Two Lessons to Avoid a Franchise Price Discrimination/Distribution Lawsuit

By: Sheila Raftery Wiggins

Design business practices by incorporating the lessons offered by other parties’ lawsuits. The lessons from a recent franchise/commodity distribution federal court case are that:

  • Watch forecasting statements: A franchisor which changes its policy—here, the rent policy changed—should avoid making representations regarding the future of the franchise (such as, we will not sell the franchise agreements—when an alleged plan to assign the agreement exists).
  • Actions/practices may trump the franchisee agreement’s terms: A franchisor’s actions—such as alleged manipulation of the delivery time of a commodity based on price fluctuations—may prompt a price discrimination claim even though the franchise agreement grants the franchisee the power to determine their own retail prices.

In New Jersey federal court, franchisees sued the franchisor regarding its:

  1. delivery actions – of allegedly manipulating pricing and delivery times immediately before the commodity price dropped,
  2. pricing practice – of dividing the state into zones and charging retailers different wholesale prices and
  3. alleged misrepresentations – of stating that the franchise agreements will not be sold, even though there was allegedly a plan to assign the agreements.

The franchisor sought an early dismissal of the lawsuit. The New Jersey federal court noted that many of the allegations are fact-based, and thus, the lawsuit may—at this point—proceed.

Sheila Raftery Wiggins, of the Newark office, handles matters involving complex commercial disputes, insurance defense, coverage disputes, financial fraud, and attorney ethics.

© 2009- Duane Morris LLP. Duane Morris is a registered service mark of Duane Morris LLP.

The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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