January 2009

It is with pleasure that we announce that experienced Maryland litigator, Harry M. Rifkin, Esquire, became a member of Franchise & Business Law Group on January 1, 2009.

“I am excited about Harry becoming a co-owner, since his 25-plus years of litigation experience, with concentrations in franchising and creditors' rights, will certainly complement what we do here and will allow us to expand our scope and capacity immediately,” says firm founder David Cahn.

Harry graduated from George Washington University with Distinction and earned his Juris Doctorate from the University of Pennsylvania Law School.  Harry is an active member of the Maryland State Bar Association Franchise & Distribution Law Committee, as well as the American Bar Association Forum on Franchising.

He has written articles and spoken on franchising for many publications and organizations.  

A recent case for which Harry received national acclaim was written about in the October, 2008 issue of Franchise Times Magazine.   The article references Harry’s legal acumen in a U.S. Court of Appeals case saying, “The decision was a highly unusual reversal of a previous district court ruling and an arbitrator's award in the ongoing case between the Michigan-based coffee franchise and two of its franchisees.”

(Click here to link to the article in its entirety.)

When Harry is not representing franchisors or franchisees in court, or handling other business litigation matters, he spends his spare time raising his three children with his wife, Alona, and teaching law courses as an adjunct professor at Stevenson University (formerly Villa Julie College).

PERSPECTIVES...from the desk of David Cahn

With the election behind us and the likelihood of a predominantly Democratic Congress, business owners (and would-be business owners) should be looking at the future with excitement.   

Knowing that a Democratic Congress is likely to be pro-small business, it will be no surprise to see increased funding heading in the direction of the Small Business Administration as part of an economic stimulus program to encourage and help fund more small business start-ups and expansions. 

For those of you who are politically proactive, I encourage you to contact your Congressional representatives to show your support of funds directed toward small business initiatives and ask them to speak out and vote for increased SBA funding.

Franchising Remains Strong

On the subject of business expansion and start-ups—the news in the world of franchising is still encouraging in some industries.   Despite the headline news that makes us think that every business is suffering and on the verge of closing, our practice continues to see a strong interest on both sides of the franchising coin. 

An increasing number of successful businesses are considering franchising as a way to expand their operations with less risk than traditional expansion routes, such as opening additional stores or offices.  In addition, independent franchise brokers and many franchisors continue to receive a strong stream of inquiries from prospective franchises, especially as more people are losing their jobs or having hours cut at larger companies.

If you are interested in exploring the world of franchising as a franchisor or franchisee, contact me and I will be happy to answer your questions and assist you if you decide to move forward.

Careful Drafting Makes a Difference
by Jeffrey S. Fabian, Esq.

A recent case out of the Maryland Court of Appeals involving world-renowned author Tom Clancy demonstrates how foresight, care and good clean drafting can prevent unintended consequences of entering into formal business relationships. In Clancy v. King, Tom Clancy was successful in seeking to withdraw permission to use his name in connection with a novel series penned by another author. He successfully argued against his former wife’s claim that a partnership agreement between them, in addition to a joint venture agreement between their partnership and a publishing company, prevented Clancy from unilaterally terminating the use of his name in connection with the series.

Tom Clancy and his wife, Wanda King, had entered into a partnership agreement under which the partnership was given the power to enter into contracts regarding the publishing and sale of books, including books marketed under Clancy’s name. The partnership then entered into a joint venture agreement with a publishing company under which the partnership and the publishing company would share the profits from publication of the “Tom Clancy’s Op-Center” paperback novel series. The first fourteen novels in the series were published under this title; however, several years after Clancy and King were divorced, Clancy unilaterally entered into an agreement with the publishing company to cease the use of Clancy’s name.

King filed suit against Clancy, claiming that Clancy had breached his fiduciary duty to both the partnership and to her as a partner by terminating the joint venture, and thereby depriving the partnership and King of income from the book series. The lower courts sided with King; however, the Court of Appeals reversed, relying heavily on the language and structure of the contracts involved.

The Court of Appeals relied on the fact that provisions in the partnership agreement unambiguously limited the duty of loyalty that Clancy owed to the partnership and to King. The language in the partnership agreement trumped the more restrictive default standard of care that would have applied otherwise. Moreover, Clancy had signed the joint venture agreement both on behalf of the partnership and individually, which, based on the terminology used in the agreement, allowed Clancy to retain full singular authority over the management of the partnership’s involvement in the joint venture. Thus, Clancy was well within his rights to terminate the joint venture’s rights in his name.

Importantly, however, the case was not fully resolved as a result of this analysis. Even in the absence of a good-faith requirement included in the language of a contract, the common law of Maryland imposes an implied covenant to act in good faith in all contracts, and specifically provides a general partner who is given discretion to act against the best interests of the partnership may not exercise such discretion in bad faith. Therefore, the Court of Appeals sent the case back to the trial court to decide whether Clancy acted in good faith in withdrawing the rights to his name from the Op-Center book series. If, for example, Clancy withdrew the rights in order to enter into a different, more lucrative book deal, this would tend to demonstrate that he acted in good faith, whereas if he merely withdrew the rights out of ill will toward his ex-wife, then a finding of bad faith could be more likely.

Never underestimate the value of careful drafting and a concerted and realistic analysis of the potential pitfalls of a business relationship. While it may be difficult, for example, to make contingency plans in the event of a divorce, in the long run it is always better to be safe than sorry. All deals should be made with a cautious and critical eye toward the future.