Week one in the Des Moines Franchise Case is in the books. Looks like the trial will last another couple of weeks. In the first week several city council members and officials testified but the bottom line is that this case boils down the the experts and the trees.

As discussed in my previous post, the central issue of the trial is to determine if the franchise fees charged by the city are in fact reasonably related to the City’s administrative expenses. In an effort to defend its administrative expenses, the city argues that it costs about $19.6 million per year to regulate utilities in public rights of way. Much of this allegedly comes from improper tree trimming causing more than $4 million in damage each year to trees along 800 miles of streets.

The plaintiff challenged the validity of the number of the trees and also presented expert testimony from an arborist who testified that he could not follow the city’s tree survey and found substantially less trees in the public right of way.

For more read this article from the Des Moines Register. 

 

 

 

 

The City of Des Moines utility franchise tax trial begins today.  The following is a summary of the procedural aspects of the case and what is at stake.

Initially, the Des Moines had been sued in District Court by Lisa Kragnes seeking to declare the utility franchise fee found on MidAmerican Energy bills illegal. Kragnes won in district court when the judge granted her motion for summary judgment. The City of Des Moines appealed and the Iowa Supreme Court reversed the summary judgment decision.

The Supreme Court reversed the case because it ruled a geniune issue of material fact exists as to whether all or part of the franchise fees are reasonably related to the City’s administrative expenses. The Court ruled the grant of the franchises to the utility causes the City to incur some ongoing administrative expenses in the exercise of its police power. These expenses would include the reasonable costs of inspecting, supervising and otherwise regulating the gas and electric utility franchises.

The Court has now remanded the case to the district court for a trial on the merits which begins today. The critical issue is whether the fees charged by the City of Des Moines bear a relationship to the cost to the City of the utility’s occupancy of public areas in the City. The Court said the case record is replete with references that the City of Des Moines used a portion of the franchise fees for purposes other than administrative expenses. The Supreme Court, however, ruled that this fact alone does not mean Des Moines is not using other streams of revenue to cover the administrative expenses it incurs as a result of granting MidAmerican the gas and electric utility franchises. 

The upcoming trial will determine if the franchise fees are in fact reasonably related to the City’s administrative expenses. If not, the district court will then issue an order disallowing the franchise fees as contained in the ordinances and also likely award damages to the plaintiff’s class. If the franchise fees are reasonably related to the administrative expenses, the court shall enforce the ordinances up to an amount equal to the fees reasonably related to the City’s administrative expenses in exercising its police power.

For more check out this article from the Des Moines Register.

It has taken longer than I had hoped but my November goal is to lauch the Interactive Learning Environment for clients and others interested in employment law compliance and training, franchising basics and starting up your business.  Our initial free program will include a Legal Guidebook on Starting Your Iowa Business.  Gradually, we will release more and more content on the important issues that impact your business. One of my partners, Matthew Brick, will be a major contributer on employment law issues.

My introductory video is complete so I need to get moving on the programs. Due to time constraints with work load and this project, followers should expect blogging to be very light over the remainder of the month. I appreciate your loyal support to this blog and I encourage you to give our ILE a try when its finished. 

A special thanks to the guys at createWOWmedia who have been so invaluable in getting the ILE project off the ground. Stay tuned for the finished product and I look forward to your comments once we are up and running.

 

The ABA’s Forum on Franchising is this week in Austin, Texas.  Another all-star lineup features an intensive program about learning from mistakes under the new FTC rule.   Again, there are several other terrific programs.  One of the more interesting talks is about franchising in the BRIC markets.  (Brazil, Russia, India and China).  Like the US, those markets have experienced an economic downturn.  How will that impact franchising development in those countries?  

 

Brick Gentry’s Austin Kennedy is now live with his new immigration law blog.  The blog was designed by our friends at Lexblog.

Austin chairs Brick Gentry’s immigration and naturalization law practice group, with an emphasis on employment-based immigration (ie., work visas), employer immigration compliance (ie., avoiding and recovering from ICE raids) and investor visas. Austin has helped employers navigate our immigration laws and find the talent they need to be successful in virtually every sector including health care, manufacturing, construction, agriculture, information technology, education, research and development, finance and non-profit.

So be sure to visit Austin’s blog often if you are interested in immigration issues.

Juice Magazine recently interviewed me for an article on how to start your own business. I offered the following tips to new business owners:

  • Get agreements in writing up front, whether it’s a few hundred dollars or larger.
  • Small business centers are a good place for people to start. It’s often a good place for people to go get some counseling.
  • You should be very careful if you’re going to go into business with partners. You should draft a buy-sell agreement that outlines how the business will be run, and what happens if one of them should die or want to leave the business. Whether it’s family or friend. 

I also thought Iowa intellectual property attorney Brett Trout offered some excellent advice by recommending that new business owners obtain a federal trademark for their business name or product. In this flat world it is more important than ever to protect your intellectual property. A federal registration is significant because it enables you to collect attorney’s fees and treble damages under certain circumstances in a trademark infringement lawsuit.

The Ohio Practical Business Law Blog examines the new Franchise Disclosure Document (FDD) a recent post.  The new FDD rules began in earnest  on July 1, 2008.  

Previously I posted on some of the key differences between the old UFOC rule and the new FDD rule including:

  • Use of unaudited financial statements.  Start-up franchisors may phase-in the use of audited financial statements.  In this case the franchisor must clearly and conspicuously disclose that the franchise has not been in business for three or more years and cannot include all required financial statements.  (There may still be requirements to submit audited opening balance sheets in registration states).  Franchisees should make sure to review the financials carefully as always.
  • Financial Statements.  The FTC will allow the use of financial statements prepared according to U.S. generally accepted accounting principles ("GAAP").  There must be separate audited financial statements for any parent that "commits to perform post-sale obligations for the franchisor or guarantees the franchisor’s obligations" in the disclosure document.
  • No Broker Disclosures.  The Amended FTC rule eliminates the broker disclosure requirement.  However, the broker will need to be listed on the Receipt Page because the Receipt Page requires the franchisor to identify all "franchise sellers".
  • Litigation.  Franchisors will be required to disclose material franchisor-initiated litigation against its franchisees.  The rule will be more lenient as a franchisor will only have to disclose actions that the franchisor filed during its last fiscal year – not the last 10 years. Further, a full description of the case will not be necessary.  If a counterclaim is filed against a franchisee the disclosure will need to be treated as any other franchisee-initiated action and the regular, full disclosure will be required.  (Franchisees will need to more fully investigate whether franchisor-initiated litigation occurred whether it is in the disclosure document or not).
  • Financial Performance Representations.  The new rule encourages franchisors to provide financial performance representations but it is still voluntary.  Franchisors may provide a more detailed cost and expense analysis which could be helpful for prospective franchisees.  Also, franchisors may provide financial representations based upon a subset that shares the same characteristics. 

There are other differences so be sure to talk with an attorney experienced in franchise matters if you are looking at purchasing a franchise. 

The bailout is not universally popular with Main Street America but the International Franchise Association says a bailout is needed because our credit crisis "threatens to derail the future growth of franchised businesses because it undermines the health of credit markets as well as equity markets."

There is no doubt Wall Street is hoping against all hope that a bailout occurs.  If it the legislation isn’t passed I have heard pundits predict the DOW could drop as low as 8,000.  More banks would fail, retirement accounts would plummet and a lengthy recession could occur.

But I have mixed feelings about this bailout.  Should bad business decisions be rewarded?  Most of the business people I represent rightly remark, "I don’t get a handout, why should they?"  Should we just let the market work itself out?

Columnist Rhonda Abrams urges that small businesses need direct help. Some of the areas Congress could help small businesses include giving tax credits for hiring your first employee, credit card fairness, SBA disaster assistance loans and estate tax reform. Generally, franchisees are of the small business variety.  It seems they would benefit more if direct help occurred from Congress rather than just bailing out the largest financial institutions in America.

It’s tough to know the answers and I don’t pretend to be an economist. I have talked recently with several local bankers concerning the current economic climate.  The bankers have told me they are still making loans and actually have some optimism for the Iowa economy.  That flies in the face of a recent report indicating that West Des Moines is No. 4 on the list of the towns that could be hardest hit by the financial crisis.  I hope the local bankers are right.