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Sample Confessed Judgment Note for Commercial Use

Thursday, October 23rd, 2014

CONFESSED JUDGMENT NOTE

[SAMPLE]

 Amount –

Date –

            The undersigned __________________________ (hereinafter referred to as “Maker”) hereby promises to pay ________________________________(“______________”), located at [Address], the sum of ___________________ ($_______________) to resolve a dispute over monies owed to ______________________ related to _________________________________.

 NOW, THEREFORE, in consideration of the foregoing, the covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Maker hereby agrees as follows:

 1.   Payment by Maker Upon Execution of this Note. Maker agrees to pay the sum of $_________________ to ____________________ upon execution of this Note.

 2.   Balance of Sum to be Paid by Maker. Maker agrees to pay the balance owed of the Sum in the amount of $_______________ on or before _________________ (the “Due Date”).  

 3.   Default. Maker shall be in default of this Note should Maker fail to make any payment due to ______________ under this Note, or fail to pay in full all amounts owed under this Note, on or before the Due Date. Upon default, the Entire Sum owed to ______________ of $__________________ shall be then immediately due and payable by Maker, less any amounts previously paid by Maker to _______________ in settlement of this matter.

 4.     Prepayment. Maker may prepay the principal amount outstanding in whole or in part at any time without penalty. 

5.  Confession of Judgment. Should Maker default under this Note, Maker appoints _______________________ as its duly authorized attorney-in-fact with authority, in its name, place, and stead, to confess judgment in the office of the clerk of any Court of any city or county in the state of ____________________ against Maker, in the amount of the $________________, less any amounts previously paid by Maker to _________________ in settlement of this matter.

 6.  Waiver. Maker waives presentment and demand of payment. The failure of ______________________ to exercise any of its rights hereunder in any instance shall not constitute a waiver thereof in that or any other instance. Any notice to Maker shall be given by mailing such notice by first class mail, postage prepaid, addressed to Maker at ____________________________________, or to such other address as Maker may designate by written notice to _____________________. Notice of non-payment is not required by the terms of this Note.

 7.  Costs and Expenses. Maker shall pay __________________ for all costs and expenses, including, but not limited to filing fees, investigative costs and reasonable pre- and post-judgment attorney fees, incurred by __________________ in enforcing and collecting this Note.

 8.  Obligations and Benefits. The obligations and benefits of this Note shall be binding upon and inure to the benefit of the Maker, _____________________ and their respective heirs, successors and assigns.

MAKER

____________________________             

By: _________________________

Title: ________________________

Date: ________________________

 

Isolated Sales Exemption in the New York Franchise Act

Wednesday, March 7th, 2012

N.Y. CLS Gen. Bus. Law § 684(3)(c) of the New York Franchise Act provides an exemption to franchisors from the general registration requirements of the Act for what is deemed an “isolated franchise sale.”  Under this exemption, no franchisor is required to register its FDD/UFOC in New York where:

(1)   “The transaction is pursuant to an offer directed by the franchisor to not more than two persons . . .

 (2)   if the franchisor does not grant the franchisee the right to offer franchises to others,

 (3)   a commission or other remuneration is not paid directly or indirectly for soliciting a prospective franchisee in this state, and

 (4)   the franchisor is domiciled in this state or has filed with the department of law its consent to service of process on the form prescribed by the department.”  N.Y. CLS Gen. Bus. Law § 684(3)(c).

 New York courts have interpreted § 684(3)(c) to mean in essence that  the sale of the first franchise unit is exempt from registration if the unit was only offered to a maximum of two people (See BMW Co., Inc. et al. v Workbench Inc. et al. (No. 86 CIV 4200 1988 WL 45594 (S.D.N.Y. April 29, 1988); CCH Business Franchise Guide ¶ 9104, at 18,850). 

This exemption is well settled law in New York:  “This isolated franchise sale exemption is potentially useful for new U.S. franchisors or foreign franchisors that are new to the United States. It permits them to sell one franchise in New York without having to register a disclosure document with the state.”  LJN, Law Journal Newsletters, Franchising Business & Law Alert, Volume 18, Number 4, January 2012, by George J. Eydt. 

Further, in a recent New York case, Burgers Bar Five Towns, LLC v. Burger Holdings Corp., 897 N.Y.S. 2d 502 (2d Dep’t 2010), again upheld the existence of the isolated franchise sale exemption under § 684(3)(c) provided the franchisor is able to meet the four prongs of the statute.  In reversing a summary judgment that had been entered by the trial court against a franchisor that had failed to register its UFOC/FDD, the appeals court stated that the matter be remanded back to the trial court to determine whether the franchisor indeed met the exemption factors.  Further, the appeals court held that even if the exemption was not available, the franchisee had to prove that it sustained damages as a result of the failure to register and that the failure to register was willful.

There is some support for the proposition that not only does § 684(3)(c) exempt a franchisor from the registration requirement of the New York Franchise Act for the isolated franchise sale, the franchisor is also exempted from the disclosure requirements of the Act.

§ 683(8) of the New York Franchise Law provides that:  “A franchise which is subject to registration under this article shall not be sold without first providing to the prospective franchisee, a copy of the offering prospectus, together with a copy of all proposed agreements relating to the sale of the franchise.” 

No New York Court has yet delved this deeply into the disclosure exemption question.  The few Courts that have addressed the issue, BMW Co., supra, The National Survival Game of New York, Inc., supra, and Burgers Bar Five Towns, LLC, supra., have either failed to examine the relationship between the two statutes, or resolved the merits of their cases on other grounds.

Nevertheless, a franchisor faced with a registration and disclosure violation in New York for an isolated franchise sale would be smart to argue that both registration and disclosure are exempted.

The Legal Standard for Fraud in Maryland

Wednesday, March 7th, 2012

To prevail on a claim of fraudulent misrepresentation in Maryland, a plaintiff must establish, by the heightened evidentiary standard of clear and convincing evidence:

“(1) that the defendant made a false representation to the plaintiff, (2) that its falsity was either known to the defendant or that the representation was made with reckless indifference as to its truth, (3) that the misrepresentation was made for the purpose of defrauding the plaintiff, (4) that the plaintiff relied on the misrepresentation and had the right to rely on it, and (5) that the plaintiff suffered compensable injury resulting from the misrepresentation.”  VF Corp. v. Wrexham Aviation Corp., 350 Md. 693, 703 (1998), quoting Nails v. S&R, 334 Md. 398, 415 (1994).

The defendant must actually be aware of the falsity, or atleast the potential for falsity.  The requirement concerning knowledge of the falsity or reckless indifference as to the truth of the representation means either the defendant’s actual knowledge that the representation was false or the defendant’s awareness that he does not know whether the representation is true or false. Ellerin v. Fairfax Savings, 337 Md. at 231, 652 A.2d at 1124.  

Negligence or misjudgment, “‘however gross,'” does not satisfy the knowledge element. Ellerin, 337 Md. at 232, 652 A.2d at 1125, quoting Cahill v. Applegarth, 98 Md. 493, 502, 56 A. 794, 796 (1904). See also VF Corporation and Blue Bell, Inc. v. Wrexham Aviation Corp., 350 Md. 693 (1998).

A defendant must have the intent, the scienter, to cheat another: “It is well recognized under Maryland law that an action for fraud cannot be supported … without any design to impose upon or cheat another.”  VF Corp. v. Wrexham Aviation Corp., 350 Md. 693, 703 (1998).  

The complaining party though, must have reasonably relied on the defendant’s representations.  To determine whether one party’s reliance upon the allegedly fraudulent statements of another party is reasonable, a court looks to all the facts and circumstances present in the particular case.  “In determining whether reliance is reasonable, a court is required to view the act in its setting….” Parker v. Columbia Bank, 91 Md. App. At 361-362. 

The One of the most important circumstances in this regard is the plaintiff’s background and experience.  For example, a complaining person who is knowledgeable in the commercial real estate realm could not be said to have reasonably relied on another’s false representations in that realm, as the complainant would have the requisite knowledge and resources to determine whether such statements were true in the first place.

 

 

Foreign LLCs and Corporations That Transact Business in Maryland But Fail to Register in Maryland Cannot File Suit Here

Wednesday, March 7th, 2012

          Before transacting interstate or foreign business in Maryland, a foreign limited liability company (“LLC”) shall register to transact business with the State Department of Assessments and Taxation (“SDAT”) in accordance with Md. Corp. & Ass’ns. Code Ann. § 4A-1002:

“(a) Requirement. — Before doing any interstate, intrastate, or foreign business in this State, a foreign limited liability company shall register with the Department.”

           Under § 4A-1002, a foreign LLC is required to complete an application setting forth, among other information, its name, state of organization, business purpose, and resident agent, and pay a filing fee to SDAT.

          Md. Corp. & Ass’ns. Code Ann. § 4A-1007 states that any foreign limited liability company that fails to register with the SDAT in accordance with § 4A-1002 is barred from maintaining a lawsuit in any court of this State, as follows:

“(a) Barred from maintaining suit. — If a foreign limited liability company is doing or has done any intrastate, interstate, or foreign business in this State without complying with the requirements of this subtitle, the foreign limited liability company and any person claiming under it may not maintain suit in any court of this State, unless the limited liability company shows to the satisfaction of the court that:

   (1) The foreign limited liability company or the person claiming under it has paid the penalty specified in subsection (d)(1) of this section; and

   (2) (i) The foreign limited liability company or a successor to it has complied with the requirements of this title; or

     (ii) The foreign limited liability company and any foreign limited liability company successor to it are no longer doing intrastate, interstate, or foreign business in this State.”  

In essence, Md. Corp. & Ass’ns. Code Ann. § 4A-1007 bars a foreign LLC from acting as a plaintiff in any Maryland state or federal court if the LLC is doing or has done “any intrastate, interstate, or foreign business” in Maryland without registering or qualifying with SDAT. 

Foreign corporations face nearly identical Maryland statutes.  See Md. Corp. & Ass’ns. Code Ann. §§ 7-202,  and 7-301, respectively. 

The Maryland Court of Appeals stated the following in Yangming Marine Transport Corporation v. Revon Products U.S.A., Inc., 311 Md. 496 (1988):

“As pointed out above, under § 7-301, a foreign corporation that has not complied with § 7-202 or § 7-203 is barred from suing in Maryland if the corporation “is doing . . . any intrastate, interstate, or foreign business in this State.”  …. Instead, we have held that § 7-301 embodies a test for determining whether a foreign corporation is “doing business” in Maryland. See G.E.M., Inc. v. Plough, Inc., 228 Md. 484, 486, 180 A.2d 478, 480 (1962). Under this test, § 7-301 bars an unqualified or unregistered foreign corporation from suing in Maryland courts only if the corporation is doing such a substantial amount of localized business in this State that the corporation could be deemed “present” here. See, e.g., S.A.S. Personnel Consult. v. Pat-Pan, 286 Md. 335, 339-340, 407 A.2d 1139, 1142 (1979); G.E.M., Inc. v. Plough Inc., supra, 228 Md. at 488-489, 180 A.2d at 480-481.

 

 

“Franchise Fees” and the New York Franchise Law

Wednesday, August 24th, 2011

The New York Franchise Law defines a franchise fee as any fee or charge that a franchisee or subfranchisor is required to pay or agrees to pay directly or indirectly for the right to enter into a business under a franchise agreement, or otherwise sell, resell or distribute goods, services, or franchises under such an agreement, including, but not limited to, any such payment for goods or services.  The NY Franchise Law also contains several exclusions to the franchise fee definition, but no exemptions pertain to the purchase/sale of equipment.  Rather, the exemptions to the NY law are nearly identical to the Maryland law.

The dollar threshold for a franchise fee under NY law is $500.

Like Maryland, the scope of the New York Franchise Law franchise fee definition is construed broadly.  For example, a one-time fee or a monthly payment during a four-year period, which was characterized as a lease, was ruled a franchise fee.

The Definition of “Franchise Fee” Under the Maryland Franchise Law

Wednesday, August 24th, 2011

The Maryland Franchise Registration and Disclosure Law (“MD Franchise Law”), Section 14-201, defines a franchise as “an oral or written agreement in which: 1) a purchaser is granted the right to engage in the business of offering, selling or distributing goods or services under a marketing plan or system prescribed in substantial part by the franchisor; ii) the operation of the business under the marketing plan or system is associated substantially with the trademark, service mark, trade name, logotype, advertising or other commercial symbol that designates the franchisor or its affiliate; and iii) the purchaser must pay, directly or indirectly, a franchise fee.”

Section 14-201 of the MD Franchise Law goes on to define a franchise fee as a charge or payment that a franchisee or subfranchisor is required or agrees to pay for the right to enter into a business under a franchise agreement.  The purchase of equipment is included in the definition of a franchise fee.  Section 14-201 contains several exclusions from the definition of a franchise fee, but no exclusions for the purchase of equipment by a franchisee/licensee.

Many of the Maryland exclusions are limited to products-oriented licensors, as for the sale of goods at wholesale prices.  Other exemptions are for the sale or lease of real property for use in the business, and any amounts paid for sales materials used in making sales, sold at no profit by the licensor. An additional exemption exists for the sale, at fair market value, of supplies or fixtures that are necessary in order to operate the business. 

Section 14-203 of the MD Franchise Law sets the threshold amount for the franchise fee at any amount exceeding $100.

Threshold for a Franchise Fee Under the FTC Rule Is $500 Through The First Six Months

Wednesday, August 24th, 2011

A licensing or other relationship where the trademark and system/significant control prongs of the FTC Franchise Rule are met is excluded from the scope of the franchise regulation if the total required payments by the franchisee before and during the 6-month period after the business opens do not exceed $500. 

The required fee element captures all sources of revenue paid by a licensee to a licensor for the license. The element is deliberately expansive, encompassing lump sum, installment, fixed, fluctuating, up-front, and periodic payments for goods or services, however denominated, whether direct, indirect, hidden, or refundable. 

To avoid the FTC Rule franchise fee requirement, it is possible for a licensor to defer required payments exceeding $500 for at least six months, and as a result, not be deemed a franchise under the FTC Rule and federal law.  This remains true even if the licensee signs a nonnegotiable, secured promissory note (with no acceleration clause) promising to pay the money after six months.

The deferment option is not all-encompassing however.  While the FTC Rule permits this deferment of payment option, this is applicable only in those states that do not have individual, state specific franchise laws, since in those states such license transactions are governed by the FTC Rule.  There are upwards of 15 states across the country, including Maryland, Virginia, New York, California, and Illinois, which do have specific franchise laws, and which do not grant this deferment option.  As a result, deferment is not an option in these states.  Have your franchise attorney check the franchise law of each individual state before proceeding.

 

The Definition of “Franchise Fee” Is Extremely Broad Under the FTC Franchise Rule

Wednesday, August 24th, 2011

In addition to the trademark and system/significant control prongs of the FTC Franchise Rule, the FTC Rule requires as a third prong that the franchisee make a required payment or commit to make a required payment to the franchisor or the franchisor’s affiliate in order for a relationship to be deemed a franchise. 

The term “required payment” is defined broadly by the FTC to mean:  “all consideration that the franchisee must pay to the franchisor or an affiliate, either by contract or by practical necessity, as a condition of obtaining or commencing operation of the franchise.”  16 C.F.R. §436.1(s).

The definition of a required payment captures all sources of revenue that a franchisee must pay to a franchisor or its affiliate for the right to associate with the franchisor, market its goods or services, or begin operation of the business.

The FTC Franchise Rule Compliance Guide states that “required payments go beyond payment of a traditional initial franchise fee.  Thus, even though a franchisee does not pay the franchisor or its affiliates an initial franchise fee, the fee element may still be satisfied. Specifically, payments of practical necessity also count toward the required payment element. A common example of a payment made by practical necessity is a charge for equipment or inventory that can only be obtained from the franchisor or its affiliate and no other source. Other required payments that will satisfy the third definitional element of a franchise include: (i) rent, (ii) advertising assistance, (iii) training, (iv) security deposits, (v) escrow deposits, (vi) non-refundable bookkeeping charges, (vii) promotional literature, (viii) equipment rental, and (ix) continuing royalties on sales.”

Courts throughout the country, both in interpreting the FTC Franchise Rule as well as various state franchise laws, have held that almost any payment made by a franchisee to the franchisor will satisfy the franchise fee element.   

For example, a boat dealer’s extensive advertising and its required purchases of promotional materials from the franchisor satisfied the franchise fee requirement under the California Franchise Investment Act.  Boat & Motor Mart v. Sea Ray Boats, Inc., Bus. Franchise Guide (CCH) ¶8846 (9th Cir. 1987).

Similarly, a forklift dealer’s payments to a manufacturer for additional copies of a Parts and Repair Manual constituted a franchise fee under the Illinois Franchise Disclosure Act.  To-Am Equip. Co., Inc. v. Mitsubishi Caterpillar Forklift Am., Inc., 953 F. Supp. 987 (N.D. Ill. 1997).

 Finally, required payments for training or services made to the franchisor or its affiliate may satisfy the payment of a fee element.  Metro All Snax v. All Snax, Inc. Bus. Franchise Guide (CCH) ¶ 10,885 (D. Minn. 1996).

For further investigation of this issue, see also two separate FTC Opinions, FTC Informal Staff Advisory Opinion #00-2 dated January, 2000, as well as FTC Informal Staff Advisory Opinion #03-2 dated April, 2003, found on the FTC website.  In both instances, the FTC did not focus on whether payments made by the licensee were up front initial fees or royalty payments, but whether any payment whatsoever was made by the licensee to the licensor.

Vacating an Arbitration Award

Wednesday, August 17th, 2011

There are many reasons one can point to in order to explain how over the last several years arbitration has become less and less favored as a dispute resolution mechanism in the franchise arena.  One of the mean reasons that the arbitration bubble has burst is due to a lack of a valid and fair appeals process.  While it is common knowledge that a losing party in a state or federal court trial is permitted to appeal an unfavorable decision on a multitude of grounds, the same is hardly true in the arbitration process.  Rather, it is extremely difficult for most losing parties in an arbitration matter to come close to meeting the rigid criteria for vacating an arbitration award.    

For those arbitration matters resolved under the Federal Arbitration Act, the standard of review of an arbitration award under the Federal Arbitration Act provides for only four specific grounds for vacating an arbitration award, as follows:  i)  where the award was procured by corruption, fraud, or undue means; ii) where there was evident partiality or corruption in the arbitrators, or either of them; iii) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy, or of any other misbehavior by which the rights of any party have been prejudiced; or, iv) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.  In addition, most state arbitration statutes mirror the FAA in this area.

As a result of the rigid four categories stated above, it is extremely difficult to overturn an arbitration award except in the most egregious circumstances. A court is prohibited from vacating an arbitration award regardless of how vociferously the court may disagree with the reasoning behind the arbitrator’s decision.  Rather, parties that have been successful in appealing an arbitration award have for the most part been able to provide evidence to the court that either the arbitration committed fraud, misconduct or was biased, or the party has been able to prove that a procedural defect was committed thereby severely prejudging a party to the point the party was denied its fundamental rights of due process.

Unless an aggrieved party can show documented evidence in one of these two areas, a court is extremely unlikely to grant a motion to vacate an arbitration award.  It is for this reason, and others, that many franchisors in a variety of industries have turned away from arbitration and instead prefer to have their disputes heard by a state or federal court judge.

 

 

Legal Requirements of an Existing Franchisee Sale of His or Her Outlet; Purchase of Additional Outlets; Extending the Term of an Existing Franchise?

Thursday, April 28th, 2011

An existing franchisee that sells his or her franchised business directly to a third party, without any significant contact with the franchisor does not need to abide by the federal franchise disclosure law, or any state franchise registration or disclosure law.

 The FTC Franchise Rule states, directly from the FTC website found at http://www.ftc.gov/bcp/edu/pubs/business/franchise/bus70.pdf

“Even if the franchisor has, and exercises, the right to approve or disapprove a subsequent sale (transfer) of a franchised unit, the transferee will not be entitled to receive disclosures unless the franchisor plays some more significant role in the sale. For example, if the franchisor provides financial performance information to the prospective transferee, the franchisor would be required to provide the transferee with its disclosure document.”

 Likewise, in the case of an existing franchisee that purchases one or more additional outlets from the same franchisor for the same brand, the franchisor is not required to provide a disclosure document to such a franchisee exercising a right under the franchise agreement to establish any new outlets.

Finally, the franchisor is not required to provide a disclosure document to a franchisee who chooses to keep its existing outlet post-term either by extending its present franchise agreement or by entering into a new agreement, unless the new relationship is under terms and conditions materially different from the present agreement.  In the case of a materially different franchise agreement, the franchisor must abide by state and federal franchise registration and disclosure laws.