CHAPTER 693

AN ACT TO AMEND TITLE 6, CHAPTER 25, DELAWARE CODE, RELATING TO PROHIBITED TRADE PRACTICES BY ADDING A NEW SUBCHAPTER THERETO TO PROTECT FRANCHISED DISTRIBUTORS FROM UNJUST TERMINATION OF, OR FAILURE OR REFUSAL TO RENEW THEIR FRANCHISES.

WHEREAS, the relationship between franchised distributors and their suppliers and licensors is marked by economic dependence of the franchised distributor; and

WHEREAS, the suppliers and licensors of franchised distributors have terminated franchises on short notice without just cause, and have threatened and continued to threaten such termination; and

WHEREAS, such unjustified terminations unfairly deprive franchised distributors of their equity and the fruits of their labor after they have created a favorable market for the products, trademarks and trade names of their suppliers and licensors; and

WHEREAS, such terminations eliminate jobs, eliminate the productivity of going concerns and otherwise adversely affect the economic stability of this state; and

WHEREAS, such terminations interrupt the free and continuous flow of communication and information to the people of this state when the franchised distributor is a wholesaler of publications, and thereby interfere with the ability of the people to keep informed on public issues; and

WHEREAS, these conditions are detrimental to the public interest and general welfare of this state; and

WHEREAS, these detrimental conditions cannot be remedied through bargaining because of the franchised distributors' lack of bargaining power.

Be it enacted by the General Assembly of the State of Delaware:

Section 1. Title 6, Chapter 25 of the Delaware Code, is amended by adding thereto a new subchapter to be known as Subchapter IV to read as follows:

SUBCHAPTER IV. SECURITY FOR FRANCHISED DISTRIBUTORS

§ 2551. Definitions

As used in this chapter, unless the context otherwise requires.

(a) "Franchised distributor" means an individual, partnership, corporation, or unincorporated association with a place of business within the state, and engaged in the business of:

(1) purchasing or taking on consignment products which bear the trademark or trade name of the manufacturer, producer or publisher for the primary purpose of selling such products to retail outlets; or

(2) selling in or through retail outlets products which bear the trademark or trade name of no more than three manufacturers, producers, publishers, trademark licensors, or trade name licensors; or

(3) purchasing or taking on consignment, books, magazines, journals, newspapers, and/or other publications for the primary purpose of selling such publications to retail outlets.

(b) "Franchisor" means an individual, partnership, corporation or unincorporated association in the business of:

(1) distributing or selling to one or more franchised distributors, on its own behalf or on behalf of another, products which bear the trademark or trade name of the manufacturer, producer or publisher; or

(2) licensing the use of one or more trademarks or trade names to one or more franchised distributors; or

(3) distributing or selling to one or more franchised distributors, on its own behalf or on behalf of another, books, magazines, journals, newspapers, and/or other publications published by it or by another.

(c) "Franchise" means a contract or other arrangement governing the business relationship within this state between a franchised distributor and a franchisor where the franchised distributor is required to pay more than $100 to enter into said contract or other arrangement.

(d) "Products" means any tangible items offered for sale irrespective of their nature, including, without limiting the generality of the term, all types of publications.

§ 2552. Unjust termination of, or failure to renew, a franchise

(a) Termination of a franchise by a franchisor shall be deemed to be "unjust" or to have been made "unjustly" if such termination is without good cause or in bad faith. Any termination of a franchise which is not unjust shall be deemed to be "just" or to have been made "justly."

(b) The failure of a franchisor to renew a franchise shall be deemed to be "unjust" or to have been made "unjustly" if such failure to renew is without good cause or in bad faith. Any failure to renew a franchise which is not unjust shall be deemed to be "just" or to have been made "justly."

(c) A provision of a franchise which permits a franchisor to terminate that franchise, which provision does not specify the grounds upon which such termination may be made, shall be construed to permit the franchisor to make only a just termination.

(d) A provision of a franchise which permits a franchisor to fail to renew that franchise, which provision does not specify the grounds upon which such failure to renew may be made, shall be construed to permit the franchisor only justly to fail or refuse to renew.

(e) A provision in a franchise permitting a franchisor to make an unjust termination of a franchise is against the public policy of this state and shall not be enforced in the courts of this state.

(f) A provision in a franchise permitting a franchisor unjustly to fail or refuse to renew a franchise is against the public policy of this state and shall not be enforced in the courts of this state.

(g) No franchisor may unjustly terminate a franchise.

(h) No franchisor may unjustly fail or refuse to renew a franchise.

(i) No franchisor may unjustly refuse to deal with a franchised distributor with whom said franchisor has been dealing for at least two (2) years.

§ 2552. Remedies

(a) If a franchisor (1) unjustly terminates a franchise, or (2) unjustly fails or refuses to renew a franchise, or (3) threatens, or attempts, or gives notice that it intends to attempt unjustly to terminate a franchise, or (4) threatens, or attempts, or gives notice that it intends to attempt unjustly to refuse to renew a franchise, then the franchised distributor whose franchise is threatened shall be entitled to recover damages from the franchisor and, in addition, shall be entitled to secure in the Court of Chancery of this state, subject to general equitable principles, an order enjoining such termination or, in case of a failure or refusal to renew, a mandatory order for renewal of the franchise. Pending the issuance of such an order, the franchised distributor shall be entitled to an order enjoining such termination pendente lite, or in case of a failure or refusal to renew, a mandatory order extending the franchise pendente lite. Any such order, whether final or pendente lite, shall contain provisions directing the franchisor to sell or consign to the franchised distributor the products covered by the franchise and/or to license to the franchised distributor the trademarks or trade names covered by the franchise, and otherwise to deal with the franchised distributor under the terms of the franchise so terminated.

(b) Without limiting any other provisions of this chapter, if a franchisor unjustly refuses to deal with a franchised distributor with whom the franchisor has been dealing for at least two (2) years, the franchised distributor shall be entitled to recover damages from the franchisor pursuant to subparagraph (a) of this section plus all other damages (including, without limitation, loss of profits) allowed under the law of this state, and, in addition, shall be entitled to secure in the Court of Chancery of this state an order directing the franchisor to deal with the franchised distributor on fair and competitive terms. Pending the issuance of such final order, the franchised distributor shall be entitled to secure such a mandatory order pendente lite.

(c) Except as otherwise provided in Subparagraph (b) of this section, damages recoverable pursuant to the provisions of this chapter shall include, but shall not be limited to, the following:

(1) a fractional portion of the franchised distributor's tangible assets (both real and personal) in this state used with respect to the terminated or unrenewed franchise, including, but not limited to, sales outlets and facilities, offices, warehouses, trucks and the furnishing, equipment and accessories therein; the numerator of the fraction shall consist of the franchised distributor's gross sales (in the most recently completed fiscal year) within this state attributable to the terminated or unrenewed franchise, and the denominator of the fraction shall consist of the franchised distributor's total gross sales (in the most recently completed fiscal year) in this state; and

(2) loss of good will; and

(3) loss of profits, which loss shall be presumed to be no less than five times the profit obtained by the franchised distributor, by virtue of the terminated franchise, in the most recently completed fiscal year; and

(d) all other damages allowed under the law of this state; and

(e) the reasonable counsel fees and expenses incurred in the action or actions brought pursuant to this chapter.

§ 2553. Notice required to terminate or elect not to renew a franchise

Notwithstanding any provision in a franchise agreement which provides otherwise, any termination of a franchise or election not to renew a franchise must be made on at least 90 days' notice.

§ 2554. Application

This law shall apply to franchises in existence at its effective date and the renewal of such franchises, as well as franchises subsequently executed.

§ 2555. Short title

This chapter may be cited as the Delaware Franchise Security Law.

§ 2556. Severability

If any clause, paragraph, section or part of this law is declared unconstitutional by a court of competent jurisdiction, such judgment shall not affect, impair or invalidate the whole or any other portion of this law.

Approved July 8, 1970.