The Protections of the New Jersey Franchise Practices Act Still Potentially Available to Businesses That Do Not Derive 20 Percent Of Sales From Franchise
On July 11, the District Court of New Jersey held in no uncertain terms that a business seeking the protections of the New Jersey Franchise Practices Act, N.J.S.A. §§ 56:10-1, -15 (“NJFPA” or the “Act”), could fall under the umbrella of the Act if there existed a mere intention of 20% of the business sales deriving from a purported franchise’s products/services.
Background on the Case
In Ocean City Express Co. v. Atlas Van Lines, Inc., Civil No. 13-1467 (JBS/KMW) (D.N.J. July 12, 2016), Ocean City Express Co, Inc. (“Ocean City” or “Plaintiff”) alleged that Atlas Van Lines, Inc. (“Atlas” or “Defendant”) violated the NJFPA by terminating the parties’ Agency Agreement of March 31, 2016 without “good cause.” After multiple other motions, Atlas moved for summary judgment claiming that, among other failings, the arrangement between the parties did not qualify as a franchise under the NJFPA because less than 20% of the Plaintiff’s gross sales derived from the Agency Agreement. Indeed, Ocean City readily admitted that only 2.71% of its actual sales in 2010 derived from the Agency Agreement. Ocean City, in response, claimed that while its actual gross sales fell below the 20% threshold, the intention in executing the Agreement was for sales to exceed the 20% mark and the failure to meet this mark was as a result of the Defendant’s actions.
Analysis of the NJFPA’s 20 Percent Mandate
The Court rejected Atlas’ argument and ultimately denied summary judgment. In doing so, the Court explained that, by the plain language of the NJFPA, a mere intention for 20% of sales to be derived from the franchise could satisfy the 20% requirement of the Act. Indeed, the NJFPA provides, in relevant part, that for a purported franchisee to receive the Act’s protections, “more than 20% of the franchisee's gross sales [must be] intended to be or are derived from such franchise.” Additionally, the Court cited precedent holding that remedial statutes such as the NJFPA should be read broadly to give effect to the legislative purpose of the law. Applying these precepts, the Court concluded that the NJFPA “compels, on its face, an inquiry into the scope of intended revenues, in addition to actual revenues.”
The Court also noted that even a cursory look at the factual record demonstrated that at least the plaintiff intended that Ocean City would derive over 20% of its gross sales from the arrangement with Atlas. As such, the court held that “a reasonable factfinder could well conclude that Ocean City meets the 20% requirement of the New Jersey Franchise Practices Act ("NJFPA"), due to the parties' intent, as a matter of law.”