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MulcahyReeves Wins Significant Ninth Circuit Ruling on Behalf of Isuzu Motors, Providing Template for Franchisors Recently, the Ninth Circuit issued a ruling that should be of interest to any franchisor. Almost all franchisors require in their franchise agreements that their franchisees obtain their consent before transferring a franchise, with such consent not to be unreasonably withheld. For motor vehicle franchises, this requirement is also codified in state laws. On September 27, 2007, the Ninth Circuit ruled on the appeal of a motor vehicle dealer in a case involving the requirement in dealer agreements and the California Vehicle Code that dealers obtain their franchisor’s consent before transferring their franchised dealership, with such consent not to be unreasonably withheld. The court made it clear that a dealer who believes that its franchisor has wrongfully withheld consent to a transfer may not simply proceed with the transfer, and that doing so will expose the transferee dealer to liability to the franchisor for trademark infringement and related unfair competition claims.

In 2002, for tax reasons, an Isuzu dealer secretly transferred its Isuzu dealership to a related entity without informing Isuzu or obtaining Isuzu’s consent. When Isuzu learned of the secret transfer, Isuzu, represented by MulcahyReeves, sued the transferee dealer in federal court for trademark infringement and related torts. In its defense, the dealer argued that Isuzu had unreasonably withheld consent to the transfer. Isuzu argued to the court that any purported evidence that Isuzu unreasonably withheld consent to the transfer was irrelevant and should be excluded from the trial. The district court agreed, and, after a jury trial, Isuzu won a significant damages award. The dealer appealed, claiming that the district court erred in excluding evidence regarding the propriety of Isuzu’s election not to consent to the transfer. The Ninth Circuit rejected the appeal, agreeing with the district court that the evidence was indeed irrelevant, because the dealer had no right to infringe Isuzu’s trademarks, even if, for the sake of argument, Isuzu should have consented to the transfer.

The ruling, of course, does not give a free pass to franchisors to withhold consent to transfers. However, it does demonstrate that franchisors may have an avenue of recourse against transferee franchisees who operate without first obtaining franchisor consent – even if the franchisor should have consented to the transfer.

Read the full Ninth Circuit decision (PDF*)
Read the full MulcahyReeves press release (PDF*)
*After clicking the PDF link, please allow time for Adobe Acrobat to open

Panelists’ Viewpoints: Supreme Court Leegin Ruling Gets Applied at the Corporate Level The emphasis of the August 9 Atlanta Roundtable discussion on the Supreme Court Leegin Case is coming into focus. The three panelists have zeroed in on the issues they are most concerned about for their companies. The panelists include: Andrew Rudd, Group General Counsel, Newell Rubbermaid; Peter Dosik, VP and Deputy GC, Church’s Chicken; and James Mulcahy, Partner, MulcahyReeves LLP. For a description of the panelists’ viewpoints and registration information, Download PDF

Franchisors Beware: Ninth Circuit Case Gets Tested
In April 2007, a Los Angeles County Superior Court judge (in Myers v. Conehead Investments, et al. (aka the Cold Stone Creamery Case)) examined — and ultimately followed — the reasoning in the Ninth Circuit’s 2006 opinion in Nagrampa v. MailCoups. Cold Stone confirms that California courts will be examining alternative dispute resolution clauses in franchise agreements more closely than in other states. The case shows there is a real need to counsel franchisors in navigating through this new environment. Jim Mulcahy wins crucial ruling. (more… Los Angeles Daily Journal) (more… The National Law Journal)

Nagrampa sets the stage for close examination of arbitration provisions in franchise agreements in California. Nagrampa v. MailCoups (9th Cir.2006) Download PDF

U.S. Supreme Court Considers Resale Price Maintenance Case Download PDF

August 9, 2007 Atlanta Roundtable offers general counsel, other franchisor/manufacturer executives, and attorneys an opportunity to explore the recent landmark case on resale price maintenance now pending before the U.S. Supreme Court, Leegin v. PSKS. Jim Mulcahy to be lead panelist with Andrew Rudd (Group General Counsel, Newell Rubbermaid) and Peter Dosik (Vice President and Deputy General Counsel, Church’s Chicken). Download PDF invitation

California State Bar Taps Jim Mulcahy to participate on the Consulting Group and Advisory Commission, Board of Legal Specialization, which created the underlying qualifications and examination for franchise and distribution lawyers to become certified specialists. Those who meet the qualifications and pass the first available test in 2007 will become certified specialists in franchise and distribution law in California.