Text: S03574 Text: S03576 Text: S03500 - S03599 Text: S Index Bills and Amendments: General Index Bill History: General Index
PAG LIN 1 1 Amend House File 126, as amended, passed, and 1 2 reprinted by the House, as follows: 1 3 #1. By striking everything after the enacting 1 4 clause and inserting the following: 1 5 "Section 1. Section 523H.2, Code 1995, is amended 1 6 to read as follows: 1 7 523H.2 APPLICABILITY. 1 8 This chapter applies to a new or existing franchise 1 9 that is operated in the state of Iowa. For purposes 1 10 of this chapter, the franchise is operated in this 1 11 state only if the premises from which the franchise is 1 12 operated is physically located in this state. For 1 13 purposes of this chapter, a franchise including 1 14 marketing rights in or to this state, is deemed to be 1 15 operated in this state only if the franchisee's 1 16 principal business office is physically located in 1 17 this state. This chapter does not apply to a 1 18 franchise solely because an agreement relating to the 1 19 franchise provides that the agreement is subject to or 1 20 governed by the laws of this state. The provisions of 1 21 this chapter do not apply to any existing or future 1 22 contracts between Iowa franchisors andout-of-state1 23 franchisees who operate franchises located out-of- 1 24 state. 1 25 Sec. 2. Section 523H.5, Code 1995, is amended to 1 26 read as follows: 1 27 523H.5 TRANSFER OF FRANCHISE. 1 28 1. A franchisee may transfer the franchised 1 29 business and franchise to a transferee, provided that 1 30 the transferee satisfies the reasonable current 1 31 qualifications of the franchisor for new franchisees. 1 32 For the purposes of this section, a reasonable current 1 33 qualification for a new franchisee is a qualification 1 34 based upon a legitimate business reason. If the 1 35 proposed transferee does not meet the reasonable 1 36 current qualifications of the franchisor, the 1 37 franchisor may refuse to permit the transfer, provided 1 38 that the refusal of the franchisor to consent to the 1 39 transfer is not arbitrary or capriciouswhen compared1 40to the actions of the franchisor in other similar1 41circumstances. 1 42 2. Except as otherwise provided in this section, a 1 43 franchisor may exercise a right of first refusal 1 44 contained in a franchise agreement after receipt of a 1 45 proposal from the franchisee to transfer the 1 46 franchise. 1 47 3. A franchisor may require as a condition of a 1 48 transfer any of the following: 1 49 a. That the transferee successfully complete a 1 50 reasonable training program. 2 1 b. That a reasonable transfer fee be paid to 2 2 reimburse the franchisor for the franchisor's 2 3 reasonable and actual expenses directly attributable 2 4 to the transfer. 2 5 c. That the franchisee pay or make provision 2 6 reasonably acceptable to the franchisor to pay any 2 7 amount due the franchisor or the franchisor's 2 8 affiliate. 2 9 d. That the financial terms of the transfer comply 2 10 at the time of the transfer with the franchisor's 2 11 current financial requirements for franchisees. 2 124. A franchisor shall not withhold consent to a2 13franchisee making a public offering of the2 14franchisee's securities without good cause, provided2 15the franchisee or the owners of the franchise retain2 16control of more than fifty percent of the voting power2 17in the franchise.2 185.4. A franchisee may transfer the franchisee's 2 19 interest in the franchise, for the unexpired term of 2 20 the franchise agreement, and a franchisor shall not 2 21 require the franchisee or the transferee to enter into 2 22 a new or different franchise agreement as a condition 2 23 of the transfer. 2 246.5. A franchisee shall give the franchisor no 2 25 less than sixty days' written notice of a transfer 2 26 which is subject to the provisions of this section, 2 27 and on request from the franchisor shall provide in 2 28 writing the ownership interests of all persons holding 2 29 or claiming an equitable or beneficial interest in the 2 30 franchise subsequent to the transfer or the 2 31 franchisee, as appropriate. A franchisee shall not 2 32 circumvent the intended effect of a contractual 2 33 provision governing the transfer of the franchise or 2 34 an interest in the franchise by means of a management 2 35 agreement, lease, profit-sharing agreement, 2 36 conditional assignment, or other similar device. 2 377.6. A franchisor shall not transfer its interest 2 38 in a franchise unless the franchisor makes reasonable 2 39 provision for the performance of the franchisor's 2 40 obligations under the franchise agreement by the 2 41 transferee.A franchisor shall provide the franchisee2 42notice of a proposed transfer of the franchisor's2 43interest in the franchise at the time the disclosure2 44is required of the franchisor under applicable2 45securities laws, if interests in the franchisor are2 46publicly traded, or if not publicly traded, at the2 47time such disclosure would be required if the2 48interests in the franchisor were publicly traded.For 2 49 purposes of this subsection, "reasonable provision" 2 50 means that upon the transfer, the entity assuming the 3 1 franchisor's obligations has the financial means to 3 2 perform the franchisor's obligations in the ordinary 3 3 course of business, but does not mean that the 3 4 franchisor transferring the franchise is required to 3 5 guarantee obligations of the underlying franchise 3 6 agreement. 3 78.7. A transfer by a franchisee is deemed to be 3 8 approved sixty days after the franchisee submits the 3 9 request for consent to the transfer unless the 3 10 franchisor withholds consent to the transfer as 3 11 evidenced in writing, specifying the reason or reasons 3 12 for withholding the consent. The written notice must 3 13 be delivered to the franchisee prior to the expiration 3 14 of the sixty-day period. Any such notice is 3 15 privileged and is not actionable based upon a claim of 3 16 defamation. 3 179.8. A franchisor shall not discriminate against 3 18 a proposed transferee of a franchise on the basis of 3 19 race, color, national origin, religion, sex, or 3 20physical handicapdisability. 3 2110.9. A franchisor, as a condition to a transfer 3 22 of a franchise, shall not obligate a franchisee to 3 23 undertake obligations or relinquish any rights 3 24 unrelated to the franchise proposed to be transferred, 3 25 or to enter into a release of claims broader than a 3 26 similar release of claims by the franchisor against 3 27 the franchisee which is entered into by the 3 28 franchisor. 3 2911.10. A franchisor, after a transfer of a 3 30 franchise, shall not seek to enforce any covenant of 3 31 the transferred franchise against the transferor which 3 32 prohibits the transferor from engaging in any lawful 3 33 occupation or enterprise. However, this subsection 3 34 does not prohibit the franchisor from enforcing a 3 35 contractual covenant against the transferor not to 3 36 exploit the franchisor's trade secrets or intellectual 3 37 property rights, unless otherwise agreed to by the 3 38 parties. 3 3912.11. For purposes of this section, "transfer" 3 40 means any change in ownership or control of a 3 41 franchise, franchised business, or a franchisee. 3 4213.12. The following occurrences shall not be 3 43 considered transfers requiring the consent of the 3 44 franchisor under a franchise agreement, and shall not 3 45 result in the imposition of any penalties or make 3 46 applicable any right of first refusal by the 3 47 franchisor: 3 48 a. The succession of ownership of a franchise upon 3 49 the death or disability of a franchisee, or of an 3 50 owner of a franchise, to thefranchisee'ssurviving 4 1 spouse,child or childrenheir, or a partner active in 4 2 the management of the franchisee unless the successor 4 3 fails to meet within one year the then current 4 4 reasonable qualifications of the franchisor for 4 5 franchisees and the enforcement of the reasonable 4 6 current qualifications is not arbitrary or capricious 4 7when compared to actions of the franchisor in other4 8similar circumstances. 4 9b. The succession of a spouse, child, partner, or4 10other owner as operating manager upon the death or4 11disability of the operating manager, unless the4 12successor fails to meet the then current reasonable4 13qualifications of the franchisor for an operating4 14manager, and enforcement of the reasonable current4 15qualifications is not arbitrary or capricious when4 16compared to actions of the franchisor in other similar4 17circumstances.4 18c.b. Incorporation of a proprietorship 4 19 franchisee, provided that such incorporation does not 4 20 prohibit a franchisor from requiring a personal 4 21 guaranty by the franchisee of obligations related to 4 22 the franchise. 4 23d.c. A transfer within an existing ownership 4 24 group of a franchise provided that more than fifty 4 25 percent of the franchise is held by persons who meet 4 26 the franchisor's reasonable current qualifications for 4 27 franchisees. If less than fifty percent of the 4 28 franchise would be owned by persons who meet the 4 29 franchisor's reasonable current qualifications, the 4 30 franchisor may refuse to authorize the transfer, 4 31 provided that enforcement of the reasonable current 4 32 qualifications is not arbitrary or capriciouswhen4 33compared to actions of the franchisor in other similar4 34circumstances. 4 35e.d. A transfer of less than a controlling 4 36 interest in the franchise to the franchisee's spouse 4 37 or child or children, provided that more than fifty 4 38 percent of the entire franchise is held by those who 4 39 meet the franchisor's reasonable current 4 40 qualifications. If less than fifty percent of the 4 41 franchise would be owned by persons who meet the 4 42 franchisor's reasonable current qualifications, the 4 43 franchisor may refuse to authorize the transfer, 4 44 provided that enforcement of the reasonable current 4 45 qualifications is not arbitrary or capriciouswhen4 46compared to actions of the franchisor in other similar4 47circumstances. 4 48f.e. A transfer of less than a controlling 4 49 interest in the franchise of an employee stock 4 50 ownership plan, or employee incentive plan, provided 5 1 that more than fifty percent of the entire franchise 5 2 is held by those who meet the franchisor's reasonable 5 3 current qualifications for franchisees. If less than 5 4 fifty percent would be owned by persons who meet the 5 5 franchisor's reasonable current qualifications, the 5 6 franchisor may refuse to authorize the transfer, 5 7 provided that enforcement of the reasonable current 5 8 qualifications is not arbitrary or capriciouswhen5 9compared to actions of the franchisor in other similar5 10circumstances. 5 11g.f. A grant or retention of a security interest 5 12 in the franchised business or its assets, or an 5 13 ownership interest in the franchisee, provided the 5 14 security agreement establishes an obligation on the 5 15 part of the secured party enforceable by the 5 16 franchisor to give the franchisor notice of the 5 17 secured party's intent to foreclose on the collateral 5 18 simultaneously with notice to the franchisee, and a 5 19 reasonable opportunity to redeem the interests of the 5 20 secured party and recover the secured party's interest 5 21 in the franchise or franchised business by paying the 5 22 secured obligation. 5 2314.13. A franchisor shall not interfere or 5 24 attempt to interfere with any disposition of an 5 25 interest in a franchise or franchised business as 5 26 described in subsection1312, paragraphs "a" through 5 27"g""f". 5 28 Sec. 3. Section 523H.6, Code 1995, is amended by 5 29 striking the section and inserting in lieu thereof the 5 30 following: 5 31 523H.6 ENCROACHMENT. 5 32 1. If a franchisor develops, or grants to a 5 33 franchisee the right to develop, a new outlet or 5 34 location which sells essentially the same goods or 5 35 services under the same trademark, service mark, trade 5 36 name, logotype, or other commercial symbol as an 5 37 existing franchisee and the new outlet or location has 5 38 an adverse effect on the gross sales of the existing 5 39 franchisee's outlet or location, the existing 5 40 adversely affected franchisee has a cause of action 5 41 for monetary damages in an amount calculated pursuant 5 42 to subsection 3, unless any of the following apply: 5 43 a. The franchisor has first offered the new outlet 5 44 or location to the existing franchisee on the same 5 45 basic terms and conditions available to the other 5 46 potential franchisee, or, if the new outlet or 5 47 location is to be owned by the franchisor, on the 5 48 terms and conditions that would ordinarily be offered 5 49 to a franchisee for a similarly situated outlet or 5 50 location. 6 1 b. The adverse impact on the existing franchisee's 6 2 annual gross sales, based on a comparison to the 6 3 annual gross sales from the existing outlet or 6 4 location during the twelve-month period immediately 6 5 preceding the opening of the new outlet or location, 6 6 is determined to have been less than five percent 6 7 during the first twelve months of operation of the new 6 8 outlet or location. 6 9 c. The existing franchisee, at the time the 6 10 franchisor develops, or grants to a franchisee the 6 11 right to develop, a new outlet or location is not in 6 12 compliance with the franchisor's then current 6 13 reasonable criteria for eligibility for a new 6 14 franchise. A franchisee determined to be ineligible 6 15 pursuant to this paragraph shall be afforded the 6 16 opportunity to seek compensation pursuant to the 6 17 formal procedure established under paragraph "d", 6 18 subparagraph (2). Such procedure shall be the 6 19 franchisee's exclusive remedy. 6 20 d. The franchisor has established both of the 6 21 following: 6 22 (1) A formal procedure for hearing and acting upon 6 23 claims by an existing franchisee with regard to a 6 24 decision by the franchisor to develop, or grant to a 6 25 franchisee the right to develop, a new outlet or 6 26 location, prior to the opening of the new outlet or 6 27 location. 6 28 (2) A reasonable formal procedure for awarding 6 29 compensation or other form of consideration to a 6 30 franchisee to offset all or a portion of the 6 31 franchisee's lost profits caused by the establishment 6 32 of the new outlet or location. The procedure shall 6 33 involve, at the option of the franchisee, one of the 6 34 following: 6 35 (a) A panel, comprised of an equal number of 6 36 members selected by the franchisee and the franchisor, 6 37 and one additional member to be selected unanimously 6 38 by the members selected by the franchisee and the 6 39 franchisor. 6 40 (b) A neutral third-party mediator or an 6 41 arbitrator with the authority to make a decision or 6 42 award in accordance with the formal procedure. The 6 43 procedure shall be deemed reasonable if approved by a 6 44 majority of the franchisor's franchisees in the United 6 45 States, either individually or by an elected 6 46 representative body. 6 47 (c) Arbitration of any dispute before neutral 6 48 arbitrators pursuant to the rules of the American 6 49 arbitration association. The award of an arbitrator 6 50 pursuant to this subparagraph subdivision is subject 7 1 to judicial review pursuant to chapter 679A. 7 2 2. A franchisor shall establish and make available 7 3 to its franchisees a written policy setting forth its 7 4 reasonable criteria to be used by the franchisor to 7 5 determine whether an existing franchisee is eligible 7 6 for a franchise for an additional outlet or location. 7 7 3. a. In establishing damages under a cause of 7 8 action brought pursuant to this section, the 7 9 franchisee has the burden of proving the amount of 7 10 lost profits attributable to the compensable sales. 7 11 In any action brought under this section, the damages 7 12 payable shall be limited to no more than three years 7 13 of the proven lost profits. For purposes of this 7 14 subsection, "compensable sales" means the annual gross 7 15 sales from the existing outlet or location during the 7 16 twelve-month period immediately preceding the opening 7 17 of the new outlet or location less both of the 7 18 following: 7 19 (1) Five percent. 7 20 (2) The actual gross sales from the operation of 7 21 the existing outlet or location for the twelve-month 7 22 period immediately following the opening of the new 7 23 outlet or location. 7 24 b. Compensable sales shall exclude any amount 7 25 attributable to factors other than the opening and 7 26 operation of the new outlet or location. 7 27 4. Any cause of action brought under this section 7 28 must be filed within eighteen months of the opening of 7 29 the new outlet or location or within three months 7 30 after the completion of the procedure under subsection 7 31 1, paragraph "d", subparagraph (2), whichever is 7 32 later. 7 33 5. Upon petition by the franchisor or the 7 34 franchisee, the district court may grant a permanent 7 35 or preliminary injunction to prevent injury or 7 36 threatened injury for a violation of this section or 7 37 to preserve the status quo pending the outcome of the 7 38 formal procedure under subsection 1, paragraph "d", 7 39 subparagraph (2). 7 40 Sec. 4. Section 523H.7, Code 1995, is amended to 7 41 read as follows: 7 42 523H.7 TERMINATION. 7 43 1. Except as otherwise provided by this chapter, a 7 44 franchisor shall not terminate a franchise prior to 7 45 the expiration of its term except for good cause. For 7 46 purposes of this section, "good cause" is cause based 7 47 upon a legitimate business reason. "Good cause" 7 48 includes the failure of the franchisee to comply with 7 49 any material lawful requirement of the franchise 7 50 agreement, provided that the termination by the 8 1 franchisor is not arbitrary or capricious when 8 2 compared to the actions of the franchisor in other 8 3 similar circumstances. The burden of proof of showing 8 4 that action of the franchisor is arbitrary or 8 5 capricious shall rest with the franchisee. 8 6 2. Prior to termination of a franchise for good 8 7 cause, a franchisor shall provide a franchisee with 8 8 written notice stating the basis for the proposed 8 9 termination. After service of written notice, the 8 10 franchisee shall have a reasonable period of time to 8 11 cure the default, which in no event shall be less than 8 12 thirty days or more than ninety days. In the event of 8 13 nonpayment of moneys due under the franchise 8 14 agreement, the period to cure need not exceed thirty 8 15 days. 8 16 3. Notwithstanding subsection 2, a franchisor may 8 17 terminate a franchisee upon written notice and without 8 18 an opportunity to cure if any of the following apply: 8 19 a. The franchisee or the business to which the 8 20 franchise relates is declared bankrupt or judicially 8 21 determined to be insolvent. 8 22 b. All or a substantial part of the assets of the 8 23 franchise or the business to which the franchisee 8 24 relates are assigned to or for the benefit of any 8 25 creditor which is subject to chapter 681. An 8 26 assignment for the benefit of any creditor pursuant to 8 27 this paragraph does not include the granting of a 8 28 security interest in the normal course of business. 8 29b.c. The franchisee voluntarily abandons the 8 30 franchise by failing to operate the business for five 8 31 consecutive business days during which the franchisee 8 32 is required to operate the business under the terms of 8 33 the franchise, or any shorter period after which it is 8 34 not unreasonable under the facts and circumstances for 8 35 the franchisor to conclude that the franchisee does 8 36 not intend to continue to operate the franchise, 8 37 unless the failure to operate is due to circumstances 8 38 beyond the control of the franchisee. 8 39c.d. The franchisor and franchisee agree in 8 40 writing to terminate the franchise. 8 41d.e. The franchisee knowingly makes any material 8 42 misrepresentations or knowingly omits to state any 8 43 material facts relating to the acquisition or 8 44 ownership or operation of the franchise business. 8 45e.f.The franchisee repeatedly fails to comply8 46with the same material provision of a franchise8 47agreement, when the enforcement of the material8 48provision by the franchisor is not arbitrary or8 49capricious when compared to the franchisor in other8 50similar circumstances.After three material breaches 9 1 of a franchise agreement occurring within a twelve- 9 2 month period, for which the franchisee has been given 9 3 notice and an opportunity to cure, the franchisor may 9 4 terminate upon any subsequent material breach within 9 5 the twelve-month period without providing an 9 6 opportunity to cure, provided that the action is not 9 7 arbitrary and capricious. 9 8f.g. The franchised business or business premises 9 9 of the franchisee are lawfully seized, taken over, or 9 10 foreclosed by a government authority or official. 9 11g.h. The franchisee is convicted of a felony or 9 12 any other criminal misconduct which materially and 9 13 adversely affects the operation, maintenance, or 9 14 goodwill of the franchise in the relevant market. 9 15h.i. The franchisee operates the franchised 9 16 business in a manner that imminently endangers the 9 17 public health and safety. 9 18 Sec. 5. Section 523H.8, Code 1995, is amended to 9 19 read as follows: 9 20 523H.8 NONRENEWAL OF A FRANCHISE. 9 21 1. A franchisor shall not refuse to renew a 9 22 franchise unless both of the following apply: 9 231.a. The franchisee has been notified of the 9 24 franchisor's intent not to renew at least six months 9 25 prior to the expiration date or any extension of the 9 26 franchise agreement. 9 272.b. Any of the following circumstances exist: 9 28a.(1) Good cause existsas defined in section9 29523H.7, provided that the refusal of the franchisor to 9 30 renew is not arbitrary or capriciouswhen compared to9 31the actions of the franchisor in other similar9 32circumstances. For purposes of this section, "good 9 33 cause" means cause based on a legitimate business 9 34 reason. 9 35b.(2) The franchisor and franchisee agree not to 9 36 renew the franchise, provided that upon the expiration9 37of the franchise, the franchisor agrees not to seek to9 38enforce any covenant of the nonrenewed franchise not9 39to compete with the franchisor or franchisees of the9 40franchisor. 9 41c.(3) The franchisor completely withdraws from 9 42 directly or indirectly distributing its products or 9 43 services in the geographic market served by the 9 44 franchisee, provided that upon expiration of the 9 45 franchise, the franchisor agrees not to seek to 9 46 enforce any covenant of the nonrenewed franchisee not 9 47 to compete with the franchisor or franchisees of the 9 48 franchisor. 9 49 2. As a condition of renewal of the franchise, a 9 50 franchise agreement may require that the franchisee 10 1 meet the then current requirements for franchises and 10 2 that the franchisee execute a new agreement 10 3 incorporating the then current terms and fees for new 10 4 franchises. 10 5 Sec. 6. Section 523H.11, Code 1995, is amended to 10 6 read as follows: 10 7 523H.11 REPURCHASE OF ASSETS. 10 8 A franchisor shall not prohibit a franchisee from, 10 9 or enforce a prohibition against a franchisee, 10 10 engaging in any lawful business at any location after 10 11 a termination or refusal to renew by a franchisor, 10 12 unless it is one which relies on a substantially 10 13 similar marketing program as the terminated or 10 14 nonrenewed franchise or unless the franchisor offers 10 15 in writing no later than ten business days before 10 16 expiration of the franchise to purchase the assets of 10 17 the franchised business for its fair market value as a 10 18 going concern. The value of the assets shall not 10 19 include the goodwill of the business attributable to 10 20 the trademark licensed to the franchisee in the 10 21 franchise agreement. The offer may be conditioned 10 22 upon the ascertainment of a fair market value by an 10 23 impartial appraiser. This section does not apply to 10 24 assets of the franchised business which the franchisee 10 25 did not purchase from the franchisor, or the agent of 10 26 the franchisor." 10 27 10 28 10 29 10 30 PATRICK J. DELUHERY 10 31 10 32 10 33 10 34 TONY BISIGNANO 10 35 10 36 10 37 10 38 MICHAEL E. GRONSTAL 10 39 10 40 10 41 10 42 JOHN W. JENSEN 10 43 10 44 10 45 10 46 DONALD B. REDFERN 10 47 HF 126.709 76 10 48 mj/sc
Text: S03574 Text: S03576 Text: S03500 - S03599 Text: S Index Bills and Amendments: General Index Bill History: General Index
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