Tags: Franchise

Many states, including Nebraska and South Dakota have registration or filing requirements for franchises.  Businesses may not realize that their business model could be considered a franchise in some states.  If a court finds that your business is a franchise, you may be prohibited from ending your business’ relationship with a customer.

If a court finds that a business model is a franchise, Neb. Rev. Stat § 87-404, requires the franchisor to give at least sixty days prior to terminating, canceling, or failing to renew, their business arrangement.

These requirements do not apply:

(a) when the alleged grounds are voluntary abandonment by the franchisee of the franchise relationship in which event the written notice may be given fifteen days in advance of such termination, cancellation, or failure to renew; and

(b) when the alleged grounds are

(i) the conviction of the franchisee in a court of competent jurisdiction of an indictable offense directly related to the business conducted pursuant to the franchise,
(ii) insolvency, the institution of bankruptcy or receivership proceedings,
(iii) default in payment of an obligation or failure to account for the proceeds of a sale of goods by the franchisee to the franchisor or a subsidiary of the franchisor,
(iv) falsification of records or reports required by the franchisor,
(v) the existence of an imminent danger to public health or safety, or
(vi) loss of the right to occupy the premises from which the franchise is operated by either the franchisee or the franchisor, in which event such termination, cancellation, or failure to renew may be effective immediately upon the delivery and receipt of written notice of the same. It shall be a violation of the Franchise Practices Act for a franchisor to terminate, cancel, or fail to renew a franchise without good cause. This subsection shall not prohibit a franchise from providing that the franchise is not renewable or that the franchise is only renewable if the franchisor or franchisee meets certain reasonable conditions.

Good cause needs to exist before a franchisor can terminate a franchise. In Rose Equip., Inc. v. Ford Motor Co., 248 Neb. 344, 535 N.W.2d 404 (1995), the Nebraska Supreme Court held that good cause to terminate a franchise existed in light of, among other things, the dealership's below-average sales, decreased parts purchases, nominal required investment, proximity to other franchises, failure to maintain adequate parts inventory, refusal to do warranty work, and failure to comply with reasonable and material requirements of the franchise agreement with Ford. The dealership did, however, have adequate service facilities and qualified personnel. Similarly, in American Motors Sales Corp. v. Perkins, 198 Neb. 97, 251 N.W.2d 727 (1977), good cause for termination of a franchise existed where the dealership had failed to develop potential as a new car dealer.

Angela Madathil is a Business, M&A, and Deal Attorney and provides legal assistance to buyers and sellers of businesses, as well as business brokers in Nebraska, Missouri, and Kansas.   This can involve contract review and negotiation, due diligence assistance, and post-sale integration.  The Goosmann Law Firm team advises to buyers and sellers of businesses, as well as business brokers throughout the Midwest and has attorneys licensed in Iowa, Kansas, Minnesota, Missouri, Nebraska, South Dakota, and other states.


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