The new year is as much a time for reflection as it is for resolution. With this in mind, I’d like to briefly look back at last year’s franchise law developments in Mississippi.
On the legislative front, 2018 saw a major change to Mississippi’s franchise statute [FN1]. Until recently, this statute regulated both franchises and pyramid schemes. However, on March 19, 2018, Mississippi governor Phil Bryant signed into law Senate Bill No. 2805, which amended the statute by pulling the pyramid scheme provisions out and moving them into their own separate sections of the Mississippi Code. Unfortunately, the 2018 amendments did not revise the statute’s headings, which still reference pyramid schemes. This will likely leave readers of the statute confused over its application. In any case, all of the franchise-related provisions of the statute were left intact. The statute still prohibits a franchisor from terminating a franchise without 90 days’ prior notice except under certain circumstances. And it still prohibits franchisors from making certain representations of earnings to prospective franchisees except under certain circumstances.
On the litigation front, a case out of the Northern District of Mississippi clarified how damages should be calculated when the sale of an existing franchised location goes bad. In Kaiva, LLC v. Parker [FN2], the Parkers sold their Subway franchise to Kaiva for a purchase price of $300,000 made up of a small down payment and monthly installments spread over 10 years. The sale was done without the franchisor’s approval, which was in violation of the franchise agreement. On top of this, the sellers allegedly misrepresented the financial performance of the franchise to the buyer. When the franchise didn’t perform as expected and was eventually terminated by the franchisor as a result of the authorized transfer, the buyer sought damages from the sellers. The jury found for the buyer and awarded $250,000 in compensatory damages and $15,000 in punitive damages. The sellers then asked the court to review the jury’s decision, and the court responded by clarifying damages calculations under Mississippi law. First, for a misrepresentation by the seller in the sale of a franchised business, the proper measure of damages is the difference between the actual value of the business and the contract price. Second, if the seller fails to convey the franchise agreement for the business (such as in this case where the sellers did not have approval from the franchisor), the proper measure of damages is the difference between the value of the franchise agreement as warranted by the seller and value of the other business assets transferred. Third, for breach of what the court characterized as a “lease-purchase agreement” for a franchised business, the remedy is the difference between the fair market value of the business less the contract price unpaid. However, all of these damages calculations were qualified by the court so as to avoid a windfall by the injured party. In the end, the court ordered a new trial to revisit the calculation of compensatory damages to Kaiva.
And since reflection without resolution would be mere vanity, let’s resolve, at the very least, to fix Mississippi’s franchise statute headings in 2019.
- [FN1] Miss. Code Ann. § 75-24-51 et seq.
- [FN2] Kaiva, LLC v. Parker, No. 1:15-CV-63-DMB, 2018 WL 1162250 (N.D. Miss. Mar. 5, 2018)
Authored by Benjamin L. Mitchell