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Court Watch

By Charles G. Miller and Darryl A. Hart

CA's Material Modifications Statute May Be Applicable After Franchise Agreement Ends

In a ruling on a motion to dismiss a cause of action for violation of the California Franchise Investment Law ('CFIL'), a federal district court found that California's unique material modification statute, California Corporations Code '31125, can be raised when a franchise agreement's status is changed into a bailment of intellectual property rights. In Romio's Franchise Group, Inc. v. Romio's of California, et al., CCH ' 13,740 (USDC Central D. Cal. Sept. 25, 2007), the court had to decide whether a cause of action was stated where an agreement assigning a franchisor's intellectual property to a former subfranchisor was a material modification of a subfranchise agreement, even though as part of the same transaction the parties sought to cancel the subfranchise agreement.

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