A recent decision by a California Court of Appeal has many
companies shaking their fists and shaking in their boots. Choosing
to uphold a lower-court decision, the Court of Appeal found that
independent sales agents for Dallas-based Safeguard Business
Systems Inc. are protected under the California Franchise
Investment Law.
In 1992, 10 distributors brought a class-action suit with 17
claims against office products manufacturer Safeguard. The court
tried only one issue: whether the distributor/Safeguard business
relationship constituted a franchise agreement. A California judge
ruled for the plaintiffs, granting each of them a $6,000
settlement. Safeguard then took the case to the Court of Appeal,
but it upheld the prior decision--and Safeguard filed a new
petition with the California Supreme Court in March.
According to Safeguard, if this case stands as it is, it could
set a precedent in jurisdictions nationwide, opening up businesses
with distribution forces or independent sales agents to retroactive
criminal penalties, civil suits and recision suits. David J.
Kaufmann, a senior partner with New York City law firm Kaufmann,
Feiner, Yamin, Gildin & Robbins LLP, says, "This type of
relationship, an independent contractor sales force, is common but
has never before been held to constitute a franchise relationship.
The California court pushed the envelope on this further than
anyone had ever thought possible."
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The plaintiffs, however, maintain that Safeguard operated as a
franchisor without registering as such and that the decision
protects distributors and franchisees. "There is nothing
startling about this decision," says Bruce C. Fishelman, the
plaintiffs' attorney and a partner with Los Angeles law firm
Stanbury & Fishelman Inc. "I think it has virtually no
effect on any business that uses true manufacturer's
representatives."
Contact Sources
Kaufmann, Feiner, Yamin, Gildin & Robbins LLP, 777
Third Ave., 24th Fl., New York, NY 10017, (212) 755-3100
The Pizza Maker Inc., (248) 698-1414, http://www.pizzamaker.com
RFC Inc., 1013 Obispo Ave., Coral Gables, FL 33134,
jsbeck@mediaone.net
Stanbury & Fishelman Inc., (310) 278-1800, fax: (310)
278-1802.