Rush on Business : Iowa Corporate Lawyer & Attorney : Rush Nigut of Brick Gentry Law Firm : Serving Des Moines, Cedar Rapids, Davenport, & Sioux City

This is not a political blog but I feel compelled to write about the recent political effort by a special interest group to oust many of the judges on the November 2nd ballot including three Iowa Supreme Court Justices.  The special interest effort, in my view, is misguided.

I am proud to be a part of the excellent system of justice that exists in Iowa. Like all lawyers and the public, I do not agree with every decision issued by our judges.  However, it is my strong belief that our judges do their best to make our court system fair and impartial.  In fact, I have written in the past (long before the recent attack on our judiciary) about the national reputation Iowa courts have for fairness. For example, see this post from 2007.

Unfortunately the group trying to oust our judges would have you believe otherwise.  They want you to believe that a group of "activist" Supreme Court judges decided to ignore or rewrite our constitution because they unanimously decided in the Varnum case that non-religious, civil marriage should be a right available to everyone. This well-funded special interest group is upset with only that one decision.

Now, in writing this blog post I am not expressing my personal belief about the Varnum decision. My position on the decision is not important and like the CEO of Principal Financial Group wrote in a recent editorial (see link below), my concern is that our judiciary should not make rulings based on fear of public outcry over an unpopular decision or because of campaign contributions from special interest groups rather than the law.  How could anyone believe they would get a fair shake in a court system like that?

The special interest group argues these alleged"activist" judges took it upon themselves to ignore the will of the people. Anyone that knows the judges in question, knows this is simply not the case. In our judicial system, when one party in a case alleges a law is unconstitutional, it is the court’s duty to compare the law passed in the political process to the equal protection guaranteed to all in our Constitution.  Judges are not activists when they decide constitutional issues, rather, they are required to rule on the issues presented by the parties. They were doing their job. (What's interesting to me is whether "new" judges would reach a different conclusion if not pressured by a special interest to do so - after all the Varnum decision was unanimous and decided by judges that were appointed by both Republican and Democratic governors).

You may or may not agree with the decision in Varnum. But, for me, that's not the issue. The issue for me is the notion that an entire Supreme Court and lower court judges should be removed solely because a special interest group disagrees with their decision. This is exactly what could happen if this well-funded special interest group is successful. Do you want a judiciary that is for sale? Do you want a judiciary that must cower in fear because political groups may be unhappy with their next decision? Do you want a judiciary that makes no attempt to be fair and impartial?

I encourage you to do some research on the issue if you have questions. Some items to read include:

• Principal CEO Larry Zimpleman's editorial in the Des Moines Register.
• Michael Gartner’s article, “Justice is Blind—Throughout its history, the Iowa Supreme Court has been forceful and fearless in preserving and protecting the rights of every Iowan.”  October 21-27, 2010, cityview magazine.  www.dmcityview.com.
• www.learniowacourts.org  Iowans for Fair and Impartial Courts – spokesman former Gov. Bob Ray.
• www.iowacourts.gov (provides profiles of all judges up for election and a summary of the Varnum decision – read the summary and judge for yourself before you blindly follow the special interest group determined to hijack our judiciary).
• The results of the lawyer survey regarding the retention of judges in Iowa. As you will see from the results, the judges received high marks from the lawyers in Iowa.

Finally, I hope you will turn your ballot over and vote 'Yes' to retain the judges in our election on November 2nd. The survey from Iowa lawyers demonstrates these judges are well qualified to continue in their current positions and they deserve our support.

*The views expressed in this blog post are my own and are not intended to speak for or represent the views of the other lawyers in Brick Gentry, P.C.

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I recently attended the ABA's Forum on Franchising this past week in cloudy San Diego. (Yes, that's correct, cloudy).  One of the more interesting sessions involved the Most Frequently Litigated Substantive Provisions in Franchise and Dealership Agreements by franchisee lawyer John Holland and franchisor lawyer Jonathan Solish.  Numerous litigation topics were covered including choice of law provisions, integration clauses, performance requirements, territory issues, termination for cause, renewal and transfer issues and non-compete provision.  But an interesting part of the discussion came from one of the franchisee lawyers in the audience that said he has been having success, at times, negotiating the personal guarantee provisions of a franchise agreement.

In almost every franchise agreement, the franchisor will ask the prospective franchisee to personally guarantee the obligations set forth in the agreement including royalty payments. Most franchisees hardly seem to bat an eye at these personal guarantees figuring there is no way the franchisor will concede on that provision. But at least according to one practitioner, making the request is worth the shot.  Granted, a franchisor may not give in every time but it is certainly possible in certain instances.  Examples of when a franchise might concede on the guarantee include where you already have an established business entity, perhaps if you want become a multi-unit franchisor or maybe you dealing with a start-up franchisor.

It is important to know that most franchise agreements are negotiable in some way. It's sometimes tough to get concessions on the language but that should not prevent you from trying.  

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The Business Record reported this week on a federal court lawsuit recently filed by local fitness franchise Farrell's Extreme Bodyshaping, Inc. against Kosama, another fitness franchise headquartered in the Des Moines area. Both franchises specialize in a 10-week body "transformation". Farrell's is the established franchise in the area marketplace while Kosama is the upstart. Both appear to be having some success at developing franchise locations in several states.

Farrell's alleges that Kosama used key words and metatags associated with Farrell's to drive Internet traffic from Farrell's to the Kosama Web sites. The Business Record article rightly focuses on the trademark infringement issues which are the heart of the federal lawsuit. However, in this blogpost, I'd rather discuss some issues to consider as it relates to investigating a prospective franchisor. (The considerations below are general in nature and do not relate specifically to either Farrell's or Kosama or their pending lawsuit).

• In my franchise agreement reviews for franchisees I always point to the trademark indemnification provisions as a point to negotiate. My goal is to always obtain trademark indemnification (including attorney's fees) for a franchisee. This means I want the franchisor to contractually obligate themselves to stand by their name and protect the franchisee from lawsuits involving trademarks. A federal court lawsuit is an expensive proposition. Therefore, as a franchisee you definitely don't want to end up in court defending the marks of the franchisor at your own expense. After all, if the franchisor can't stand by their name, what are they really selling?
• Always check the litigation history of the franchisor. That includes not only a review of the FDD but also a Google search and perhaps even a check of the various court Web sites. I also recommend that you directly ask the franchisor about whether any recent litigation is pending that is not included in the franchise disclosure document (FDD). The FDD is often not updated in time to reflect new llitigation.  So prospective franchisees may not become aware of a new lawsuit just by reading the latest FDD. You really need to ask to make sure you have the latest information. 
• Always ask the franchisor about the competition. I think you find out a lot about a franchisor when they talk about their competition. Do they have a healthy respect for the competition? What's their tone when they talk about the competition? What are the franchisor's strategies to compete? How does the franchisor differentiate itself from the competition? What does the competition do that is better than the prospective franchisor? By engaging the franchisor about the competition, you can learn a great deal about the franchisor. Do they really have a legitimate plan to compete?    
• Look closely at the franchise system, including intellectual property. Study the franchisor's system. Is the intellectual property independently developed or does it closely resemble other systems? Do patent, trademark or copyright infringement issues exist?
• Examine the financial strength of the franchisor. Is the franchisor financially sound? If llitigation or other contingencies strike, will your franchisor be able to withstand the potential expense?

Of course there are many other issues to consider when buying a franchises.  Smart guys like The Franchise King will tell you it's highly recommended that you seek legal advice from an attorney experienced with franchise matters if you are thinking about buying one.

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One of the provisions in most franchise agreements is a provision that requires the selling franchisee to pay a transfer fee to the franchisor. This transfer fee is sometimes $10,000 or more. I have represented a number of prospective franchisees that are buying an existing franchise location. In almost every instance the seller expects the buyer to pay for this transfer fee. And in almost every instance, the buyer is surprised to learn that who pays for the transfer fee is negotiable. 

There is a strong argument the selling franchisee should pay the transfer fee. After all, the selling franchisee is legally obligated to pay for the transfer fee under the franchise agreement - not the buyer. But the reality is the seller will probably include it in their selling price anyway so a buyer should keep it in mind when determining what the business is worth.

If you're a buyer just be aware the price is negotiable. Buying the a business right (whether a franchise or not) is the first key to success. Pay too much and you're behind the eight ball from the start.

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