New Jersey Franchisee Prevails On Summary Judgment

By: Vincent T. Cieslik, Esq.

One of the most potent weapons in the arsenal of a defendant, particularly one with the financial ability to litigate on a limitless budget, is the motion for summary judgment. A motion for summary judgment says to the Court that a party is clearly entitled to win the entire case, and that the case need not be decided by a jury. Often with commercial parties, a motion for summary judgment is a strategic move to get the judge to decide the case in their favor early. A party outlines for the court why they believe their franchise or commercial agreement is “crystal clear” and why the other side has no case.

In one recent case, handled by the undersigned, the adverse party’s motion for summary judgment backfired, and the Judge made findings that benefited Capehart’s client who brought the claims, a franchisee. The Judge ruled that the agreement was not “crystal clear,” but instead had to be interpreted according to how the franchisee understood it, how it was explained to the franchisee when he signed it, and according to how the parties intended the agreement to work in the real world, after it was signed.

In this case, the franchisee asserted that he had an exclusive franchise to handle all real estate sales in a particular section of the Southern New Jersey shore market. His franchise agreement, he believed, gave him exclusive rights to the market and stipulated that the franchise company would not allow other realtors from the company to compete with him in said market. He also believed that the franchise company’s internet referral system was improperly sending leads to realtors outside of the lucrative shore market, even though he was entitled to those leads and sales as the franchisee. He likewise believed that the franchise company allowed a virtual or internet office to be set up in his territory, in order to siphon off sales to other realtors competing via the internet with his franchise in its exclusive territory.

The franchise company took the position that their agreement allowed them to do whatever they wanted, wherever and whenever they wanted, and that this meant the company could allow competition from within its brand against the franchisee in the disputed territory. The company “hung their hat” on a long franchise agreement, which is drafted by its home office lawyers, and is heavily slanted in favor of the company’s rights.

The franchise company took the position that the Judge merely needed to read select phrases from the franchise agreement, and, because they were crystal clear, the company should be entitled to win the case. The company believed that the agreements were so clear that the Judge should disregard the franchisee’s claims and how he understood the agreement would be managed during the relationship. The company further believed that the Court didn’t need to hear testimony from the franchisee about how he understood his territorial rights would be honored or protected.

The franchisee, however, felt that the Judge may want to hear testimony from other franchise owners about how they were being similarly treated.

In a key decision, the Judge sided with the franchisee, denying summary judgment. The Judge found that the evidence could sustain the franchisees’ claims now, and possibly at the end of the case, after the parties completed their trial preparation. The Judge found also that the oral testimony could overcome the language in the agreements, and that the court may find at trial for the franchisee after hearing all of the witness testimony.

So, franchisees do have rights in New Jersey Courts. They should present their valid claims, vigilantly develop their cases early in the litigation, and be prepared to counter tactical moves, such as motions for summary judgment. This will allow franchisees to respond quickly and diligently to aggressive litigation tactics, and use them to their advantage wherever possible, taking a potential loss and turning it into a big “W.”