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termination of franchise agreement
Filing of a BK by a franchisee involves trademark issues and assumption
issues that must be worked out ahead of time. There is a split of
authority among the circuits regarding whether or how the debtor may assume
a franchise agreement. The issue is actually not settled in the 9th
Circuit, but franchisors act as if it is settled in their favor. With that
said, a franchisor likely cannot terminate because of a BK filing, but can
move to compel rejection. If you have an 11 with this issue, I handle them.
Giovanni Orantes, Esq.
Orantes Law Firm, P.C.
3435 Wilshire Blvd. Suite 1980
Los Angeles, CA 90010
Tel: (213) 389-4362
Fax: (877) 789-5776
e-mail: go@gobklaw.com
website: www.gobklaw.com
WE ARE A "DEBT RELIEF AGENCY" AS DEFINED BY FEDERAL LAW.
Filing of a BK by a franchisee involves trademark issues and assumption issues that must be worked out ahead of time. There is a split of authority among the circuits regarding whether or how the debtor may assume a franchise agreement. The issue is actually not settled in the 9th Circuit, but franchisors act as if it is settled in their favor. With that said, a franchisor likely cannot terminate because of a BK filing, but can move to compel rejection. If you have an 11 with this issue, I handle them.
-- Giovanni Orantes, Esq. Orantes Law Firm, P.C.3435 Wilshire Blvd. Suite 1980Los Angeles, CA 90010Tel: (213) 389-4362Fax: (877) 789-5776e-mail: go@gobklaw.com
website: www.gobklaw.comWE ARE A "DEBT RELIEF AGENCY" AS DEFINED BY FEDERAL LAW.
The post was migrated from Yahoo.
>
> Has anyone had a recent case with an individual debtor who is a franchisee and who filed a chapter 7 case where the franchisor exercised the termination clause? I know it is an illegal ipso facto clause. The franchise has very little value. But practically speaking, I want to know if this is still happening. We are also considering filing a chapter 13.
>
> Stella
>
I usually just listen, but....I will stick my neck out a bit.
It may depend upon whether the franchise contains only trademark rights, or whether it contains, copyright, trade secret, or patent rights; or a mixture of both.
If its pure trademark, and the case of a licensee bankruptcy,
11 USC sec. 365 (n) operates through 11 USC sec 101-35A. This latter provision excludes trademarks from the definition of intellectual property. Most bare-bones franchises (You said " The franchise has very little value.") may be to a point where trademark is all that is left.
If bare trademark control is all that is remaining, then sec 365 n cannot operate, and lack of ipso facto power can cause bankrupt licensees to drop away properly.
However, if the franchise includes other items in 101-35A, such as:
(1) anything protected under 35 USC (invention, process, design, or plant patent)
(2) patent application (not yet matured into a patent).
(3) copyrights under 17 USC
(4) electronic circuitry mask works
(5) trade secret (which is usually very patent-like in its nonbankruptcy law treatment),
it can have an ipso facto that operates under 365(n).
Even if your franchise lacks the weightier patent rights, the licensee may still have trade secrets and copyrights under the franchise agreement.
Even though, trade secret and copyright are light weight they might be dealt with in the franchise agreement and if these are still operative, you may have an argument that intellectual property is present and 365 (n) is available. Licensee might also "gift" the trade secret and copyright aspects of the franchise agreement to leave only trademark which might facilitate the dropping of the franchisee/licensee.
(Note: In a different case where the bankrupt entity is licensor, its a different analysis and different result).
Curt
The post was migrated from Yahoo.
Why would it be illegal? The franchsior relies upon the financial
viability and credit worthiness of the franchisee to ensure continued
operations of the franchise. I'd look at a 13 and assume the contract, but
only after discussions and assurances with the franchisor.
On Sep 17, 2012 6:15 PM, "stella.havkin" wrote:
> **
>
>
> Has anyone had a recent case with an individual debtor who is a franchisee
> and who filed a chapter 7 case where the franchisor exercised the
> termination clause? I know it is an illegal ipso facto clause. The
> franchise has very little value. But practically speaking, I want to know
> if this is still happening. We are also considering filing a chapter 13.
>
> Stella
>
>
>
Why would it be illegal? The franchsior relies upon the financial viability and credit worthiness of the franchisee to ensure continued operations of the franchise. I'd look at a 13 and assume the contract, but only after discussions and assurances with the franchisor.
On Sep 17, 2012 6:15 PM, "stella.havkin" <havkinlaw@earthlink.net> wrote:
Has anyone had a recent case with an individual debtor who is a franchisee and who filed a chapter 7 case where the franchisor exercised the termination clause? I know it is an illegal ipso facto clause. The franchise has very little value. But practically speaking, I want to know if this is still happening. We are also considering filing a chapter 13.
Stella
The post was migrated from Yahoo.
Has anyone had a recent case with an individual debtor who is a franchisee and who filed a chapter 7 case where the franchisor exercised the termination clause? I know it is an illegal ipso facto clause. The franchise has very little value. But practically speaking, I want to know if this is still happening. We are also considering filing a chapter 13.
Stella
The post was migrated from Yahoo.