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Court Watch

By Susan H. Morton and David W. Oppenheim
April 01, 2004

Wrongfully Terminated Franchisee's Damages Not Limited to Remedies Afforded Under California Franchise Relations Act

A California appellate court has ruled that a franchisee whose franchise agreement was terminated by the franchisor without good cause in violation of the California Franchise Relations Act (“CFRA”) may sue a franchisor for breach of contract damages based on wrongful termination. In permitting the suit, the court refused to enforce a franchise agreement provision permitting the franchisor to terminate the agreement with or without cause, holding that the provision violated the CFRA and was therefore void and unenforceable. But the court ruled that the franchisee could not sue the franchisor for intentional interference with prospective economic advantage as a result of the wrongful termination. JRS Products, Inc. v. Matsushita Electric Corporation of America, 8 Cal.Rptr.3d 840 (Cal. App. 3d 2004).

JRS Products, Inc. (“JRS”) was a Panasonic fax machine dealer. Panasonic retained the right under the dealer agreement to compete directly with JRS and to terminate the relationship on 90 days' notice with or without cause. In the late 1990s, Panasonic became dissatisfied because JRS began to sell remanufactured toner cartridges at lower prices than Panasonic charged for its new toner cartridges, and because JRS included a letter of authorization from Panasonic in its solicitation packages to market and sell the remanufactured goods. In 1997, and without warning to JRS, Panasonic decided to terminate dealers that were selling remanufactured goods.

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