Procedural Posture
Plaintiff licensee and defendant licensor both appealed a judgment of the Superior Court of Alameda County (California), which awarded damages on plaintiff’s claim for violation of the Franchise Investment Law, Cal. Corp. Code § 31000 et seq., and nonsuited plaintiff’s Cartwright Act, Cal. Bus. & Prof. Code, § 16720 et seq., claim.
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Overview
Plaintiff licensee sued defendant licensor for breach of contract, violation of the Franchise Investment Law, Cal. Corp. Code § 31000 et seq., and violation of the Cartwright Act, Cal. Bus. & Prof. Code § 16720 et seq., after layoffs compelled the host company to close plaintiff’s location and defendant offered plaintiff unsatisfactory replacement locations. The trial court nonsuited plaintiff’s Cartwright Act claim and awarded damages on the Franchise Investment Law claim. The court affirmed the judgment because the license agreement was a franchise within the meaning of § 31005 because, when defendant offered its services, defendant’s name, goodwill, and reputation were communicated to the host company and plaintiff was substantially associated with defendant in the mind of the host company. Thus, defendant was required to register the license agreement with the Commissioner of Corporations and should have provided plaintiff with certain disclosures about the business opportunity. The court affirmed the nonsuit because there was failure of proof of a per se violation and defendant’s restraint on trade was not unreasonable.
Outcome
The court affirmed the award of damages to plaintiff licensee because defendant licensor violated the Franchise Investment Law. Plaintiff’s business was substantially associated with defendant’s name; thus, the license agreement constituted a franchise. Because plaintiff did not prove a per se violation and because the restraint on trade was not unreasonable, the court affirmed the nonsuit of plaintiff’s Cartwright Act claim.
