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Franchise Case Setback
The California Court of
Appeals has found a procedural issue to defeat the
franchise issue in that state.
The California Superior
Court had previously found that the payments by Agent
Vice for advertising, promotional materials, signage and
computer expenses were not franchise fees. In addition,
the Judge found that insurance is not a "good" or
"service" covered by the Franchise
Act. Both of those findings NASFA believes to be both
legally and factually incorrect. Both of those issues
are essential to a successful presentation of a
franchise claim, either in California or anywhere else.
Therefore the decision was made to appeal that ruling.
In it's opinion on the
Appeal the Court of Appeals fails to address these
issues. Instead, much to our disappointment, the Court
finds another reason to deny the appeal. Despite the
allegation that: "Agents have contested State Farm's
purported right to terminate them without cause and
specifically have demanded that they be treated as
franchises under the law, which would protect them from
termination without cause." The Court found that the
Plaintiff, Roger Vice, had not sufficiently complained
about his status as a potential franchisee, or suffered
enough as an independent contractor, to merit
consideration at this time, in this case. That bizarre
finding essentially terminates NASFA's franchise efforts
in California. It is not legally or economically
feasible to pursue the claim further in that state.
The issues framed for the
appeal were designed to obtain a determination whether
or not the California Franchise Laws applied to State
Farm agents. In particular we sought to establish that a
"franchise fee" was paid by "(a) his cost for
participating in State Farm telephone directory
advertising, his general advertising in local
newspapers, and direct mail advertising; (b) his
purchase from State Farm of promotional items bearing
the State Farm trademark or logo, such as pencils,
calendars, candy, golf balls, and sales brochures; (c)
his purchase of a sign for his agency; and (d) his cost
for leasing from State Farm additional computer
terminals and printers, as well as his purchase of
printer cartridges and supplies from State Farm."
An essential element of the
application of the franchise legal concept is the
payment of a
franchise fee. Since there is no payment to State Farm
that said "Franchise Fee" we had to point
to other payments for essential goods. or services as
that fee. This is not unusual and we felt to
be on safe ground with these assertions.
The bigger issue we felt was
whether or not a Court would impose the Franchise Law
concept on the business of insurance. The law of
insurance, and insurance agents has been around a lot
longer than franchise. Crafting one to fit the other
required a great deal of innovation.
State Farm's defense to our
claim met the issue of the applicability of the
Franchise Law to State Farm agency. Aside from claiming
that none of the payments were Franchise Fees, they also
claimed that agents do not "offer, sell or distribute a
good or service" to be a franchise.
The opinion of the Appeal
Court is surprising, to say the least. It properly found
that "It is true that declaratory relief 'operates
prospectively, and not merely for the redress of past
wrongs. It serves to set controversies at rest before
they lead to repudiation of obligations, invasion of
rights or commission of wrongs; in short, the remedy is
to be used in the interests of preventive justice, to
declare rights rather than execute them.' However,
declaratory relief is appropriate only when there is a
"probable" future controversy relating to the legal
rights and duties of the parties."
And further supporting our
view the Court said "Another purpose is to liquidate
doubts with respect to uncertainties or controversies
which might otherwise result in subsequent litigation.
One test of the right to institute proceedings for
declaratory judgment is the necessity of present
adjudication as a guide for plaintiffs future conduct in
order to preserve his legal rights. The idea is that the
parties need the judicial answer in order to conform
their conduct to the law and prevent likely future
litigation."
At that point the decision
takes a turn for the worse. Instead of them
acknowledging our claim, the Court dismisses it saying
"we can only conclude there is no likely or probable
future controversy between State Farm and Vice regarding
termination."
The decision then ignores
the underlying issue and decides the case on a
technical, procedural basis. Given that, a further
appeal was useless. The only thing an appeal would
decide was the procedural problem caused by the Court,
not resolve the issue.
The Board will consider at
its January meeting what course to follow. A cornerstone
of NASFA's efforts on behalf of agents has been, and
will continue to be, just cause termination protection
for all agents. Throughout its history NASFA has worked
to bring the issue before State Farm and the public to
protect the investment of time, effort and money made by
State Farm agents. It can file a similar action in
another state. Or determine to follow a different legal
course. NASFA will keep you advised as those decisions
are being considered.
Click here to read the
decision of the appeals court
Click here to read the Appellant's Opening Brief
Click
here to read the Respondent's Brief
Reply Brief of
Vice on Appeal
California Judge Rules
State Farm Agencies Are Not Franchises
On April 14, 2008, the
Superior Court of California, San Joaquin County issued
its ruling on the pending Motions for Summary Judgment
in the Vice v. State Farm lawsuit. The decision
was not favorable to NASFA.
Click
here to read the full ruling
NASFA Supports Franchise
Suit in California
NASFA supported suit in the Superior Court of
California County of San Joaquin to determine whether the
independent contractor agencies owned by State Farm
agents should be subject to California franchise laws.
Had the suit been successful, it could have had far-reaching,
positive effects for agents.
Click here to
download a copy of the complaint
Statement of Undisputed Material Facts in Support of
Defendants' Motion for Summary Judgment
Memorandum of State Farm Defendants in Support of Motion
for Summary Judgment
Declaration
of Thomas M. Conley in Support of Defendants' Motion for
Summary Judgment
Memorandum of Points and
Authorities in Support of Plaintiff Roger Vice's Motion
for Summary Judgment
Declaration of Roger
Vice in Support of Plaintiff's Motion for Summary
Judgment
Plaintiff's Separate Statement of Undisputed Material
Facts in Support of Motion for Summary Judgment
Memorandum in Support of the Motion of Roger Vice for
Summary Judgment
Memorandum
of State Farm Defendants in Opposition to Plaintiff's
Motion for Summary Judgment |
