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17 September 2019
Can a franchisor be held liable if, following its acquisition by another industry player, it decides not to maintain the existing network of franchises but rather to deploy its own brand and outlets instead? On 3 April 2019 the Paris Court of Appeal held that a franchisor had not breached its duty of loyalty towards its franchisee in reorganising its business following its change of control.
Citer was a car rental subsidiary of PSA Peugeot Citroen, created in 1968. In 2011 PSA Peugeot Citroen announced the sale of Citer to Enterprise Holdings, the owner of Enterprise Rent-a-Car, National Car Rental and Alamo Rent-a-Car. Enterprise Holdings already had several outlets in France at that time – a majority of which were owned by Enterprise Holdings. Only a few outlets were franchised.
As Enterprise Holdings decided to deploy its own brands in France through its own branches and not to maintain the Citer network of franchises, Citer did not renew 18 French franchises operating in 32 French cities (out of 21 franchises) which all terminated on 31 December 2013.
A number of lawsuits opposed several French franchisees against Citer – in particular, they claimed that Citer had breached its duty of loyalty in the context of the reorganisation of its business to their detriment.
In the case at hand, Loc Avantage had entered into a franchisee contract with Citer on 13 March 2006 for two franchises near Paris. The franchise contract had a four-year term, which was tacitly renewable for two years. When the initial four-year term expired, it was tacitly renewed until 12 March 2012. In January 2012, two months before its expected expiry, Loc Avantage and Citer entered into a two-year new franchise contract, effective from 1 January 2012 and ending on 31 December 2013, which was not tacitly renewable.
Following Enterprise Holdings' acquisition of Citer, Citer eventually informed its franchisees that it would not renew the ongoing franchise contracts. In this context, on 17 December 2012 Loc Avantage was informed that its franchise contract would terminate one year later, on 31 December 2013.
On 15 April 2014 Citer filed a lawsuit before the Paris Commercial Court against Loc Avantage to obtain payment of various sums due under a separate cars lease contract. Loc Avantage counterclaimed that, among other things, Citer had breached its duty of loyalty when it reorganised its business following its acquisition by Enterprise Holdings and applied for damages. On 9 February 2017 the Paris Commercial Court ordered Loc Avantage to pay various sums to Citer under the cars lease contract and dismissed its counterclaim.
On 10 March 2017 Loc Avantage appealed this decision before the Paris Court of Appeal. Citer maintained its initial claim. Loc Avantage also maintained its request for damages – in particular, it asserted as follows:
Consequently, Loc Avantage claimed €880,000 in damages for:
On 3 April 2019 the Paris Court of Appeal upheld the Paris Commercial Court's decision, dismissing all Loc Avantage's claims.
The court considered as follows:
To support its claim that the franchisor had breached its duty of loyalty in refusing to renew its franchise contract, the franchisee mostly (if not exclusively) referred to the circumstances which surrounded the execution of the new franchise contract (which had a short and non-renewable term). According to the franchisee, the franchisor:
However, the court considered that the franchisee had failed to demonstrate its assertions. It relied on the terms of the franchise contract and the contents of the pre-disclosure documentation – both of which had anticipated this upcoming reorganisation. The new franchise contract expressly stated that it was not renewable and the pre-disclosure documentation expressly indicated that the franchisor could no longer have the right to use its trademarks.
Had the franchisee been able to demonstrate any misrepresentation by the franchisor when the new franchise contracts was executed, the court would probably have ruled otherwise. In the context of an internal business reorganisation, franchisors should therefore be careful in statements that they may make to franchisees, including in the pre-contractual disclosure documentation.
For further information on this topic please contact Raphael Mellerio or Bertrand Baheu-Derras at Aramis Law Firm by telephone (+33 1 53 30 7700) or email (firstname.lastname@example.org or email@example.com). The Aramis Law Firm website can be accessed at www.aramis-law.com.
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