Text: SSB01000 - SSB01099 Text: SSB Index Bills and Amendments: General Index Bill History: General Index
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1 1 Section 1. NEW SECTION. 537A.10 FRANCHISE AGREEMENTS.
1 2 1. DEFINITIONS.
1 3 When used in this section, unless the context otherwise
1 4 requires:
1 5 a. "Affiliate" means a person controlling, controlled by,
1 6 or under common control with another person, every officer or
1 7 director of such a person, and every person occupying a
1 8 similar status or performing similar functions.
1 9 b. "Business day" means a day other than a Saturday,
1 10 Sunday, or federal holiday.
1 11 c. (1) "Franchise" means either of the following:
1 12 (a) An oral or written agreement, either express or
1 13 implied, which provides all of the following:
1 14 (i) Grants the right to distribute goods or provide
1 15 services under a marketing plan prescribed or suggested in
1 16 substantial part by the franchisor.
1 17 (ii) Requires payment of a franchise fee to a franchisor
1 18 or its affiliate.
1 19 (iii) Allows the franchise business to be substantially
1 20 associated with a trademark, service mark, trade name,
1 21 logotype, advertisement, or other commercial symbol of or
1 22 designating the franchisor or its affiliate.
1 23 (b) A master franchise.
1 24 (2) "Franchise" does not include any business that is
1 25 operated under a lease or license on the premises of the
1 26 lessor or licensor as long as such business is incidental to
1 27 the business conducted by the lessor or licensor on such
1 28 premises, including, without limitation, leased departments,
1 29 licensed departments, and concessions and the leased or
1 30 licensed department operates only under the trademark, trade
1 31 name, service mark, or other commercial symbol designating the
1 32 lessor or licensor.
1 33 (3) "Franchise" also does not include any contract under
1 34 which a petroleum retailer or petroleum distributor is
1 35 authorized or permitted to occupy leased marketing premises,
2 1 which premises are to be employed in connection with the sale,
2 2 consignment, or distribution of motor fuel under a trademark
2 3 which is owned or controlled by a refiner which is regulated
2 4 by the federal Petroleum Marketing Practices Act, 15 U.S.C. }
2 5 2801 et seq. The term "refiner" means any person engaged in
2 6 the refining of crude oil to produce motor fuel, and includes
2 7 any affiliate of such person. "Franchise" also does not
2 8 include a contract entered into by any person regulated under
2 9 chapter 123, 322, 322A, 322B, 322C, 322D, 322F, 522, or 543B,
2 10 or a contract establishing a franchise relationship with
2 11 respect to the sale of construction equipment, lawn or garden
2 12 equipment, or real estate.
2 13 d. "Franchise fee" means a direct or indirect payment to
2 14 purchase or operate a franchise. Franchise fee does not
2 15 include any of the following:
2 16 (1) Payment of a reasonable service charge to the issuer
2 17 of a credit card by an establishment accepting the credit
2 18 card.
2 19 (2) Payment to a trading stamp company by a person issuing
2 20 trading stamps in connection with a retail sale.
2 21 (3) An agreement to purchase at a bona fide wholesale
2 22 price a reasonable quantity of tangible goods for resale.
2 23 (4) The purchase or agreement to purchase, at a fair
2 24 market value, any fixtures, equipment, leasehold improvements,
2 25 real property, supplies, or other materials reasonably
2 26 necessary to enter into or continue a business.
2 27 (5) Payments by a purchaser pursuant to a bona fide loan
2 28 from a seller to the purchaser.
2 29 (6) Payment of rent which reflects payment for the
2 30 economic value of leased real or personal property.
2 31 (7) The purchase or agreement to purchase promotional or
2 32 demonstration supplies, materials, or equipment furnished at
2 33 fair market value and not intended for resale.
2 34 e. "Franchisee" means a person to whom a franchise is
2 35 granted. Franchisee includes the following:
3 1 (1) A subfranchisor with regard to its relationship with a
3 2 franchisor.
3 3 (2) A subfranchisee with regard to its relationship with a
3 4 subfranchisor.
3 5 f. "Franchisor" means a person who grants a franchise or
3 6 master franchise, or an affiliate of such a person.
3 7 Franchisor includes a subfranchisor with regard to its
3 8 relationship with a franchisee, unless stated otherwise in
3 9 this section.
3 10 g. "Marketing plan" means a plan or system concerning a
3 11 material aspect of conducting business. Indicia of a
3 12 marketing plan include any of the following:
3 13 (1) Price specification, special pricing systems, or
3 14 discount plans.
3 15 (2) Sales or display equipment or merchandising devices.
3 16 (3) Sales techniques.
3 17 (4) Promotional or advertising materials or cooperative
3 18 advertising.
3 19 (5) Training regarding the promotion, operation, or
3 20 management of the business.
3 21 (6) Operational, managerial, technical, or financial
3 22 guidelines or assistance.
3 23 h. "Master franchise" means an agreement by which a person
3 24 pays a franchisor for the right to sell or negotiate the sale
3 25 of franchises.
3 26 i. "Offer" or "offer to sell" means every attempt to offer
3 27 or to dispose of, or solicitation of an offer to buy, a
3 28 franchise or interest in a franchise for value.
3 29 j. "Person" means a person as defined in section 4.1,
3 30 subsection 20.
3 31 k. "Sale" or "sell" means every contract or agreement of
3 32 sale of, contract to sell or disposition of, a franchise or
3 33 interest in a franchise for value.
3 34 l. "Subfranchise" means an agreement by which a person
3 35 pays a franchisor for the right to sell or negotiate the sale
4 1 of franchises.
4 2 m. "Subfranchisee" means a person who is granted a
4 3 franchise from a subfranchisor.
4 4 n. "Subfranchisor" means a person who is granted a master
4 5 franchise.
4 6 2. APPLICABILITY. Notwithstanding section 523H.2, this
4 7 section applies to a new or existing franchise that is
4 8 operated in this state and that is subject to an agreement
4 9 entered into on or after the effective date of this Act. For
4 10 purposes of this section, the franchise is operated in this
4 11 state only if the premises from which the franchise is
4 12 operated is physically located in this state. For purposes of
4 13 this section, a franchise including marketing rights in or to
4 14 this state, is deemed to be operated in this state only if the
4 15 franchisee's principal business office is physically located
4 16 in this state. This section does not apply to a franchise
4 17 solely because an agreement relating to the franchise provides
4 18 that the agreement is subject to or governed by the laws of
4 19 this state. The provisions of this section do not apply to
4 20 any existing or future contracts between Iowa franchisors and
4 21 franchisees who operate franchises located out of state.
4 22 3. JURISDICTION AND VENUE OF DISPUTES.
4 23 a. A provision in a franchise agreement restricting
4 24 jurisdiction to a forum outside this state is void with
4 25 respect to a claim otherwise enforceable under this section.
4 26 b. A civil action or proceeding arising out of a franchise
4 27 may be commenced wherever jurisdiction over the parties or
4 28 subject matter exists, even if the agreement limits actions or
4 29 proceedings to a designated jurisdiction.
4 30 c. Venue for a civil action commenced under this chapter
4 31 shall be determined in accordance with chapter 616.
4 32 4. WAIVERS VOID. A condition, stipulation, or provision
4 33 requiring a franchisee to waive compliance with or relieving a
4 34 person of a duty or liability imposed by or a right provided
4 35 by this section or a rule or order under this section is void.
5 1 This subsection shall not affect the settlement of disputes,
5 2 claims, or civil lawsuits arising or brought pursuant to this
5 3 section.
5 4 5. TRANSFER OF FRANCHISE.
5 5 a. A franchisee may transfer the franchised business and
5 6 franchise to a transferee, provided that the transferee
5 7 satisfies the reasonable current qualifications of the
5 8 franchisor for new franchisees. For the purposes of this
5 9 subsection, a reasonable current qualification for a new
5 10 franchisee is a qualification based upon a legitimate business
5 11 reason. If the proposed transferee does not meet the
5 12 reasonable current qualifications of the franchisor, the
5 13 franchisor may refuse to permit the transfer, provided that
5 14 the refusal of the franchisor to consent to the transfer is
5 15 not arbitrary or capricious.
5 16 b. (1) A franchisee may transfer less than a controlling
5 17 interest in the franchise to an employee stock ownership plan,
5 18 or employee incentive plan provided that more than fifty
5 19 percent of the entire franchise is held by those who meet the
5 20 franchisor's reasonable current qualifications for
5 21 franchisees, and such transfer is approved by the franchisor.
5 22 Approval of such transfer shall not be unreasonably withheld.
5 23 (2) If pursuant to such a transfer less than fifty percent
5 24 of the entire franchise would be owned by persons who meet the
5 25 franchisor's reasonable current qualifications, the franchisor
5 26 may refuse to authorize the transfer, provided that
5 27 enforcement of the reasonable current qualifications is not
5 28 arbitrary or capricious.
5 29 (3) Participation by an employee in an employee stock
5 30 ownership plan or employee incentive plan established pursuant
5 31 to this subsection does not confer upon such employee any
5 32 right to access trade secrets protected under the franchise
5 33 agreement which access the employee would not otherwise have
5 34 if the employee did not participate in such plan.
5 35 c. A franchisor may require as a condition of a transfer
6 1 any of the following:
6 2 (1) That the transferee successfully complete a training
6 3 program.
6 4 (2) That a transfer fee be paid to reimburse the
6 5 franchisor for the franchisor's actual expenses directly
6 6 attributable to the transfer.
6 7 (3) That the franchisee pay or make provision acceptable
6 8 to the franchisor to pay any amount due the franchisor or the
6 9 franchisor's affiliate.
6 10 (4) That the financial terms of the transfer comply at the
6 11 time of the transfer with the franchisor's current financial
6 12 requirements for franchisees.
6 13 d. A franchisee shall give the franchisor no less than
6 14 sixty days' written notice of a transfer which is subject to
6 15 this subsection, and on request from the franchisor shall
6 16 provide in writing the ownership interests of all persons
6 17 holding or claiming an equitable or beneficial interest in the
6 18 franchise subsequent to the transfer or the franchisee, as
6 19 appropriate. A franchisee shall not circumvent the intended
6 20 effect of a contractual provision governing the transfer of
6 21 the franchise or an interest in the franchise by means of a
6 22 management agreement, lease, profit-sharing agreement,
6 23 conditional assignment, or other similar device.
6 24 e. A transfer by a franchisee is deemed to be approved
6 25 sixty days after the franchisee submits the request for
6 26 consent to the transfer unless the franchisor withholds
6 27 consent to the transfer as evidenced in writing, specifying
6 28 the reason or reasons for withholding the consent. The
6 29 written notice must be delivered to the franchisee prior to
6 30 the expiration of the sixty-day period. Any such notice is
6 31 privileged and is not actionable based upon a claim of
6 32 defamation.
6 33 f. A transfer of less than a controlling interest in the
6 34 franchise to the franchisee's spouse or child or children
6 35 shall be permitted if following the transfer more than fifty
7 1 percent of the interest in the entire franchise is held by
7 2 those who meet the franchisor's reasonable current
7 3 qualifications. If following such a transfer fifty percent or
7 4 less of the interest in the franchise would be owned by
7 5 persons who meet the franchisor's reasonable current
7 6 qualifications, the franchisor may refuse to authorize the
7 7 transfer, provided that enforcement of the reasonable current
7 8 qualifications is not arbitrary or capricious.
7 9 g. A franchisor shall not deny the surviving spouse or a
7 10 child or children of a deceased or permanently disabled
7 11 franchisee the opportunity to participate in the ownership of
7 12 a franchise under a valid franchise agreement for a reasonable
7 13 period, which need not exceed one year, after the death or
7 14 disability of the franchisee. During such reasonable period,
7 15 the surviving spouse or the child or children of the
7 16 franchisee shall either meet all of the qualifications which
7 17 the franchisee was subject to at the time of the death or
7 18 disability of the franchisee, or sell, transfer, or assign the
7 19 franchise to a person who meets the franchisor's current
7 20 qualifications for a new franchisee. The rights granted
7 21 pursuant to this subsection are subject to the surviving
7 22 spouse or the child or children of the franchisee maintaining
7 23 all standards and obligations of the franchise.
7 24 h. Incorporation of a proprietorship franchise shall be
7 25 permitted upon sixty days' prior written notice to the
7 26 franchisor. Such incorporation does not prohibit a franchisor
7 27 from requiring a personal guaranty by the franchisee of
7 28 obligations related to the franchise, and the owners of the
7 29 corporation must meet the franchisor's reasonable current
7 30 qualifications for franchisees.
7 31 i. A transfer within an existing ownership group of a
7 32 franchise shall be permitted provided that the transferee
7 33 meets the franchisor's reasonable current qualifications for
7 34 franchisees, and written notice is submitted to the franchisor
7 35 sixty days prior to such a transfer. If less than fifty
8 1 percent of the franchise would be owned by persons who meet
8 2 the franchisor's reasonable current qualifications, the
8 3 franchisor may refuse to authorize the transfer, provided that
8 4 enforcement of the reasonable current qualifications is not
8 5 arbitrary or capricious.
8 6 6. ENCROACHMENT.
8 7 a. If a franchisor develops, or grants to a franchisee the
8 8 right to develop, a new outlet or location which sells
8 9 essentially the same goods or services under the same
8 10 trademark, service mark, trade name, logotype, or other
8 11 commercial symbol as an existing franchisee and the new outlet
8 12 or location is in unreasonable proximity to the existing
8 13 franchisee's outlet or location and has an adverse effect on
8 14 the gross sales of the existing franchisee's outlet or
8 15 location, the existing adversely affected franchisee has a
8 16 cause of action for monetary damages in an amount calculated
8 17 pursuant to paragraph "d", unless any of the following apply:
8 18 (1) The franchisor has first offered the new outlet or
8 19 location to the existing franchisee on the same basic terms
8 20 and conditions available to the other potential franchisee and
8 21 such existing franchisee meets the reasonable current
8 22 qualifications of the franchisor including any financial
8 23 requirements, or, if the new outlet or location is to be owned
8 24 by the franchisor, on the terms and conditions that would
8 25 ordinarily be offered to a franchisee for a similarly situated
8 26 outlet or location.
8 27 (2) The adverse impact on the existing franchisee's annual
8 28 gross sales, based on a comparison to the annual gross sales
8 29 from the existing outlet or location during the twelve-month
8 30 period immediately preceding the opening of the new outlet or
8 31 location, is determined to have been less than six percent
8 32 during the first twelve months of operation of the new outlet
8 33 or location.
8 34 (3) The existing franchisee, at the time the franchisor
8 35 develops, or grants to a franchisee the right to develop, a
9 1 new outlet or location, is not in compliance with the
9 2 franchisor's then current reasonable criteria for eligibility
9 3 for a new franchise, not including any financial requirements.
9 4 (4) The existing franchisee has been granted reasonable
9 5 territorial rights and the new outlet or location does not
9 6 violate those territorial rights.
9 7 b. (1) The franchisor, with respect to claims made under
9 8 paragraph "a", shall establish both of the following:
9 9 (a) A formal procedure for hearing and acting upon claims
9 10 by an existing franchisee with regard to a decision by the
9 11 franchisor to develop, or grant to a franchisee the right to
9 12 develop, a new outlet or location, prior to the opening of the
9 13 new outlet or location.
9 14 (b) A reasonable formal procedure for mediating a dispute
9 15 resulting in an award of compensation or other form of
9 16 consideration to a franchisee to offset all or a portion of
9 17 the franchisee's lost profits caused by the establishment of
9 18 the new outlet or location. The procedure shall involve a
9 19 neutral third-party mediator. The procedure shall be deemed
9 20 reasonable if approved by a majority of the franchisor's
9 21 franchisees in the United States.
9 22 (2) A dispute submitted to a formal procedure under
9 23 subparagraph (1) does not diminish the rights of a franchisor
9 24 or franchisee to bring a cause of action for a violation of
9 25 this subsection if no settlement results from such procedure.
9 26 c. A franchisor shall establish and make available to its
9 27 franchisees a written policy setting forth its reasonable
9 28 criteria to be used by the franchisor to determine whether an
9 29 existing franchisee is eligible for a franchise for an
9 30 additional outlet or location.
9 31 d. (1) In establishing damages under a cause of action
9 32 brought pursuant to this subsection, the franchisee has the
9 33 burden of proving the amount of lost profits attributable to
9 34 the compensable sales. In any action brought under this
9 35 subsection, the damages payable shall be limited to no more
10 1 than three years of the proven lost profits. For purposes of
10 2 this paragraph, "compensable sales" means the annual gross
10 3 sales from the existing outlet or location during the twelve-
10 4 month period immediately preceding the opening of the new
10 5 outlet or location less both of the following:
10 6 (a) Six percent of the annual gross sales for that twelve-
10 7 month period immediately preceding the opening of the new
10 8 outlet or location.
10 9 (b) The actual gross sales from the operation of the
10 10 existing outlet or location for the twelve-month period
10 11 immediately following the opening of the new outlet or
10 12 location.
10 13 (2) Compensable sales shall exclude any amount
10 14 attributable to factors other than the opening and operation
10 15 of the new outlet or location.
10 16 e. Any cause of action brought under this subsection must
10 17 be filed within eighteen months of the opening of the new
10 18 outlet or location or within thirty days after the completion
10 19 of the procedure under paragraph "b", subparagraph (1),
10 20 whichever is later.
10 21 7. TERMINATION.
10 22 a. Except as otherwise provided by this section, a
10 23 franchisor shall not terminate a franchise prior to the
10 24 expiration of its term except for good cause. For purposes of
10 25 this subsection, "good cause" is cause based upon a legitimate
10 26 business reason. "Good cause" includes the failure of the
10 27 franchisee to comply with any material lawful requirement of
10 28 the franchise agreement, provided that the termination by the
10 29 franchisor is not arbitrary or capricious when compared to the
10 30 actions of the franchisor in other similar circumstances. The
10 31 burden of proof of showing that the action of the franchisor
10 32 is arbitrary or capricious shall rest with the franchisee.
10 33 b. Prior to termination of a franchise for good cause, a
10 34 franchisor shall provide a franchisee with written notice
10 35 stating the basis for the proposed termination. After service
11 1 of written notice, the franchisee shall have a reasonable
11 2 period of time to cure the default, which in no event shall be
11 3 less than thirty days or more than ninety days. In the event
11 4 of nonpayment of moneys due under the franchise agreement, the
11 5 period to cure need not exceed thirty days.
11 6 c. Notwithstanding paragraph "b", a franchisor may
11 7 terminate a franchisee upon written notice and without an
11 8 opportunity to cure if any of the following apply:
11 9 (1) The franchisee or the business to which the franchise
11 10 relates is declared bankrupt or judicially determined to be
11 11 insolvent.
11 12 (2) All or a substantial part of the assets of the
11 13 franchise or the business to which the franchisee relates are
11 14 assigned to or for the benefit of any creditor which is
11 15 subject to chapter 681. An assignment for the benefit of any
11 16 creditor pursuant to this subparagraph does not include the
11 17 granting of a security interest in the normal course of
11 18 business.
11 19 (3) The franchisee voluntarily abandons the franchise by
11 20 failing to operate the business for five consecutive business
11 21 days during which the franchisee is required to operate the
11 22 business under the terms of the franchise, or any shorter
11 23 period after which it is not unreasonable under the facts and
11 24 circumstances for the franchisor to conclude that the
11 25 franchisee does not intend to continue to operate the
11 26 franchise, unless the failure to operate is due to
11 27 circumstances beyond the control of the franchisee.
11 28 (4) The franchisor and franchisee agree in writing to
11 29 terminate the franchise.
11 30 (5) The franchisee knowingly makes any material
11 31 misrepresentations or knowingly omits to state any material
11 32 facts relating to the acquisition or ownership or operation of
11 33 the franchise business.
11 34 (6) The franchisee repeatedly fails to comply with one or
11 35 more material provisions of the franchise agreement, when the
12 1 enforcement of such material provisions is not arbitrary or
12 2 capricious, whether or not the franchisee complies after
12 3 receiving notice of the failure to comply.
12 4 (7) The franchised business or business premises of the
12 5 franchisee are lawfully seized, taken over, or foreclosed by a
12 6 government authority or official.
12 7 (8) The franchisee is convicted of a felony or any other
12 8 criminal misconduct which materially and adversely affects the
12 9 operation, maintenance, or goodwill of the franchise in the
12 10 relevant market.
12 11 (9) The franchisee operates the franchised business in a
12 12 manner that imminently endangers the public health and safety.
12 13 8. NONRENEWAL OF A FRANCHISE.
12 14 a. A franchisor shall not refuse to renew a franchise
12 15 unless both of the following apply:
12 16 (1) The franchisee has been notified of the franchisor's
12 17 intent not to renew at least six months prior to the
12 18 expiration date or any extension of the franchise agreement.
12 19 (2) Any of the following circumstances exist:
12 20 (a) Good cause exists, provided that the refusal of the
12 21 franchisor to renew is not arbitrary or capricious. For
12 22 purposes of this subsection, "good cause" means cause based on
12 23 a legitimate business reason.
12 24 (b) The franchisor and franchisee agree not to renew the
12 25 franchise.
12 26 (c) The franchisor completely withdraws from directly or
12 27 indirectly distributing its products or services in the
12 28 geographic market served by the franchisee, provided that upon
12 29 expiration of the franchise, the franchisor agrees not to seek
12 30 to enforce any covenant of the nonrenewed franchisee not to
12 31 compete with the franchisor or franchisees of the franchisor.
12 32 b. As a condition of renewal of the franchise, a franchise
12 33 agreement may require that the franchisee meet the then
12 34 current requirements for franchises and that the franchisee
12 35 execute a new agreement incorporating the then current terms
13 1 and fees for new franchises.
13 2 9. SOURCES OF GOODS OR SERVICES. A franchisor shall not
13 3 require that a franchisee purchase goods, supplies,
13 4 inventories, or services exclusively from the franchisor or
13 5 from a source or sources of supply specifically designated by
13 6 the franchisor where such goods, supplies, inventories, or
13 7 services of comparable quality are available from sources
13 8 other than those designated by the franchisor.
13 9 However, the publication by the franchisor of a list of
13 10 approved suppliers of goods, supplies, inventories, or
13 11 services, or the requirement that such goods, supplies,
13 12 inventories, or services comply with specifications and
13 13 standards prescribed by the franchisor, does not constitute
13 14 designation of a source. Additionally, the reasonable right
13 15 of a franchisor to disapprove a supplier does not constitute a
13 16 designation of source. This subsection does not apply to the
13 17 principal goods, supplies, inventories, or services
13 18 manufactured by the franchisor, or such goods, supplies,
13 19 inventories, or services entitled to protection as a trade
13 20 secret.
13 21 10. FRANCHISEE'S RIGHT TO ASSOCIATE. A franchisor shall
13 22 not restrict a franchisee from associating with other
13 23 franchisees or from participating in a trade association, and
13 24 shall not retaliate against a franchisee for engaging in these
13 25 activities.
13 26 11. DUTY OF GOOD FAITH. A franchise imposes on the
13 27 parties a duty of good faith in performance and enforcement of
13 28 the franchise agreement. "Good faith" means honesty in fact
13 29 and the observance of reasonable commercial standards of fair
13 30 dealing in the trade.
13 31 The duty of good faith applies where the franchisor opens a
13 32 new outlet or location, or channel of distribution, which has
13 33 an adverse impact on an existing franchisee.
13 34 12. PRIVATE CIVIL ACTION. A person who violates a
13 35 provision of this section or order issued under this section
14 1 is liable for damages caused by the violation, including, but
14 2 not limited to, costs and reasonable attorneys' and experts'
14 3 fees, and subject to other appropriate relief including
14 4 injunctive and other equitable relief.
14 5 13. CHOICE OF LAW. A condition, stipulation, or provision
14 6 requiring the application of the law of another state in lieu
14 7 of this section is void.
14 8 14. CONSTRUCTION WITH OTHER LAW. This section does not
14 9 limit any liability that may exist under another statute or at
14 10 common law.
14 11 15. CONSTRUCTION. This section shall be liberally
14 12 construed to effectuate its purposes.
14 13 16. SEVERABILITY. If any provision or clause of this
14 14 section or any application of this section to any person or
14 15 circumstances is held invalid, such invalidity shall not
14 16 affect other provisions or applications of the section which
14 17 can be given effect without the invalid provision or
14 18 application, and to this end the provisions of this section
14 19 are declared to be severable.
14 20 Sec. 2. NEW SECTION. 523H.2A APPLICABILITY –
14 21 LIMITATION.
14 22 1. Notwithstanding section 523H.2, this chapter does not
14 23 apply to a franchise agreement which is entered into on or
14 24 after July 1, 1999. A franchise agreement which is entered
14 25 into on or after July 1, 1999, shall be subject to section
14 26 537A.10.
14 27 2. This chapter shall govern all actions with respect to
14 28 a franchise agreement entered into prior to July 1, 1999, no
14 29 matter when the occurrence giving rise to such action occurs.
14 30 EXPLANATION
14 31 This bill creates new Code section 537A.10 relating to
14 32 franchise agreements. Code chapter 537A pertains to
14 33 contracts.
14 34 Subsection 1 of the new Code section establishes
14 35 definitions of key terms used in the section.
15 1 Subsection 2 provides for the section's applicability. The
15 2 section applies to a new or existing franchise that is
15 3 operated in this state and that is subject to an agreement
15 4 entered into on or after the effective date of the bill. The
15 5 section does not apply to any existing or future contracts
15 6 between Iowa franchisors and franchisees who operate
15 7 franchises located out of state. A corresponding provision is
15 8 added to Code chapter 523H stating that Code chapter 523H only
15 9 applies to franchise agreements entered into prior to July 1,
15 10 1999.
15 11 Subsection 3 provides for the jurisdiction and venue of
15 12 disputes and prohibits as unenforceable a provision in the
15 13 franchise agreement that attempts to restrict jurisdiction to
15 14 a forum outside of this state.
15 15 Subsection 4 provides that a provision requiring a
15 16 franchisee to waive compliance with or relieving a person of a
15 17 duty or liability imposed by or a right provided by this
15 18 section is void.
15 19 Subsection 5 establishes certain rights and restrictions
15 20 related to the transfer of a franchise.
15 21 Subsection 6 defines encroachment and establishes a
15 22 mechanism for the calculation of monetary damages associated
15 23 with the encroachment. The subsection provides that a
15 24 franchisee has a cause of action under the encroachment
15 25 provision unless the franchisor has first offered the new
15 26 outlet or location to the existing franchisee on the same
15 27 basic terms and conditions available to other potential
15 28 franchisees, unless the adverse impact on the existing
15 29 franchisee's annual gross sales is determined pursuant to a
15 30 statutory formula to have been less than 6 percent during the
15 31 first 12 months of operation of the new outlet or location,
15 32 unless the existing franchisee is not in compliance with the
15 33 franchisor's then current reasonable criteria for eligibility
15 34 for a new franchise, or unless the existing franchisee has
15 35 been granted reasonable territorial rights and the new outlet
16 1 or location does not violate those territorial rights. The
16 2 subsection provides that the franchisor, with respect to
16 3 encroachment claims, must establish a formal procedure for
16 4 hearing and acting upon claims by an existing franchisee with
16 5 regard to a decision by the franchisor to develop a new outlet
16 6 or location prior to such development, and a reasonable formal
16 7 procedure for mediating a dispute resulting in an award of
16 8 compensation or other form of consideration to offset all or a
16 9 portion of the franchisee's lost profits caused by the
16 10 encroachment.
16 11 Subsection 7 relates to termination of a franchise and
16 12 provides that a franchisor shall not terminate a franchise
16 13 prior to the expiration of its term except for good cause.
16 14 Prior to termination for good cause, the franchisor must
16 15 provide the franchisee with written notice stating the basis
16 16 for the proposed termination. After written notice, the
16 17 franchisee shall have a reasonable time, generally between 30
16 18 to 90 days, to cure the default resulting in the notice. The
16 19 subsection sets forth certain instances where the franchisor
16 20 may terminate the franchise upon written notice and without an
16 21 opportunity to cure.
16 22 Subsection 8 pertains to the nonrenewal of a franchise.
16 23 The subsection provides that the franchisor must not refuse to
16 24 renew a franchise unless the franchisee has been notified of
16 25 the franchisor's intent not to renew at least six months prior
16 26 to the expiration date or any extension of the franchise
16 27 agreement, along with the existence of one of several
16 28 circumstances set forth in the subsection.
16 29 Subsection 9 provides that a franchisor shall not require
16 30 that a franchisee purchase goods, supplies, inventories, or
16 31 services exclusively from the franchisor or from a source or
16 32 sources of supply specifically designated by the franchisor
16 33 where such goods, supplies, inventories, or services of
16 34 comparable quality are available from sources other than those
16 35 designated by the franchisor. The subsection does not apply
17 1 to the principal goods, supplies, inventories, or services
17 2 manufactured by the franchisor, or such goods, supplies,
17 3 inventories, or services entitled to protection as a trade
17 4 secret.
17 5 Subsection 10 provides that a franchisor shall not restrict
17 6 a franchisee from associating with other franchisees.
17 7 Subsection 11 imposes a duty of good faith on the parties
17 8 in the performance and enforcement of the franchise agreement.
17 9 Subsection 12 provides a private civil cause of action. A
17 10 person who violates a provision of the section is liable for
17 11 damages caused by the violation including, but not limited to,
17 12 costs and reasonable attorneys and experts fees, as well as
17 13 other appropriate relief including injunctive and other
17 14 equitable relief.
17 15 Subsection 13 provides that a condition, stipulation, or
17 16 provision requiring the application of the law of another
17 17 state in lieu of this section is void.
17 18 Subsection 14 provides that the section does not limit any
17 19 liability that may exist under another statute or at common
17 20 law.
17 21 Subsection 15 provides that the section is to be liberally
17 22 construed to effectuate its purpose.
17 23 Subsection 16 provides that if any provision or clause of
17 24 the section is held invalid, the invalidity shall not affect
17 25 other provisions that can be given effect without the invalid
17 26 provision.
17 27 LSB 3030XC 78
17 28 mj/cf/24.2
Text: SSB01000 - SSB01099 Text: SSB Index Bills and Amendments: General Index Bill History: General Index
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