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Text: HF00125                           Text: HF00127
Text: HF00100 - HF00199                 Text: HF Index
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House File 126

Partial Bill History

Bill Text

PAG LIN
  1  1    Section 1.  Section 523H.2, Code 1995, is amended to read
  1  2 as follows:
  1  3    523H.2  APPLICABILITY.
  1  4    This chapter applies to a new or existing franchise that is
  1  5 operated in the state of Iowa.  For purposes of this chapter,
  1  6 the franchise is operated in this state only if the premises
  1  7 from which the franchise is operated is physically located in
  1  8 this state.  For purposes of this chapter, a franchise
  1  9 including marketing rights in or to this state, is deemed to
  1 10 be operated in this state only if the franchisee's principal
  1 11 business office is physically located in this state.  This
  1 12 chapter does not apply to a franchise solely because an
  1 13 agreement relating to the franchise provides that the
  1 14 agreement is subject to or governed by the laws of this state.
  1 15 The provisions of this chapter do not apply to any existing or
  1 16 future contracts between Iowa franchisors and out-of-state
  1 17 franchisees who operate franchises located out-of-state.
  1 18    Sec. 2.  Section 523H.5, Code 1995, is amended to read as
  1 19 follows:
  1 20    523H.5  TRANSFER OF FRANCHISE.
  1 21    1.  A franchisee may transfer the franchised business and
  1 22 franchise to a transferee, provided that the transferee
  1 23 satisfies the reasonable current qualifications of the
  1 24 franchisor for new franchisees.  For the purposes of this
  1 25 section, a reasonable current qualification for a new
  1 26 franchisee is a qualification based upon a legitimate business
  1 27 reason.  If the proposed transferee does not meet the
  1 28 reasonable current qualifications of the franchisor, the
  1 29 franchisor may refuse to permit the transfer, provided that
  1 30 the refusal of the franchisor to consent to the transfer is
  1 31 not arbitrary or capricious when compared to the actions of
  1 32 the franchisor in other similar circumstances.
  1 33    2.  Except as otherwise provided in this section, a
  1 34 franchisor may exercise a right of first refusal contained in
  1 35 a franchise agreement after receipt of a proposal from the
  2  1 franchisee to transfer the franchise.
  2  2    3.  A franchisor may require as a condition of a transfer
  2  3 any of the following:
  2  4    a.  That the transferee successfully complete a reasonable
  2  5 training program.
  2  6    b.  That a reasonable transfer fee be paid to reimburse the
  2  7 franchisor for the franchisor's reasonable and actual expenses
  2  8 directly attributable to the transfer.
  2  9    c.  That the franchisee pay or make provision reasonably
  2 10 acceptable to the franchisor to pay any amount due the
  2 11 franchisor or the franchisor's affiliate.
  2 12    d.  That the financial terms of the transfer comply at the
  2 13 time of the transfer with the franchisor's current financial
  2 14 requirements for franchisees.
  2 15    4.  A franchisor shall not withhold consent to a franchisee
  2 16 making a public offering of the franchisee's securities
  2 17 without good cause, provided the franchisee or the owners of
  2 18 the franchise retain control of more than fifty percent of the
  2 19 voting power in the franchise.
  2 20    5. 4.  A franchisee may transfer the franchisee's interest
  2 21 in the franchise, for the unexpired term of the franchise
  2 22 agreement, and a franchisor shall not require the franchisee
  2 23 or the transferee to enter into a new or different franchise
  2 24 agreement as a condition of the transfer.
  2 25    6. 5.  A franchisee shall give the franchisor no less than
  2 26 sixty days' written notice of a transfer which is subject to
  2 27 the provisions of this section, and on request from the
  2 28 franchisor shall provide in writing the ownership interests of
  2 29 all persons holding or claiming an equitable or beneficial
  2 30 interest in the franchise subsequent to the transfer or the
  2 31 franchisee, as appropriate.  A franchisee shall not circumvent
  2 32 the intended effect of a contractual provision governing the
  2 33 transfer of the franchise or an interest in the franchise by
  2 34 means of a management agreement, lease, profit-sharing
  2 35 agreement, conditional assignment, or other similar device.
  3  1    7. 6.  A franchisor shall not transfer its interest in a
  3  2 franchise unless the franchisor makes reasonable provision for
  3  3 the performance of the franchisor's obligations under the
  3  4 franchise agreement by the transferee.  A franchisor shall
  3  5 provide the franchisee notice of a proposed transfer of the
  3  6 franchisor's interest in the franchise at the time the
  3  7 disclosure is required of the franchisor under applicable
  3  8 securities laws, if interests in the franchisor are publicly
  3  9 traded, or if not publicly traded, at the time such disclosure
  3 10 would be required if the interests in the franchisor were
  3 11 publicly traded.  For purposes of this subsection, "reasonable
  3 12 provision" means that upon the transfer, the entity assuming
  3 13 the franchisor's obligations has the financial means to
  3 14 perform the franchisor's obligations in the ordinary course of
  3 15 business, but does not mean that the franchisor transferring
  3 16 the franchise is required to guarantee obligations of the
  3 17 underlying franchise agreement.
  3 18    8. 7.  A transfer by a franchisee is deemed to be approved
  3 19 sixty days after the franchisee submits the request for
  3 20 consent to the transfer unless the franchisor withholds
  3 21 consent to the transfer as evidenced in writing, specifying
  3 22 the reason or reasons for withholding the consent.  The
  3 23 written notice must be delivered to the franchisee prior to
  3 24 the expiration of the sixty-day period.  Any such notice is
  3 25 privileged and is not actionable based upon a claim of
  3 26 defamation.
  3 27    9. 8.  A franchisor shall not discriminate against a
  3 28 proposed transferee of a franchise on the basis of race,
  3 29 color, national origin, religion, sex, or physical handicap
  3 30 disability.
  3 31    10. 9.  A franchisor, as a condition to a transfer of a
  3 32 franchise, shall not obligate a franchisee to undertake
  3 33 obligations or relinquish any rights unrelated to the
  3 34 franchise proposed to be transferred, or to enter into a
  3 35 release of claims broader than a similar release of claims by
  4  1 the franchisor against the franchisee which is entered into by
  4  2 the franchisor.
  4  3    11. 10.  A franchisor, after a transfer of a franchise,
  4  4 shall not seek to enforce any covenant of the transferred
  4  5 franchise against the transferor which prohibits the
  4  6 transferor from engaging in any lawful occupation or
  4  7 enterprise.  However, this subsection does not prohibit the
  4  8 franchisor from enforcing a contractual covenant against the
  4  9 transferor not to exploit the franchisor's trade secrets or
  4 10 intellectual property rights, unless otherwise agreed to by
  4 11 the parties.
  4 12    12. 11.  For purposes of this section, "transfer" means any
  4 13 change in ownership or control of a franchise, franchised
  4 14 business, or a franchisee.
  4 15    13. 12.  The following occurrences shall not be considered
  4 16 transfers requiring the consent of the franchisor under a
  4 17 franchise agreement, and shall not result in the imposition of
  4 18 any penalties or make applicable any right of first refusal by
  4 19 the franchisor:
  4 20    a.  The succession of ownership of a franchise upon the
  4 21 death or disability of a franchisee, or of an owner of a
  4 22 franchise, to the franchisee's surviving spouse, child or
  4 23 children heir, or a partner active in the management of the
  4 24 franchisee unless the successor fails to meet within one year
  4 25 the then current reasonable qualifications of the franchisor
  4 26 for franchisees and the enforcement of the reasonable current
  4 27 qualifications is not arbitrary or capricious when compared to
  4 28 actions of the franchisor in other similar circumstances.
  4 29    b.  The succession of a spouse, child, partner, or other
  4 30 owner as operating manager upon the death or disability of the
  4 31 operating manager, unless the successor fails to meet the then
  4 32 current reasonable qualifications of the franchisor for an
  4 33 operating manager, and enforcement of the reasonable current
  4 34 qualifications is not arbitrary or capricious when compared to
  4 35 actions of the franchisor in other similar circumstances.
  5  1    c. b.  Incorporation of a proprietorship franchisee,
  5  2 provided that such incorporation does not prohibit a
  5  3 franchisor from requiring a personal guaranty by the
  5  4 franchisee of obligations related to the franchise.
  5  5    d. c.  A transfer within an existing ownership group of a
  5  6 franchise provided that more than fifty percent of the
  5  7 franchise is held by persons who meet the franchisor's
  5  8 reasonable current qualifications for franchisees.  If less
  5  9 than fifty percent of the franchise would be owned by persons
  5 10 who meet the franchisor's reasonable current qualifications,
  5 11 the franchisor may refuse to authorize the transfer, provided
  5 12 that enforcement of the reasonable current qualifications is
  5 13 not arbitrary or capricious when compared to actions of the
  5 14 franchisor in other similar circumstances.
  5 15    e. d.  A transfer of less than a controlling interest in
  5 16 the franchise to the franchisee's spouse or child or children,
  5 17 provided that more than fifty percent of the entire franchise
  5 18 is held by those who meet the franchisor's reasonable current
  5 19 qualifications.  If less than fifty percent of the franchise
  5 20 would be owned by persons who meet the franchisor's reasonable
  5 21 current qualifications, the franchisor may refuse to authorize
  5 22 the transfer, provided that enforcement of the reasonable
  5 23 current qualifications is not arbitrary or capricious when
  5 24 compared to actions of the franchisor in other similar
  5 25 circumstances.
  5 26    f. e.  A transfer of less than a controlling interest in
  5 27 the franchise of an employee stock ownership plan, or employee
  5 28 incentive plan, provided that more than fifty percent of the
  5 29 entire franchise is held by those who meet the franchisor's
  5 30 reasonable current qualifications for franchisees.  If less
  5 31 than fifty percent would be owned by persons who meet the
  5 32 franchisor's reasonable current qualifications, the franchisor
  5 33 may refuse to authorize the transfer, provided that
  5 34 enforcement of the reasonable current qualifications is not
  5 35 arbitrary or capricious when compared to actions of the
  6  1 franchisor in other similar circumstances.
  6  2    g. f.  A grant or retention of a security interest in the
  6  3 franchised business or its assets, or an ownership interest in
  6  4 the franchisee, provided the security agreement establishes an
  6  5 obligation on the part of the secured party enforceable by the
  6  6 franchisor to give the franchisor notice of the secured
  6  7 party's intent to foreclose on the collateral simultaneously
  6  8 with notice to the franchisee, and a reasonable opportunity to
  6  9 redeem the interests of the secured party and recover the
  6 10 secured party's interest in the franchise or franchised
  6 11 business by paying the secured obligation.
  6 12    14. 13.  A franchisor shall not interfere or attempt to
  6 13 interfere with any disposition of an interest in a franchise
  6 14 or franchised business as described in subsection 13 12,
  6 15 paragraphs "a" through "g" "f".
  6 16    Sec. 3.  Section 523H.6, Code 1995, is amended by striking
  6 17 the section and inserting in lieu thereof the following:
  6 18    523H.6  ENCROACHMENT.
  6 19    1.  If a franchisor develops, or grants to a franchisee the
  6 20 right to develop, a new outlet or location which sells
  6 21 essentially the same goods or services under the same
  6 22 trademark, service mark, trade name, logotype, or other
  6 23 commercial symbol as an existing franchisee and the new outlet
  6 24 or location has an adverse effect on the gross sales of the
  6 25 existing franchisee's outlet or location, the existing
  6 26 adversely affected franchisee has a cause of action for
  6 27 monetary damages in an amount calculated pursuant to
  6 28 subsection 3, unless any of the following apply:
  6 29    a.  The franchisor has first offered the new outlet or
  6 30 location to the existing franchisee on the same basic terms
  6 31 and conditions available to the other potential franchisee,
  6 32 or, if the new outlet or location is to be owned by the
  6 33 franchisor, on the terms and conditions that would ordinarily
  6 34 be offered to a franchisee for a similarly situated outlet or
  6 35 location.
  7  1    b.  The adverse impact on the existing franchisee's annual
  7  2 gross sales, based on a comparison to the annual gross sales
  7  3 from the existing outlet or location during the twelve-month
  7  4 period immediately preceding the opening of the new outlet or
  7  5 location, is determined to have been less than five percent
  7  6 during the first twelve months of operation of the new outlet
  7  7 or location.
  7  8    c.  The existing franchisee, at the time the franchisor
  7  9 develops, or grants to a franchisee the right to develop, a
  7 10 new outlet or location is not in compliance with the
  7 11 franchisor's then current reasonable criteria for eligibility
  7 12 for a new franchise.  A franchisee determined to be ineligible
  7 13 pursuant to this paragraph shall be afforded the opportunity
  7 14 to seek compensation pursuant to the formal procedure
  7 15 established under paragraph "d", subparagraph (2).  Such
  7 16 procedure shall be the franchisee's exclusive remedy.
  7 17    d.  The franchisor has established both of the following:
  7 18    (1)  A formal procedure for hearing and acting upon claims
  7 19 by an existing franchisee with regard to a decision by the
  7 20 franchisor to develop, or grant to a franchisee the right to
  7 21 develop, a new outlet or location, prior to the opening of the
  7 22 new outlet or location.
  7 23    (2)  A reasonable formal procedure for awarding
  7 24 compensation or other form of consideration to a franchisee to
  7 25 offset all or a portion of the franchisee's lost profits
  7 26 caused by the establishment of the new outlet or location.
  7 27 The procedure shall involve, at the option of the franchisee,
  7 28 one of the following:
  7 29    (a)  A panel, comprised of an equal number of members
  7 30 selected by the franchisee and the franchisor, and one
  7 31 additional member to be selected unanimously by the members
  7 32 selected by the franchisee and the franchisor.
  7 33    (b)  A neutral third-party mediator or an arbitrator with
  7 34 the authority to make a decision or award in accordance with
  7 35 the formal procedure.  The procedure shall be deemed
  8  1 reasonable if approved by a majority of the franchisor's
  8  2 franchisees in the United States, either individually or by an
  8  3 elected representative body.
  8  4    (c)  Arbitration of any dispute before neutral arbitrators
  8  5 pursuant to the rules of the American arbitration association.
  8  6 The award of an arbitrator pursuant to this subparagraph
  8  7 subdivision is subject to judicial review pursuant to chapter
  8  8 679A.
  8  9    2.  A franchisor shall establish and make available to its
  8 10 franchisees a written policy setting forth its reasonable
  8 11 criteria to be used by the franchisor to determine whether an
  8 12 existing franchisee is eligible for a franchise for an
  8 13 additional outlet or location.
  8 14    3.  a.  In establishing damages under a cause of action
  8 15 brought pursuant to this section, the franchisee has the
  8 16 burden of proving the amount of lost profits attributable to
  8 17 the compensable sales.  In any action brought under this
  8 18 section, the damages payable shall be limited to no more than
  8 19 three years of the proven lost profits.  For purposes of this
  8 20 subsection, "compensable sales" means the annual gross sales
  8 21 from the existing outlet or location during the twelve-month
  8 22 period immediately preceding the opening of the new outlet or
  8 23 location less both of the following:
  8 24    (1)  Five percent.
  8 25    (2)  The actual gross sales from the operation of the
  8 26 existing outlet or location for the twelve-month period
  8 27 immediately following the opening of the new outlet or
  8 28 location.
  8 29    b.  Compensable sales shall exclude any amount attributable
  8 30 to factors other than the opening and operation of the new
  8 31 outlet or location.
  8 32    4.  Any cause of action brought under this section must be
  8 33 filed within eighteen months of the opening of the new outlet
  8 34 or location or within three months after the completion of the
  8 35 procedure under subsection 1, paragraph "d", subparagraph (2),
  9  1 whichever is later.
  9  2    5.  Upon petition by the franchisor or the franchisee, the
  9  3 district court may grant a permanent or preliminary injunction
  9  4 to prevent injury or threatened injury for a violation of this
  9  5 section or to preserve the status quo pending the outcome of
  9  6 the formal procedure under subsection 1, paragraph "d",
  9  7 subparagraph (2).
  9  8    Sec. 4.  Section 523H.7, Code 1995, is amended to read as
  9  9 follows:
  9 10    523H.7  TERMINATION.
  9 11    1.  Except as otherwise provided by this chapter, a
  9 12 franchisor shall not terminate a franchise prior to the
  9 13 expiration of its term except for good cause.  For purposes of
  9 14 this section, "good cause" is cause based upon a legitimate
  9 15 business reason.  "Good cause" includes the failure of the
  9 16 franchisee to comply with any material lawful requirement of
  9 17 the franchise agreement, provided that the termination by the
  9 18 franchisor is not arbitrary or capricious when compared to the
  9 19 actions of the franchisor in other similar circumstances.  The
  9 20 burden of proof of showing that action of the franchisor is
  9 21 arbitrary or capricious shall rest with the franchisee.
  9 22    2.  Prior to termination of a franchise for good cause, a
  9 23 franchisor shall provide a franchisee with written notice
  9 24 stating the basis for the proposed termination.  After service
  9 25 of written notice, the franchisee shall have a reasonable
  9 26 period of time to cure the default, which in no event shall be
  9 27 less than thirty days or more than ninety days.  In the event
  9 28 of nonpayment of moneys due under the franchise agreement, the
  9 29 period to cure need not exceed thirty days.
  9 30    3.  Notwithstanding subsection 2, a franchisor may
  9 31 terminate a franchisee upon written notice and without an
  9 32 opportunity to cure if any of the following apply:
  9 33    a.  The franchisee or the business to which the franchise
  9 34 relates is declared bankrupt or judicially determined to be
  9 35 insolvent.
 10  1    b.  All or a substantial part of the assets of the
 10  2 franchise or the business to which the franchisee relates are
 10  3 assigned to or for the benefit of any creditor which is
 10  4 subject to chapter 681.  An assignment for the benefit of any
 10  5 creditor pursuant to this paragraph does not include the
 10  6 granting of a security interest in the normal course of
 10  7 business.
 10  8    b. c.  The franchisee voluntarily abandons the franchise by
 10  9 failing to operate the business for five consecutive business
 10 10 days during which the franchisee is required to operate the
 10 11 business under the terms of the franchise, or any shorter
 10 12 period after which it is not unreasonable under the facts and
 10 13 circumstances for the franchisor to conclude that the
 10 14 franchisee does not intend to continue to operate the
 10 15 franchise, unless the failure to operate is due to
 10 16 circumstances beyond the control of the franchisee.
 10 17    c. d.  The franchisor and franchisee agree in writing to
 10 18 terminate the franchise.
 10 19    d. e.  The franchisee knowingly makes any material
 10 20 misrepresentations or knowingly omits to state any material
 10 21 facts relating to the acquisition or ownership or operation of
 10 22 the franchise business.
 10 23    e. f.  The franchisee repeatedly fails to comply with the
 10 24 same material provision of a franchise agreement, when the
 10 25 enforcement of the material provision by the franchisor is not
 10 26 arbitrary or capricious when compared to the franchisor in
 10 27 other similar circumstances.  After three material breaches of
 10 28 a franchise agreement occurring within a twelve-month period,
 10 29 for which the franchisee has been given notice and an
 10 30 opportunity to cure, the franchisor may terminate upon any
 10 31 subsequent material breach within the twelve-month period
 10 32 without providing an opportunity to cure, provided that the
 10 33 action is not arbitrary and capricious.
 10 34    f. g.  The franchised business or business premises of the
 10 35 franchisee are lawfully seized, taken over, or foreclosed by a
 11  1 government authority or official.
 11  2    g. h.  The franchisee is convicted of a felony or any other
 11  3 criminal misconduct which materially and adversely affects the
 11  4 operation, maintenance, or goodwill of the franchise in the
 11  5 relevant market.
 11  6    h. i.  The franchisee operates the franchised business in a
 11  7 manner that imminently endangers the public health and safety.
 11  8    Sec. 5.  Section 523H.8, Code 1995, is amended to read as
 11  9 follows:
 11 10    523H.8  NONRENEWAL OF A FRANCHISE.
 11 11    1.  A franchisor shall not refuse to renew a franchise
 11 12 unless both of the following apply:
 11 13    1. a.  The franchisee has been notified of the franchisor's
 11 14 intent not to renew at least six months prior to the
 11 15 expiration date or any extension of the franchise agreement.
 11 16    2. b.  Any of the following circumstances exist:
 11 17    a. (1)  Good cause exists as defined in section 523H.7,
 11 18 provided that the refusal of the franchisor to renew is not
 11 19 arbitrary or capricious when compared to the actions of the
 11 20 franchisor in other similar circumstances.  For purposes of
 11 21 this section, "good cause" means cause based on a legitimate
 11 22 business reason.
 11 23    b. (2)  The franchisor and franchisee agree not to renew
 11 24 the franchise, provided that upon the expiration of the
 11 25 franchise, the franchisor agrees not to seek to enforce any
 11 26 covenant of the nonrenewed franchise not to compete with the
 11 27 franchisor or franchisees of the franchisor.
 11 28    c. (3)  The franchisor completely withdraws from directly
 11 29 or indirectly distributing its products or services in the
 11 30 geographic market served by the franchisee, provided that upon
 11 31 expiration of the franchise, the franchisor agrees not to seek
 11 32 to enforce any covenant of the nonrenewed franchisee not to
 11 33 compete with the franchisor or franchisees of the franchisor.
 11 34    2.  As a condition of renewal of the franchise, a franchise
 11 35 agreement may require that the franchisee meet the then
 12  1 current requirements for franchises and that the franchisee
 12  2 execute a new agreement incorporating the then current terms
 12  3 and fees for new franchises.
 12  4    Sec. 6.  Section 523H.11, Code 1995, is amended to read as
 12  5 follows:
 12  6    523H.11  REPURCHASE OF ASSETS.
 12  7    A franchisor shall not prohibit a franchisee from, or
 12  8 enforce a prohibition against a franchisee, engaging in any
 12  9 lawful business at any location after a termination or refusal
 12 10 to renew by a franchisor, unless it is one which relies on a
 12 11 substantially similar marketing program as the terminated or
 12 12 nonrenewed franchise or unless the franchisor offers in
 12 13 writing no later than ten business days before expiration of
 12 14 the franchise to purchase the assets of the franchised
 12 15 business for its fair market value as a going concern.  The
 12 16 value of the assets shall not include the goodwill of the
 12 17 business attributable to the trademark licensed to the
 12 18 franchisee in the franchise agreement.  The offer may be
 12 19 conditioned upon the ascertainment of a fair market value by
 12 20 an impartial appraiser.  This section does not apply to assets
 12 21 of the franchised business which the franchisee did not
 12 22 purchase from the franchisor, or the agent of the franchisor.  
 12 23 HF 126
 12 24 mj/pk/25
     
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