New Jersey Franchise Practices Act: Franchisee Protection extended to "Constructive" Termination
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In the recent decision of Maintainco, Inc. v. Mitsubishi Caterpillar Forklift America, Inc., the Appellate Division for the Superior Court of the State of New Jersey affirmed the application of the New Jersey Franchise Practices Act ("NJFPA") to the "constructive" termination of franchisee rights. That is, actual termination is not required for a franchisee to invoke the protections of the NJFPA.
In the Maintainco decision, utilizing fundamental principals contract law, the Appellate Division held that that the franchisor / manufacturer's actions including (a) the threatened termination of the franchisee / dealer's rights, (b) the failure to disclose customary annual business plans to the franchisee, and (c) the grant of competing rights to a third party franchisee within the plaintiff franchisee's territory, constituted "constructive" acts of termination actionable under the NJFPA. In the court's well reasoned decision, the following points are instructive:
- Franchisee's faced with the "constructive" termination of their franchise rights possess a claim for violation of the NJFPA;
- "Sound and non-discriminatory" business decisions are insufficient to justify the "non-renewal" of a New Jersey franchise. The failure to renew a franchise must be based on the franchisee's failure to "substantially meet the performance requirements of the franchisor";
- Performance requirements imposed on franchisees must be "reasonable;
- Attorney fees are recoverable by a franchisee who successfully prosecutes a NJFPA claim; and
- Expert fees are not recoverable under the NJFPA.
