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A recent decision by a California Court of Appeal has manycompanies shaking their fists and shaking in their boots. Choosingto uphold a lower-court decision, the Court of Appeal found thatindependent sales agents for Dallas-based Safeguard BusinessSystems Inc. are protected under the California FranchiseInvestment Law.
In 1992, 10 distributors brought a class-action suit with 17claims against office products manufacturer Safeguard. The courttried only one issue: whether the distributor/Safeguard businessrelationship constituted a franchise agreement. A California judgeruled for the plaintiffs, granting each of them a $6,000settlement. Safeguard then took the case to the Court of Appeal,but it upheld the prior decision--and Safeguard filed a newpetition with the California Supreme Court in March.
According to Safeguard, if this case stands as it is, it couldset a precedent in jurisdictions nationwide, opening up businesseswith distribution forces or independent sales agents to retroactivecriminal 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 ofrelationship, an independent contractor sales force, is common buthas never before been held to constitute a franchise relationship.The California court pushed the envelope on this further thananyone had ever thought possible."
The plaintiffs, however, maintain that Safeguard operated as afranchisor without registering as such and that the decisionprotects distributors and franchisees. "There is nothingstartling about this decision," says Bruce C. Fishelman, theplaintiffs' attorney and a partner with Los Angeles law firmStanbury & Fishelman Inc. "I think it has virtually noeffect on any business that uses true manufacturer'srepresentatives."
Contact Sources
Kaufmann, Feiner, Yamin, Gildin & Robbins LLP, 777Third 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.
