And the saga continues . . .
In Pool Concepts, Inc. v. Watkins, Inc., Bus. Franchise Guide (CCH) ¶ 12,249 (D. Minn. Jan. 20, 2002), a Minnesota franchise dealer of Caldera products (“plaintiff”) filed suit against a California manufacturer of Caldera products (“defendant”) after defendant threatened termination.
The principal dispute was whether plaintiff paid a franchise fee. Under the Minnesota Franchise Act, a “franchise fee” means “any fee or charge that a franchisee or subfranchisor is required to pay or agrees to pay for the right to enter into a business . . . .” Minn. Stat. § 80C.01, subdiv. 9.
According to plaintiff, the following payments to defendant constituted franchise fees: “(1) the payment of funds by plaintiff to defendant that are ultimately transferred by defendant into the so-called ‘co-op’ advertising fund, (2) the sales literature that defendant required plaintiff to purchase and (3) the minimum parts inventory that defendant required plaintiff to maintain in excess of plaintiff’s desires and/or requirements.”
Ultimately, the court rendered the co-op advertising program to constitute a “franchise fee,” reasoning that “when plaintiff purchases spas from defendant, it is purchasing the spa and also the ability to participate in the co-op advertising fund that is created as a result of the transaction. The money that defendant collects from plaintiff for spas includes the funds defendant contributes to the co-op fund. Moreover, the payment of funds is not optional, as it is tied to the purchase of spas. Because the money for the co-op fund comes directly from plaintiff . . . this money constitutes a franchise fee.”
Takeaway: Mandatory contributions to an advertising fund have been found to satisfy the franchise fee element of the Minnesota Franchise Act.
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