THE SENATE	S.B. NO.	625
TWENTY-NINTH LEGISLATURE, 2017
STATE OF HAWAII

A BILL FOR AN ACT

relating to franchises.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

     SECTION 1.  Section 482E-6, Hawaii Revised Statutes, is amended to read as follows:

"§482E-6  Relationship between franchisor or subfranchisor and franchisee.  Without limiting the other provisions of this chapter, the following specific rights and prohibitions shall govern the relation between the franchisor or subfranchisor and its franchisees:

     (1)  The parties shall deal with each other in good faith[.];

     (2)  For the purposes of this chapter and without limiting its general application, it shall be an unfair or deceptive act or practice or an unfair method of competition for a franchisor or subfranchisor to:

         (A)  Restrict the right of the franchisees to join an association of franchisees[.];

         (B)  Require a franchisee to purchase or lease goods or services of the franchisor or from designated sources of supply unless [such] the restrictive purchasing agreements are reasonably necessary for a lawful purpose justified on business grounds.  Suppliers suggested or approved by a franchisor as meeting its standards and requirements shall not be deemed designated sources of supply[.];

         (C)  Discriminate between franchisees in the charges offered or made for royalties, goods, services, equipment, rentals, advertising services, or in any other business dealing, unless and to the extent that any classification of or discrimination between franchisees is:

              (i)  Based on franchises granted at materially different times, and [such] the discrimination is reasonably related to [such] the differences in time;

             (ii)  [Is related] Related to one or more programs for making franchises available to persons with insufficient capital, training, business experience, or education, or lacking other qualifications;

            (iii)  [Is related] Related to local or regional experimentation with or variations in product or service lines, or business formats or designs;

             (iv)  [Is related] Related to efforts by one or more franchisees to cure deficiencies in the operation of franchise businesses or defaults in franchise agreements; or

              (v)  [Is based] Based on other reasonable distinctions considering the purposes of this chapter and is not arbitrary[.];

         (D)  Obtain money, goods, services, anything of value, or any other benefit from any other person with whom the franchisee does business on account of [such] that business unless the franchisor advises the franchisee in advance of the franchisor's intention to receive [such] the benefit[.];

         (E)  Establish a similar business or [to] grant a franchise for the establishment of a similar business at a location within a geographical area specifically designated as the exclusive territory in a franchise previously granted to another franchisee in a currently effective agreement, except under the circumstances or conditions prescribed in [such] the agreement.  The fact that other franchisees or the franchisor may solicit business or sell goods or services to [people] persons residing in [such] the geographical territory shall not constitute the establishment of a similar business within the exclusive territory[.];

         (F)  Require a franchisee at the time of entering into a franchise to assent to a release, assignment, novation, or waiver [which] that would relieve any person from liability imposed by this chapter.  Any condition, stipulation, or provision binding any person acquiring any franchise to waive compliance with any provision of this chapter or a rule [promulgated hereunder] adopted shall be void.  This paragraph shall not bar or affect the settlement of disputes, claims, or civil suits arising or brought under this chapter[.];

         (G)  Impose on a franchisee by contract, rule, or regulation, whether written or oral, any unreasonable and arbitrary standard of conduct[.];

         (H)  Terminate or refuse to renew a franchise except for good cause, or in accordance with the current terms and standards established by the franchisor then equally applicable to all franchisees, unless and to the extent that the franchisor satisfies the burden of proving that any classification of or discrimination between franchisees is reasonable, is based on proper and justifiable distinctions considering the purposes of this chapter, and is not arbitrary.  For purposes of this paragraph, good cause in a termination case shall include[,] but not be limited to[,] the failure of the franchisee to comply with any lawful, material provision of the franchise agreement after having been given written notice thereof and an opportunity to cure the failure within a reasonable period of time[.];

         (I)  Refuse to permit a transfer of ownership of a franchise, or of a proprietorship, partnership, corporation or other business entity that is a franchisee or subfranchisor, except for good cause.  For purposes of this paragraph good cause shall include, but not be limited to:

              (i)  The failure of a proposed transferee to meet any of the franchisor's or subfranchisor's reasonable qualifications or standards then in effect for a franchisee or subfranchisor;

             (ii)  The fact that the proposed transferee or any affiliated person of the proposed transferee is a competitor of the franchisor or subfranchisor;

            (iii)  The inability or unwillingness of the proposed transferee to agree in writing to comply with and be bound by all lawful obligations imposed by the franchise, including without limitation all instruction and training obligations, and to sign the current form of franchise agreement used by the franchisor or subfranchisor; and

             (iv)  The failure of the franchisee or proposed transferee to pay any sums owing to the franchisor and to cure any default in the franchise agreement or other agreements with the franchisor existing at the time of the proposed transfer.

              A franchisor or subfranchisor shall have thirty days after being notified in writing of a proposed transfer to approve or disapprove in writing a proposed transfer of ownership or control of a franchise, or of a proprietorship, partnership, corporation or other business entity that is a franchisee or subfranchisor, stating its reason for disapproval.  If a franchisor or subfranchisor fails to approve or disapprove a proposed transfer in writing within [such] this period, the franchisor or subfranchisor shall be deemed to have approved [such] the transfer[.]; and

(J) Restrain a franchisee, directly or indirectly, from sourcing processing services for electronic credit cards, credit identifications, debit cards, prepaid cards, or other transaction authorization cards from processing service providers of the franchisee's choosing when these processing services are used, or could reasonably be anticipated to be used, by a franchisee in a substantial amount of its commercial transactions; provided that it is not a violation of this section for a franchisor to establish reasonable, written, specific standards regarding the nature and quality of the processing service providers;

     (3)  Upon termination or refusal to renew the franchise the franchisee shall be compensated for the fair market value, at the time of the termination or expiration of the franchise, of the franchisee's inventory, supplies, equipment, and furnishings purchased from the franchisor or a supplier designated by the franchisor; provided that the franchisee need not be compensated for personalized materials [which] that have no value to the franchisor [need not be compensated for].  If the franchisor refuses to renew a franchise for the purpose of converting the franchisee's business to one owned and operated by the franchisor, the franchisor, in addition to the remedies provided in this paragraph, shall compensate the franchisee for the loss of goodwill.  The franchisor may deduct from [such] the compensation reasonable costs incurred in removing, transporting, and disposing of the franchisee's inventory, supplies, equipment, and furnishings pursuant to this [requirement,] paragraph and may offset from [such] the compensation any moneys due to the franchisor[.];

     (4)  [The provisions of this] This chapter shall apply to all written or oral arrangements with the franchisee including but not limited to the franchise offering, the franchise agreement, sales of goods or services, leases and mortgages of real or personal property, promises to pay, security interest, pledges, insurance contracts, advertising contracts, construction or installation contracts, servicing contracts, and all other [such] arrangements in which the franchisor or subfranchisor has any direct or indirect interest[.]; and

     (5)  In any proceedings, damages may be based on reasonable approximations but not on speculation."

     SECTION 2.  Section 482E-9, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

     "(b)  Any person who sells or offers to sell a franchise in violation of this chapter shall be liable to the franchisee or subfranchisor who may sue for damages caused thereby or for rescission or other relief as the court may deem appropriate.  In the case of a violation of section 482E-5(b), rescission is not available to the plaintiff if the defendant proves that the plaintiff knew the facts concerning the untruth or admission, or [that] the defendant exercised reasonable care and did not know; or if the defendant had exercised reasonable care would not have known of the untruth or admission.  In case of a violation of this chapter where the sole violation was a violation of section 482E-6(2)(J), rescission is not available."

     SECTION 3.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 4.  This Act shall take effect upon its approval.

INTRODUCED BY:

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Report Title:

Franchises; Relationship Between Franchisor or Subfranchisor and Franchisee; Civil Liability

Description:

Establishes an unfair or deceptive act or practice or an unfair method of competition for a franchisor or subfranchisor to restrain a franchisee from sourcing processing services for transaction authorization cards from processing service providers of a franchisee's choosing.  Allows a franchisor to establish reasonable written standards regarding the nature and quality of the processing service providers.  Prohibits rescission as an available remedy for a franchisor or subfranchisor restraining a franchisee from sourcing processing services for transaction authorization cards from processing service providers of the franchisee's choosing.

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