California Senate Bill SB610 Amended / Bill

 BILL NUMBER: SB 610AMENDED BILL TEXT AMENDED IN ASSEMBLY JUNE 10, 2014 AMENDED IN ASSEMBLY JUNE 24, 2013 AMENDED IN SENATE MAY 9, 2013 AMENDED IN SENATE APRIL 8, 2013 INTRODUCED BY Senator Jackson FEBRUARY 22, 2013 An act to  amend Sections 20010, 20020, 20025, and 20035 of, and to  add Article 2.5 (commencing with Section 20016) to Chapter 5.5 of Division 8 of  ,  the Business and Professions Code, relating to franchises. LEGISLATIVE COUNSEL'S DIGEST SB 610, as amended, Jackson. Franchises. The California Franchise Relations Act sets forth certain requirements related to the termination, nonrenewal, and transfer of franchises between a franchisor, subfranchisor, and franchisee, as those terms are defined. Existing law provides that any condition purporting to bind any person to waive compliance with the act is contrary to public policy and void.  This bill would require these parties to deal with each other in good faith, as defined, and prohibit a franchisor or subfranchisor from restricting the right of a franchisee to join or participate in an association of franchisees to the extent the restriction is prohibited by existing law. The bill would authorize a franchisee to bring an action against a franchisor or subfranchisor who offers to sell, sells, fails to renew or transfer, or terminates a franchise in violation of these provisions for temporary and permanent injunctive relief, and damages caused thereby, or for rescission or other relief deemed appropriate by the court. The bill would additionally authorize a court in its discretion to award reasonable costs and attorney's fees to a prevailing plaintiff. The bill would also authorize a franchisor or subfranchisor who becomes liable to make payments for a violation of these provisions to recover contributions from any person who, if sued separately, would also have been liable to make the same payments. The bill would prohibit a franchisor or subfranchisor from requiring a franchisee to waive its rights as a condition of doing business with the franchisor or subfranchisor, and would provide that any waiver that is required as a condition of doing business shall be presumed unenforceable. The bill would authorize a franchisor or subfranchisor to enforce a waiver of rights under these provisions only if the waiver is knowing, voluntary, and not made as a condition of doing business with the franchisor or subfranchisor.   This bill would provide that a condition of a franchise agreement requiring the franchisee to waive the implied covenant of good faith and fair dealing is contrary to public policy and void. The bill would prohibit a franchise agreement from restricting the right of a franchisee to join or participate in an association of franchisees to the extent the restriction is prohibited by existing law. The bill would prohibit a franchise agreement from preventing a franchisee from selling or transferring a franchise or a part of the interest of a franchise to another person, except as provided. The bill would prohibit a franchise agreement from giving a franchisee a right to sell, transfer, or assign the franchise, or a right thereunder, without the consent of the franchisor, as provided. The bill would prohibit a franchise agreement from allowing the transferring franchisee to fail to notify the franchisor of the franchisee's decision to sell, transfer, or assign the franchise, as provided.   Existing law prohibits a franchisor from terminating a franchise agreement prior to the expiration of its term, except for good cause, as defined, and upon the occurrence of specified events.   This bill would prohibit a franchisor from terminating a franchise agreement prior to the expiration of its term unless there is a substantial and material breach on the part of the franchisee of a lawful requirement of the franchise agreement, except as otherwise provided.   Existing law prohibits a franchisor from failing to renew a franchise agreement unless the franchisor provides the franchisee at least 180 days prior written notice of its intention not to renew and specified conditions are met.   This bill would additionally condition a franchisor's failure to renew a franchise agreement upon a substantial and material breach on the part of the franchisee of a lawful requirement of the franchise agreement and would require the franchisor to offer the franchisee either a renewal of the franchise agreement under terms then being offered to new franchisees or under existing terms.   Existing law requires a franchisor that terminates or fails to renew a franchise, other than in accordance with specified provisions of law, to offer to repurchase from the franchisee the franchisee's resalable current inventory, as specified.   This bill would instead require a franchisor that terminates or fails to renew a franchise, other than in accordance with specified provisions of law, to, at the election of the franchisee, either reinstate the franchisee and pay specified damages or pay to the franchisee the fair market value of the franchise and franchise assets, as provided. Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:  SECTION 1.   Section 20010 of the   Business and Professions Code  is amended to read:  20010. Any condition, stipulation  ,  or provision purporting to bind any person to waive compliance with any provision of this law  o   r to waive the implied covenant of good faith and fair dealing  is contrary to public policy and void.  SECTION 1.   SEC. 2.  Article 2.5 (commencing with Section 20016) is added to Chapter 5.5 of Division 8 of the Business and Professions Code, to read: Article 2.5. Relationships Between Franchisor  or Subfranchisor  and Franchisees  20016. Without limiting the other provisions of this chapter, the following specific rights and prohibitions shall govern the relations between a franchisor, subfranchisor, and franchisee: (a) (1) These parties shall deal with each other in good faith in the performance and enforcement of the franchise agreement. (2) "Good faith" for purposes of this subdivision means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade. (b) A franchisor or subfranchisor shall not restrict   20016.   It is unlawful for a franchise agreement to do any of the following:   (a)     Restrict  the right of a franchisee to join or participate in an association of franchisees to the extent the restriction is prohibited by Section 31220 of the Corporations Code.  (b) (1) Prevent a franchisee from selling or transferring a franchise or a part of the interest of a franchise to another person. A franchisee shall not, however, have the right to sell, transfer, or assign the franchise, or a right thereunder, without the consent of the franchisor except that the consent shall not be unreasonably withheld.   (2) (A) Allow the transferring franchisee to fail, prior to the sale, transfer, or assignment of a franchise or the sale, assignment, or transfer of all, or substantially all, of the assets of the franchised business or a controlling interest in the franchised business to another person, to notify the franchisor of the franchisee's decision to sell, transfer, or assign the franchise. The notice shall be in writing and shall include all of the following:   (i) The proposed transferee's name and address.   (ii) A copy of all of the agreements relating to the sale, assignment, or transfer of the franchised business or its assets.   (iii) The proposed transferee's application for approval to become the successor franchisee. The application shall include forms and related information generally utilized by the franchisor in reviewing prospective franchisees, if those forms are readily made available to existing franchisees. As soon as practicable after receipt of the proposed transferee's application, the franchisor shall notify the franchisee and the proposed transferee of information needed to make the application complete.   (B) For the franchisor, to fail, on or before 60 days after the receipt of all of the information required pursuant to subparagraph (A), or as extended by a written agreement between the franchisor and the franchisee, to notify the franchisee of the approval or the disapproval of the sale, transfer, or assignment of the franchise. The notice shall be in writing and shall be personally served or sent by certified mail, return receipt requested, or by guaranteed overnight delivery service that provides verification of delivery and shall be directed to the franchisee. A proposed sale, assignment, or transfer shall be deemed approved, unless disapproved by the franchisor in the manner provided by this subdivision. If the proposed sale, assignment, or transfer is disapproved, the franchisor shall include in the notice of disapproval a statement setting forth the reasons for the disapproval.   (3) In an action in which the franchisor's withholding of consent under this subdivision is an issue, whether the withholding of consent was unreasonable is a question of fact requiring consideration of all the existing circumstances.   20017. (a) A franchisee may bring an action against a franchisor or subfranchisor who offers to sell, sells, fails to renew or transfer, or terminates a franchise in violation of Section 20016 for temporary and permanent injunctive relief, and for damages caused thereby, or for rescission or other relief deemed appropriate by the court. In addition, the court may in its discretion award reasonable costs and attorney's fees to a prevailing plaintiff. (b) A franchisor or subfranchisor who becomes liable to make payments under this section may recover contributions from any person who, if sued separately, would have been liable to make the same payments.   20018. A franchisor or subfranchisor shall not require that the franchisee waive any right provided for in this article as a condition of doing business with the franchisor or subfranchisor. Any waiver by the franchisee of a right under this article shall be knowing and voluntary, and not made a condition of doing business with a franchisor or subfranchisor. Any waiver that is required as a condition of doing business with a franchisor or subfranchisor shall be presumed involuntary, unconscionable, against public policy, and unenforceable. The franchisor or subfranchisor may enforce an agreement regarding any waiver of rights under this article if the franchisor or subfranchisor shows that the agreement was knowing, voluntary, and not made a condition of doing business with the franchisor or subfranchisor.   SEC. 3.   Section 20020 of the   Business and Professions Code   is amended to read:  20020. Except as otherwise provided by this chapter,  no   a  franchisor  may   shall not  terminate a franchise prior to the expiration of its term, except  for good cause. Good cause shall include, but not be limited to, the failure of the franchisee to comply with any   upon a   substantial and material breach on the part of the franchisee of a  lawful requirement of the franchise  agreement after being given notice thereof and a reasonable opportunity, which in no event need be more than 30 days, to cure the failure.   agreement. If there is a substantial and material breach of a lawful requirement of the franchise agreement, the franchisor shall allow the franchisee 30 days to cure the failure before termination.   SEC. 4.   Section 20025 of the   Business and Professions Code   is amended to read:  20025.  No franchisor may fail to renew a franchise unless such   Unless there has been a substantial and material breach on the part of the franchisee of a lawful requirement of the franchise agreement, the franchisor shall offer to the franchisee either a renewal of the franchise agreement under terms then being offered to new franchisees or und   er existing terms. If the franchisor has claimed a substantial and material breach on the part of the franchisee of a lawful requirement of the franchise agreement, the  franchisor  provides   shall provide  the franchisee at least 180 days prior written notice of its intention not to renew; and (a) During the 180 days prior to expiration of the franchise the franchisor  permits   shall permit  the franchisee to sell his business to a purchaser meeting the franchisor' s then current requirements for granting new franchises, or if the franchisor is not granting a significant number of new franchises, the then current requirements for granting renewal franchises; or (b) (1) The refusal to renew  is   shall  not  be  for the purpose of converting the franchisee' s business premises to operation by employees or agents of the franchisor for such franchisor's own account, provided, that nothing in this paragraph shall prohibit a franchisor from exercising a right of first refusal to purchase the franchisee's business; and (2) Upon expiration of the franchise, the franchisor  agrees   shall  not  to  seek to enforce any covenant of the nonrenewed franchisee not to compete with the franchisor or franchisees of the franchisor; or (c) Termination  would be   is  permitted pursuant to Section 20020 or 20021; or (d) The franchisee and the franchisor agree not to renew the franchise; or (e) The franchisor withdraws from distributing its products or services through franchises in the geographic market served by the franchisee, provided that: (1) Upon expiration of the franchise, the franchisor agrees not to seek to enforce any covenant of the nonrenewed franchisee not to compete with the franchisor or franchisees of the franchisor; and (2) The failure to renew is not for the purpose of converting the business conducted by the franchisee pursuant to the franchise agreement to operation by employees or agents of the franchisor for such franchisor's own account; and (3) Where the franchisor determines to sell, transfer, or assign its interest in a marketing premises occupied by a franchisee whose franchise agreement is not renewed pursuant to this paragraph: (A) The franchisor, during the 180-day period after giving notice offers such franchisee a right of first refusal of at least 30 days' duration of a bona fide offer, made by another to purchase such franchisor's interest in such premises; or (B) In the case of the sale, transfer, or assignment to another person of the franchisor's interest in one or more other controlled marketing premises, such other person in good faith offers the franchisee a franchise on substantially the same terms and conditions currently being offered by such other person to other franchisees; or (f) The franchisor and the franchisee fail to agree to changes or additions to the terms and conditions of the franchise agreement, if such changes or additions would result in renewal of the franchise agreement on substantially the same terms and conditions on which the franchisor is then customarily granting renewal franchises, or if the franchisor is not then granting a significant number of renewal franchises, the terms and conditions on which the franchisor is then customarily granting original franchises. The franchisor may give the franchisee written notice of a date which is at least 30 days from the date of such notice, on or before which a proposed written agreement of the terms and conditions of the renewal franchise shall be accepted in writing by the franchisee. Such notice, when given not less than 180 days before the end of the franchise term, may state that in the event of failure of such acceptance by the franchisee, the notice shall be deemed a notice of intention not to renew at the end of the franchise term.  SEC. 5.   Section 20035 of the   Business and Professions Code   is amended to read:  20035. In the event a franchisor terminates or fails to renew a franchise other than in accordance with the provisions of this chapter, the franchisor shall  offer to repurchase from the franchisee the franchisee's resalable current inventory meeting the franchisor's present standards that is required by the franchise agreement or commercial practice and held for use or sale in the franchised business at the lower of the fair wholesale market value or the price paid by the franchisee. The franchisor shall not be liable for offering to purchase personalized items which have no value to the franchisor in the business which it franchises.   reinstate the   franchisee in accordance with the provisions of this chapter and shall pay all damages caused thereby, or, at the election of the franchisee, shall pay to the franchisee the fair market value of the franchise and franchise assets. A court shall be entitled to grant preliminary and permanent injunctions for violations of this chapter.