Contributed by Ari N. Stern, Esq.
January officially starts the “Franchise Disclosure Document (“FDD”) Update Season”. And for franchise lawyers that focus on representing franchisors in the development of FDDs and related tasks, it is arguably the most wonderful (and busiest) time of the year.
Under the Federal Trade Commission – Franchise Rule (the “Franchise Rule”), namely the directive found at 16 C.F.R. § 436.7(a), a franchisor must update its FDD within one-hundred and twenty (120) days of the conclusion of its fiscal year. With many franchisors having a fiscal year that is consistent with the calendar year (i.e., January 1st through December 31st), now is the time that those franchisors are updating their FDD, form franchise agreement, and ancillary contracts associated with the franchise offering.
An experienced franchise practitioner that concentrates on franchise regulatory and transactional matters typically assists franchisor clients with their “annual updates” obligation. But is there value in a franchisor also seeking out advice and counsel from a franchise litigator in connection with the updates process?
In a word: “Absolutely”.
There are a number of ways in which an experienced franchise litigator may add considerable value during FDD Update Season. Chief among them are the following:
- A franchise litigator can assist with ensuring that a franchisor’s Item 3 disclosures concerning pending, adjudicated, and settled litigations and arbitrations meet the requirements of the Franchise Rule. The disclosures found at Item 3 of an FDD are among the most material representations that a franchisor will make to a prospective franchisee in the FDD.
- A franchise litigator can also provide perspective on risk mitigation tactics in connection with disclosures and contractual provisions that may have been the subject of franchisee-ire during the last fiscal year. In fact, certain tactics may actually lead to a strengthening of the franchise relationship, both in the near term and in the long run.
- Perhaps most importantly, a franchise litigator can counsel a franchisor with respect to dispute resolution and choice of law provisions, among other contractual terms, that impact a franchisee’s ability to prosecute an allegation of wrongdoing. In so doing, a litigator can aid a franchisor better understand the “pros” and “cons” of different forms/methods of dispute resolution, and can work with a franchisor to create a more advantageous adjudicatory process should a franchisee decide to a lodge a claim.
Our franchise litigators are available to assist franchisor clients with all of the above (and more). Please note that if you intend to engage us to assist with these matters, we encourage you to reach out as soon as possible so that we are able to provide you with timely counsel and advice. We expect to be handling a high volume of requests now through the end of April.