Franchise & Distribution Law Update, Summer 2009





 Heard at the 2009 IFA Legal Symposium: FTC Announces Release of New FAQs Providing Further Guidance on Compliance With the Amended Rule

At the “Ask the Regulators” discussion, one of the featured programs of the IFA Legal Symposium which was moderated by Larkin Hoffman’s Joe Fittante, regulators from Illinois, Maryland and the FTC interpreted the Amended Rule and other related state issues. 

One of the new pieces of information to emerge from this session was the announcement of five new Amended Rule FAQs issued by the FTC, interpreting different aspects of the Amended Rule. 

For a summary of these FAQs, continue

The Importance of a Franchise Sales Compliance Training Program

Should your company sponsor a franchise compliance training program for its officers and sales personnel?  Many companies find it beneficial to regularly present a program for their officers and sales personnel to educate or reeducate them on compliance with the franchise laws and regulations which affect the company’s business.  The objective of any compliance program is to keep the company from violating the law, recognizing that if violations occur, such violations give franchisees a trump card that can make life difficult for years to come.  The company can be exposed to liability not only for damages, but also for attorneys’ fees of the franchisee (as well as the company’s attorneys’ fees), rescission and even criminal sanctions against officers and sales people in some states.  Continue

FTC to Begin Enforcing Franchisor Compliance With the Red Flags Rule

The FTC has announced that, beginning on August 1, 2009, it will begin to enforce the Red Flags Rule, a law dealing with identify theft prevention.  The FTC has explicitly announced the application of this rule to certain franchisors.  If applicable, the Red Flags Rule will require franchisors to identify suspicious activities (“red flags”) that could indicate an identity theft may occur, and develop a written identity theft prevention program designed to cut down on risks and damages related to identity theft.  Continue

SBA Launches New Loan Program for Distressed Companies

As part of the American Recovery and Reinvestment Act, the U.S. Small Business Administration has launched a new, temporary loan program available to small businesses.  The program, referred to as the America’s Recovery Capital (ARC) Loan Program, is designed to help “viable” small businesses with immediate financial hardship make payments on existing debt, and thus provide some immediate temporary relief.  According to the SBA website, the “best candidates for ARC loans are small businesses that in the past were profitable but are currently struggling, yet have been making loan payments or are just beginning to miss loan payments due to financial hardship.” Continue 

International Update: South Africa Passes New Franchise Legislation

South Africa recently joined the ranks of international countries requiring franchisors to make certain legally mandated disclosures to franchisees (as well as comply with other legal requirements), passing the South African Consumer Protection Act at the end of April.  The Consumer Protection Act will become effective in April 2010, and builds upon existing provisions set forth in South Africa’s Competition Act.

The new act expands the definition of a “franchise agreement,” which now includes agreements where the franchisor licenses the use of its trademarks or the franchisee’s business is substantially or materially associated with advertising schemes or programs of the franchisor, and where the franchisee has the right to carry on business under a system or marketing plan substantially determined or controlled by the franchisor.  Continue

For more information about Larkin Hoffman’s Franchise and Distribution practice group, visit our homepage.

Contact our Larkin Hoffman Franchise and Distribution group members:

Charles S. Modell
Email 952-896-3331

Joseph J. Fittante, Jr.
Email 952-896-3256

William G. Thornton
Email 952-896-1578 

James M. Susag 
Email 952-896-1572

Cynthia M. Klaus

Jon S. Swierzewski
Email 952-896-3280

Pamela N. Merkle
Email 952-896-3337

Meredith A. Bauer 
Email 952-896-3263

Andrew F. Perrin
Email 952-896-3394

Edward J. Driscoll
Email 952-896-3235

1500 Wells Fargo Plaza, 7900 Xerxes Avenue South, Minneapolis, MN 55431

This alert is provided as a service to our clients and firm associates.  While the information provided in this publication is believed to be accurate, it is general in nature and should not be construed as legal advice.  

Summer 2009


Larkin Hoffman Named Among Top 20 Law Firms Representing Franchisors Nationwide

Chambers and Partners ranked Larkin Hoffman among the top 20 law firms in the nation that represent franchisors in the recently released 2009 rankings. 

In addition, Chambers and Partners ranked both Chuck Modell and Joe Fittante among the leading individuals in franchising nationwide.  Chuck Modell was Minnesota’s highest-ranking franchise lawyer representing franchisors.

These rankings are a particular honor, as they are determined primarily by client feedback and client interviews.  Practice groups and individual lawyers are ranked according to technical legal ability, professional conduct, client service, diligence, commitment and other qualities most valued by clients.


Klaus and Bauer Publish Article Re: Post-Termination Use of Telephone Numbers and Developments in Law Concerning the Review of Arbitration Awards

In the June 2009 issue of the Law Journal Newsletter – Franchising Business & Law Alert, Cynthia Klaus and Meredith Bauer discuss two recent cases in franchising.  The first sheds light on the authority of courts to modify arbitration awards, a hotly contested issue as many franchise agreements provide for mandatory arbitration in the event of a dispute.  The second case provides a strategy that franchisors may want to consider in enjoining the post-termination use of a telephone number by a terminated franchisee. 

Franchise Advertising Explained in Article Published by Modell

In the most recent issue of Franchising World magazine, Chuck Modell published an article entitled “Franchise Advertising: There’s More To It Than Meets the Eye.”  This article discusses laws regulating advertising in general, and laws regulating advertising applicable to franchising in particular.  As competition for new franchisees is growing in difficult economic times, this article is a must-read for franchisors to avoid claims related to their advertising.


o The Twin Cities Chapter of the Women’s Franchise Network is hosting its annual wine tasting event on Wednesday, July 15.  Contact us for more information, and we will provide you with the relevant information for registering for the event. 

o The IFA is currently sponsoring a monthly program series entitled the “Wednesday Wise Webinars.”  These interactive seminars present on a variety of topics related to the franchising industry on the first Wednesday of every month. 

o Registration is now open for the ABA Forum on Franchising 32nd Annual Meeting, to be held October 14-16  in Toronto, Canada.  

o Save the date for the IFA’s Public Affairs Conference (formerly Franchise Appreciation Day) on September 14-15.  At this event, members of the franchise industry gather in Washington, DC to lobby Congress on issues affecting the franchising community, including: economic stimulus programs, health care reform, card check legislation, finance/lending reform and tax policy.  For more information, visit the IFA website at

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