Consumer Bankruptcy Journal Fall 2016 - Page 37

A FRANCHISEE CONSIDERING BANKRUPTCY If the Chapter 11 or Chapter 13 plan relies on the income from the franchise or if the debtor simply needs that income a bankruptcy notwithstanding, then the question is what happens if filing for bankruptcy does not really stave off cancellation or nonrenewal? The bankruptcy attorney may have walked the debtor into a worse financial situation long-term than just trying to renegotiate some of the debts outside of bankruptcy. Causes of Action Based on Common Law or State Franchise Laws The Plaintiff alleged ‘that Texdis was content to see the JMV Store fail, and then attempt to repurchase the it at a significantly depressed price. That is the sort of “unfair” business practice the WFIPA seeks to prevent.”’ Jm Vidal Inc., v. Texdis U.S., Inc., 764 F. Supp. 2d 599, 614 (S.D.N.Y. 2011). Stated differently, the franchisor torpedoed the franchisee. State’s often have consumer fraud laws and common law fraud causes of action that protect consumers from unfair or fraudulent business practices. They may also have specific franchise laws that make certain conduct by the franchisor unlawful. Washington, which is referenced in Jm Vidal, has the Washington Franchise Investment Protection Act (“WFIPA”). See RCW 19.100.010 et seq. The WFIPA makes it declares lawful to engage in certain deceptive or unfair methods of competition. See RCW 19.100.190. More importantly, it permits an aggrieved franchisee to sue for the costs of the litigation, attorney’s fees, and treble damages. See RCW 19.100.190(1) and (3). If the franchisee is seeking bankruptcy because of the franchisor the potential for treble damages alone is lucrative enough to consider suing the franchisor instead of filing for bankruptcy. By contrast Illinois is much more limited in its protections to franchisees. The Franchise Disclosure Act permits private civil actions and the recovery of attorney’s fees. See 815 ILCS 705/26. But there are other causes of action as well. ‘“Bad faith” is a term of art in contract law; it refers to one party’s manipulation of contractual terms in order to take commercial advantage of another party. (citation omitted). If a party is found to have acted in bad faith, then the other party is relieved of the effects of contractual breaches caused by that bad faith.’ Zeidler v. A & W Restaurants, Inc., 301 F. 3d 572, 574-75 (7th Cir. 2002). This principle is so well established that the 7th Circuit refused summary judgment to a franchisor sued by a franchisee for wrongful termination of the contract because the franchisor forced the franchisee into the very default it used as a basis to cancel the contract. See Interim Health Care of N. Ill. Inc. v. Interim Health Care Inc., 255 F. 3d 876 (7th Cir. 1992). Choosing The Best Path Solo and small firm clients don’t want to talk to a machine. Which is why firms like yours rely on Ruby, the highly trained team of offsite receptionists who handle all your calls with the perfect mix of friendliness and professionalism. With Ruby, you’ll stand out from the competition by providing an exceptional customer experience delivered by a real, caring person. 866-611-RUBY (7829) The long term consequences to bankruptcy or litigation present unique circumstances depending on the reason the franchisee is considering bankruptcy. If the franchisee elects bankruptcy he may lose his franchise. On the other hand, if franchisee is considering bankruptcy because of the franchisor’s conduct, then it may be better for the attorney to determine if the potential causes of action (off set by any potential affirmative defenses or counterclaims) offer recovery in the franchisee’s favor that prevents the need for bankruptcy. National Association of Consumer Bankruptcy Attorneys Rediscover the lost art of human interaction. Fall 2016 or visit CONSUMER BANKRUPTCY JOURNAL 37