‘Wacky tobacky,’ plus more hot topics from lawyers at ABA Forum
Illustration by Jonathan Hankin
The ABC test. Monty Python. And of course, the marijuana business, or as Mike Drumm of Drumm Law put it, wearing a groovy tie-dyed T-shirt under his brown sport coat and introducing his panel’s topic: “We’re talking about some wacky tobacky, some blade, some Mary Jane,” plus a half-dozen more nicknames.
That’s what more than 900 franchise lawyers talked about at the American Bar Association Forum on Franchising in Denver in October. Here’s my take on four hot topics that will loom large in 2020.
#1 The ABC test. An extravaganza of grandstanding surrounded the passage of Assembly Bill 5 in California last September, and presenters at the ABA’s Forum on Franchising led their talk with this issue. AB-5 is also known as the new law designed to bust up the business models of Uber, Lyft, food delivery services like DoorDash and—according to the International Franchise Association—franchising as we know it as collateral damage.
“AB-5 is—call it a cannon aiming at a mosquito,” IFA’s state lobbyist Jeff Hanscom said in an earlier interview, explaining a bill ostensibly meant by its supporters to improve the working conditions of drivers in the gig economy is in fact affecting multiple industries.
ABA presenters Jason Adler of Cellairis and Heather Carlson Perkins of Faegre Baker Daniels said the same goes for Vazquez v. Jan-Pro Franchising International, in which California’s Ninth Circuit Court of Appeals affirmed a lower court’s decision that the ABC test applies to franchising. In other words, this media circus is sure to continue.
#2 Monty Python. “And Now for Something Completely Different,” was the Monty Python movie used by two presenters to introduce the next case. “In Salazar v. McDonald’s, the Ninth Circuit struck again and went in a completely opposite direction” from Vazquez v. Jan-Pro, said Perkins.
The court “ruled in favor of McDonald’s, that it was NOT a joint employer responsible with its franchisees for its employees,” she explained. “So, where does this leave us? There is a lot we don’t know yet. One, will system structure matter?” (It mattered in the Jan-Pro situation, not in McDonald’s, she said.) “Will having company stores impact the analysis? How will courts treat affiliates? We haven’t confronted that case yet. Will AB-5 be amended?”
“All I know is tune in again next year,” she said.
#3 Definition of a sandwich. The next case stood out for two reasons: it illuminated the ridiculous minutiae that lawyers sometimes have to argue, and it featured as a defendant Aubrey Janik, a charming young woman featured in Franchise Times as an ardent supporter of franchising who started a series of videos to teach others how to get in the game.
When my colleague Tom Kaiser covered her in 2016, she was a 23-year-old opening her first Erbert & Gerbert’s store in Plano, Texas, with plans for a couple more.
“My future really does rest on this store,” she said.
But then came the sad tale of E&G v. Janik. “E&G terminated her, she flipped the signs” and changed her shop’s name to Nemo’s, the Forum on Franchising presenters said. Erbert & Gerbert’s sought an injunction, on the grounds of trade dress infraction and violating the covenant not to compete. But E&G lost, with the court finding for Janik.
The court said: E&G had not registered any trade dress marks. But the bigger battle came on the non-compete issue, and specifically focused on: what is the definition of a sandwich?
As the presenters explained: “E&G relied on the dictionary definition of sandwiches. So Janik said, the only sandwiches E&G sold was cold subs, and we sell wraps” and other products. “Janik said its revenue from cold subs was less than 50 percent.”
And here’s where things get absurd: “The court said, the meaning of sandwich was a question of fact … and it didn’t have enough information to make a decision,” the presenters said.
“The court also found there was no irreparable injury” to E&G, “with the nearest location more than 600 miles away in Colorado.”
As presenter Adler quipped: “So if I was a judge in this case I would have asked for a sample of every possible type of sandwich.” Yes, that’s funny, but the sad part is the fate of a promising young franchisee.
#4 The buzz kill. Caroline Bundy Fichter of Bundy Law Firm said, “There’s a lot of opportunity” in growing a cannabis business using a franchise model.
“Unfortunately there are some substantial risks.” Chief among them: Attorneys with cannabis clients “are technically working with a client committing things that are illegal under federal law,” she said. Her firm has decided the risk is too high and is not taking marijuana clients.
CBD businesses, which sell products very low in the “high”-inducing chemical THC, on the other hand, face the opposite problem. “It was legalized in the 2018 Farm Bill because it comes from hemp. But it is not universally legal at the state level,” she said.
“This came as unpleasant news for a truck driver” stopped on the Idaho border with a load of hemp plants he was bringing in from another state. “That gentleman is facing 15 years as a guest of the state of Idaho in a state prison,” she said. “You will face the same sourcing and transportation problems” for hemp as for cannabis.
Nonetheless, CBD is booming. “CBD is the new avocado toast. It’s expected to have a 107 percent annual sales increase from now until 2027,” she said.
Mike Drumm of Drumm Law put the dilemma for attorneys representing cannabis clients this way: “As a lawyer you are a weed lawyer, and you being a weed lawyer may not work in a church group, Boy Scouts, who knows. That’s one of the big challenges.
“And the other big challenge is, it is illegal federally, and federal law preempts state law. It’s like franchising a bank robbery franchise. You’re colluding to, ‘Here’s how you do it, here’s the mask you should wear.’”
Beth Ewen is senior editor of Franchise Times, and writes the Continental Franchise Review® column in each issue. Send interesting legal and public policy cases to email@example.com.