminate terminations and nonrenewal.” To that end, the NJFPA prohibits Franchisors from, among other things, improperly terminating contracts with Franchisees, including provisions in contracts that would release Franchisors from liability, prohibiting the right to free association among Franchisees, and imposing unreasonable standards of performance upon Franchisees. (Citing, N.J.S.A. 56:10-7). [Internal citations omitted.]

The Court zeroed-in on the fact that the Amended Complaint failed to identify any violation of the NJFPA. However, Plaintiff argued in Court that Defendant breached N.J.S.A. 56:10-5, which provides that it is a violation for a Franchisee to “terminate, cancel, or fail to renew a franchise without having first given written notice setting forth all the reasons for such termination, cancellation, or intent not to renew to the franchisee at least 60 days in advance of such termination, cancellation, or failure to renew.” The Court found that the Amended Complaint did not allege Defendant actually or constructively terminated, cancelled, or failed to renew the Agreement. Plaintiff stated the opposite, in fact, representing that the Agreement “has never been terminated by either plaintiff or defendant at any time and remains in full force and effect.” Therefore, the Amended Complaint failed to state a claim for violation of the NJFPA, and was, among other reasons, dismissed.

BE ADVISED that these comments are not intended as legal opinions and are not to be relied upon as legal advice. If you need legal advice, or a referral to a business consultant, please contact us to discuss the specifics of your franchise business.
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