News & Articles

Proposed 2017 Florida franchise legislation

 

A committee substitute for SB 750, creating the “Protect Florida Small Business Act”, which is intended to regulate the conduct of franchisors and their representatives to prevent fraud, unfair business practices, unfair methods of competition, impositions, and other abuses upon franchisees in Florida, has been favorably reported out of the first of three Florida state senate committees to which the legislation had been referred. More information about the bill can be found at http://tinyurl.com/lkbcxye.

Watch this space for more news!

UPDATE – The bill died in committee at the end of the 2017 regular session on May 5th.

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Leave Texting Out of Your Business Routine

Many small businesses use modern smart phone features to carry on their day-to-day business. As a result, those features may create issues if communications are sought to be used as evidence in commercial litigation. Text messages are one such feature. Why?

A text message presents unique issues. First of all, authentication of the message sender and proving that a person received a specific message are not always easy to accomplish. Second, Florida law now requires one to preserve all relevant electronically stored information once one reasonably foresees the possibility if litigation. Finally, many mobile carriers often retain text messages on their network servers for only a few days. Some don’t retain them at all. This puts more responsibility on the phone’s user to take reasonable steps to preserve such information. In conclusion, one would be wise to leave texting out of the day-to-day business routine.

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New Florida Revised Limited Liability Company Act

The new Florida Revised Limited Liability Company Act will take effect on January 1, 2015 for all Florida limited liability companies (“LLC”).  Currently existing Florida LLCs may opt into being governed by the new law beginning on January 1, 2014 if they wish, but any new Florida LLCs which are formed in 2014 and all existing foreign LLCs will automatically be immediately governed by this new law. If your existing LLC was organized with one or more persons designated as a “managing member”, has only two members each of which have equal voting rights, has no written operating agreement or was organized under the laws of a jurisdiction other than Florida, you should speak with a knowledgeable attorney about what this new law’s changes may mean to you.

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Arbitration Provisions Can Have Significant Impact upon Your Rights

A new breed of contract arbitration provisions may be just around the corner. A divided United States Supreme Court recently decided that antitrust claims arising out of a merchant account contract containing an arbitration provision prohibiting bringing any claim on a class action basis could only be brought individually even though the costs of proving the individual claim through expert testimony would exceed the value of the claim itself. It is widely accepted that expensive economic analysis is a necessary component of successfully proving up an antitrust claim. In rejecting the “effective vindication rule” that one could not be forced to waive class relief if doing so would frustrate one’s ability to effectively vindicate his statutory remedies, the majority drew the distinction that “…the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy.”  The case is American Express Company v. Italian Colors Restaurant, decided June 20, 2013. http://www.supremecourt.gov/opinions/12pdf/12-133_19m1.pdf.

In a strong dissent, Justice Kagan warned that the Amex contract also contained additional waivers which have the effect of insulating Amex from violations of the antitrust statutes: disallowing any kind of joinder or consolidation of claims or parties; a confidentiality provision preventing Italian Colors from informally arranging with other merchants to share expenses by producing a common expert report; and precluding any shifting of costs to Amex, even if Italian Colors prevailed. Not surprisingly, Amex refused to enter into any stipulations that would avoid or lessen the need for the economic analysis. She stated: “In short, the agreement as applied in this case cuts off not just class arbitration, but any avenue for sharing, shifting, or shrinking necessary costs. Amex has put Italian Colors to this choice: Spend way, way, way more money than your claim is worth, or relinquish your Sherman Act rights.”

What does this court decision mean to you? Litigation expense is a prime consideration in virtually every case. One may expect future contracts of all types to contain more expansive waivers in their arbitration provisions which have the effect of dissuading claimants from vindicating their rights. It will become more and more important that parties fully understand the impact of what they may be asked to give up by agreeing to those provisions.

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Florida changes limited liability company laws

The Florida legislature has passed some significant changes to its limited liability company laws. The changes become law on July 1, 2013, with effective dates on January 1, 2014 and January 1, 2015, depending upon when a limited liability company (“LLC”) is formed. Since formation of LLC entities has far outpaced those of corporations in Florida in recent years, these changes are expected to affect many Florida businesses. Watch this site for future discussions.

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Remember to Ask for FDD Updates!

The franchise disclosure document (FDD) is designed to provide basic areas of information which are  generally important to making an investment decision by a prospective franchisee. The FTC Franchise Rule requires that the FDD be periodically updated, after it is issued, to include any material changes to its disclosures.  But, what if a material change has taken place after the FDD has been delivered to a prospect? The franchisor is not required to make any additional disclosures to the prospect after it has provided its FDD to the prospective franchisee unless he or she asks for it. Once an updated FDD has been asked for, the prospect must be disclosed all material changes to the FDD. Unfortunately, many prospects do not make any request for updates. So, remember to ask for any FDD updates before making the final investment decision.

Stephen M. Feidelman maintains a general civil law practice in Hollywood, Florida serving Miami-Dade, Broward and Palm Beach counties with a core concentration on franchise and dealership representation and allied business law issues. He has attained a Martindale-Hubbell Peer Review rating of AV®, Preeminent™ – 5.0 out of 5, which depicts that a lawyer is recognized for the highest levels of skill and integrity; has served on the Executive Council of The Florida Bar Business Law Section; chaired The Florida Bar’s Antitrust, Franchise and Trade Regulation Law Committee; been a faculty participant in numerous seminars related to franchise and business opportunity legal issues; contributed to Florida Bar committee consumer education pamphlets and seminar course materials; and been a guest college lecturer on franchise law issues. He is also a Florida Supreme Court Certified Circuit Civil Mediator and a Qualified Arbitrator.

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Loss Mitigation Mediation Program Adopted by Southern Florida Bankruptcy Court

The United States Bankruptcy Court for the Southern District of Florida has implemented a Loss Mitigation Mediation Program beginning April 1, 2013. The program states that it is:

“…designed to function as a forum for eligible Debtors to explore loss mitigation options with their lenders (“Lender”) for real property in which the Debtors have an interest and are obligated on the promissory note or mortgage. The goal of LMM is to facilitate communication and exchange of information in a confidential setting and encourage the parties to finalize a feasible and beneficial agreement with the assistance and supervision of the United States Bankruptcy Court for the Southern District of Florida. Loss mitigation options include modification of a mortgage or surrender of real property owned by an individual Debtor(s).”

More information about the program and its procedures can be found at www.flsb.uscourts.gov/.

Stephen M. Feidelman is available to serve as a loss mitigation mediator in the United States Bankruptcy Court for the Southern District of Florida.

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The Perils of Do-It-Yourself Business Entity Formation

Two owners have formed a Florida limited liability company (“LLC”) to operate a franchise unit in Fort Lauderdale. Being good friends who wished to show their deep trust of each other, they intended to be equal owners in all respects. They were proud of having set up their new business without the need of any professional advice. While the business appears as an LLC in the State’s public records, the two “partners” never got around to actually signing any organizational documents. They do not have any written operating agreement and do not know what one does.  Nor do they know the necessary formalities to be observed regarding their business entity.

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Mediation is a Required Part of the Civil Court Process

In today’s busy court systems, one usually cannot get a dispute to trial until she has attempted to resolve it through court-ordered mediation. Mediation is a process in which a neutral person (the “mediator”) uses his skills to help guide the parties through a voluntary, consensual process seeking to achieve a mutually agreeable resolution of their dispute. It is important to note that, under Florida law, communications made during that process are confidential except where disclosure is required or permitted by law.

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So What Do I Need To Do With This Disclosure Document?

It is very important that you actually read the franchise disclosure document to learn those things which the franchisor is disclosing to you, and to inform yourself as to the issues discussed in it. Failing to do so will work heavily against you in the event you have a future need to seek a legal solution to business problems related to the franchise agreement or its associated documents.

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Beware of Illegal Pyramid Schemes

Business opportunities are offered in various formats. One is the Multilevel Marketing (“MLM”) business model. Many legitimate companies in the MLM industry lawfully charge low fees to distributors for the right to sell the company’s products, offer refunds on resalable inventory and their distributors actually derive income from the retail sale of products to end-users. However, some illegitimate companies operate pyramid schemes in which a distributor earns income earned not from the retail sale of goods or services but, rather, from “participation fees” – a portion of the entry fees paid by new people joining the system recruited by the distributor or its sub-distributors. Such schemes depend upon the endless recruitment of increasingly larger numbers of distributors to generate entry fees sufficient to pay all upper levels of entitled participants, until the scheme collapses under its own weight.

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Financially Stressed Franchises

It has been widely reported that franchisee loan defaults rose significantly in 2007 and 2008 [1]. One may expect that trend to continue as the economy continues to suffer.  Because of the complex terms and varying obligations contained in modern franchise agreements, a financially stressed franchisee should obtain experienced legal advice before attempting to resolve his or her business problems. Some points to consider should be:

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Attention to Detail Important for LLC Owners

One reason for the popularity of limited liability companies (“LLC”) in Florida and elsewhere is the relaxed formality in operating an LLC compared with a corporation. In recent years, many LLC members have decided to form their Florida LLC without the assistance of a lawyer by utilizing the Florida Department of State’s e-filing process.  Those members have not paid much attention to the LLC’s organizational structure beyond creating the articles of organization which are required under Florida law.

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The True Value of Legal Services

Many new clients often focus upon the expense of hiring an attorney, but rarely appreciate the value of their investing in the legal services which are going to be rendered. Consider the example of Mary, who, having lost her job when her company downsized during the Great Recession, now intends to use her savings and remaining home equity to purchase a business. She is working with a business broker in the purchase process.

Being a good consumer, Mary wants to shop for the lowest cost legal services provider. She assumes that her business broker will include all of the necessary provisions in a business purchase agreement and can answer any questions she may have about it. So why pay an attorney’s fee ?  After all, Mary reasons, the attorney will probably want to create a complicated document she would not understand, while her broker can prepare an easy to understand “standard” purchase agreement as part of earning its brokerage commission.

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New Ruling on Single Member LLCs

Judgment Debtor’s Ownership Interest in a Florida Single Member Limited Liability Company is Subject to the Satisfaction of an Outstanding Judgment

Florida’s lower courts have previously held that the issuance of a charging order was the only method of subjecting a judgment debtor’s ownership interest in a single member Florida limited liability company (“LLC”) to the satisfaction of the judgment debt. This approach has been under attack in various federal bankruptcy courts.

The Federal Trade Commission had sued various defendants for deceptive and unfair trade practices and, having obtained judgments against them, sought to force the turnover of the defendants’ interests in a number of single member LLCs. As the name suggests, a single member LLC has only one owner. The trial court ordered the turnovers, and the matter was appealed to the United States Eleventh Circuit Court of Appeals, which sought an answer from the Florida supreme court as to whether Florida law allows a court to order a judgment debtor to turn over its interest in an LLC to satisfy a judgment debt. The case is Shaun Olmstead v. Federal Trade Commission,  (Fla. S. Ct. Case No. SC08-1009, June 24, 2010)

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