Hidden Franchises

Many business arrangements are franchises under the law, even when the party that established the business arrangement did not intend to create a franchise or business opportunity. If the statutory elements of a franchise or business opportunity are present, then the buyer is entitled to the full protection of the laws and may sue for rescission or damages due to the seller’s failure to comply.

These cases are not obvious to lawyers not schooled in franchise law:

  • Carmen D. Caruso Law Firm recently prevailed at trial in federal court in Los Angeles, establishing that a “consulting agreement” for the establishment of a medical clinic was a franchise, entitling the buyers to rescission and damages and to recover their costs and attorney’s’ fees. The defendant attempted to avoid the franchise laws by trying to limit the clinic’s identity with its trademark and by making compliance with its marketing program optional, but those efforts at avoidance were without merit. The federal court awarded our client substantial damages and also awarded 100% of the attorneys’ fees our client incurred.
  • Carmen D. Caruso successfully recovered millions of dollars in damages for retail consumer electronic dealers on proof that their “license agreements” were franchise agreements under the law. The manufacturer had attempted to structure the arrangement to avoid charging a franchise fee (one of the needed elements to establish a franchise) but we presented persuasive proof that the manufacturer had churned the mandatory inventory purchase requirements it imposed on its dealers to where the excessive inventory purchases would constitute a “franchise fee” as a matter of law.
  • Carmen D. Caruso recently gave expert testimony in an Illinois state court lawsuit that a business arrangement was a franchise, to support an argument that a commercial litigator who failed to recognize the franchise (and failed to obtain for his client the protections of the Illinois Franchise Disclosure Act).
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