Instructional Systems, Inc. v. Computer Curriculum Corp.

Attorney ORDERED that the Office of Ethics shall take such l:20-ll(c) protective pursuant appro- action to Rule as it deems priate, including Superior the transfer to the Clerk of the Court deposit Superior attorney for in the Court Trust Fund the any account funds held LLOYD J. MANNING in Jersey financial institution.

614 A.2d 124 SYSTEMS, INC., INSTRUCTIONAL A THE CORPORATION OF JERSEY, STATE OF NEW PLAINTIFF-APPELLANT AND CROSS-RESPONDENT, v. COMPUTER CURRICULUM CORPO RATION, DELAWARE, A CORPORATION OF THE STATE OF DEFENDANT-RESPONDENT AND CROSS-APPELLANT.

Argued May 1992 Decided October 1992. Perretti, Jr., Peter argued N appellant the cause for and cross-respondent {Riker, Scherer, Danzig, Hyland & Perretti Dunn, Pashman, and Sponzilli, Finnerty, attorneys; Swick & Garland, David W. Bratsafolis, Jeanne M. Robert E. Rock- ford, Robins, Dunn, Joseph Patterson, Warren S. Anne M. Miller, briefs). and Jeffrey J. on the Jay Greenfield, bar, argued member of the New York respondent cause for cross-appellant and En- {McCarter glish, attorneys; Greenfield, Berry, Mr. Andrew T. Teresa L. Moore, Kemmet, Rosanne C. Livingston, Debra Ann a mem- bar, Gerber, ber of the New York and Michael E. a member of bar, counsel; Moore, the New York Livingston, Ms. Ms. Gerber, briefs). Mr. on the

Michael J. Ferrara submitted a brief on behalf of amicus Fair Franchising Ferrara, Covitz, curiae Coalition {Greenberg, Turitz, Glover, Goldberg, attorneys; Harraka & Jere W. bar, counsel). member of the District of Columbia opinion The by of the Court was delivered O’HERN, J. appeal requires adapt legislation

This us to enacted over twenty years ago on the stereotypes, model of franchise such outlet, as a dealership, gasoline fast-food an automobile or a station, rapidly-evolving complexities service to the of the com- channels. We hold distribution puter industry and its various producer of a relationship the between the contractual re- educational-learning system and its exclusive computerized Jersey, in sus- distributor, incorporated New a business gional meaning New within finding of a “franchise” tains a (the Act, to -15 56:10-1 Practices N.J.S.A. Jersey Franchise relationship between Act). Appellate held that Division Jersey entity not constitute a did producer and the New granted Jersey the New not producer had franchise because within the trade name or trademark “license to use” its entity a However, the contract 56:10-3a. meaning of the Act. N.J.S.A. Jersey entity both on the expressly conferred documents “name, logo and in its trademark right producer’s to use the shows, materials exhibits, public relations advertising, trade promote manuals,” duty to use its “best efforts” and the and Although our second determination products. producer’s the evidence question, we hold that much closer involves a required “community of interest” finding of a sustains the 56:10-3a. N.J.S.A. We Act to establish a franchise. under the Appellate Division. judgment of the reverse the thus I—BACKGROUND History A. and Procedural Facts procedur- adopt generally the appeal, we purposes of this For set forth the brief of the case as history al and the facts (CCC). defendant, Corporation Computer Curriculum Alto, headquartered Palo corporation CCC is a Delaware learning integrated markets an produces It California. and monitor a computer technology to teach system that uses mathematics, reading, subjects in such as progress student’s 1974 to skills, education. From language computer-science (ISI), a New Systems, Inc. plaintiff, Instructional Jersey, place of business New primary corporation with sold CCC distributor of as the exclusive has served pursuant so to a series ISI has done in the Northeast. principals of the two negotiated between contracts written companies. July 12, 1984,

On CCC and ISI entered into the contract issue, Agreement.” contract, entitled “Reseller that Under appointed CCC products ISI as exclusive “reseller” of CCC categories Connecticut, Delaware, to certain of in customers Maine, Maryland, Massachusetts, Hampshire, Jersey, New New York, Island, Vermont, Washington New Rhode and D.C. * * * provided agreement contract “shall in continue 31, July effect until 1989.” 1988,

In proposed the fall of ISI that CCC extend the 1984 Agreement year. Reseller for one more CCC declined to so. do spending CCC believed that was a disproportionate ISI amount selling Jersey, York, of its efforts in three states —New New ignoring and practically Massachusetts —and was its rest of 1987, territory. sales From 1985 to ISPs outside sales those sales, only percent three states for its accounted eleven of total notwithstanding thirty percent the fact that of the student states, population territory in In ISPs resided there. two Hampshire, during Vermont and New made no ISI sales Maine, period. In in In ISI made no sales either 1986 or 1987. Columbia, principal population of one District centers territory, period sales ISPs ISPs for the 1985-1987time were percent less one than ISPs total revenues. approached allegedly poor CCC its

When ISI about sales states, performance in only obligation those claimed that ISI its view, In territory-wide quotas. was to meet certain sale CCC's told it ISI had CCC “that was none CCC’s within business” territory which its sale efforts. ISI concentrated allowing Agreement Reseller lapse Instead expired, two-year when it offered new contract for CCC ISI major activity ISI had its three states which sales —New York, Jersey, New Massachusetts. decided to and CCC take marketing products territory. its over the the former ISI discussions, Following lengthy into ISI CCC entered a new August began on 1989. January contract On CCC products territory. in the former ISI distribute ISI York, Jersey, to sell in New continues Massachusetts. agreement new with day

The that ISI executed the same The CCC, against Chancery ISI filed suit CCC the Division. Agreement contem- complaint alleged 1984 Reseller that the signing renewal, ISI into the new plated that CCC had coerced contract, by imposing the Act that had violated and CCC performance” on ISI. The com- standards of “unreasonable contract, of plaint set forth claims for breach of breach also covenant, prospective eco- implied tortious interference with enrichment, and advantage, competition, unjust nomic unfair fiduciary duty. breach of District for the suit to the United States Court

CCC removed Jersey diversity New on the basis of of citizen the District of Following preliminary injunc ship. discovery, ISI moved for a agreement for enjoining enforcing and tion CCC from the the Act. CCC partial summary judgment on its claims under arguing if summary judgment, for the made a cross-motion terminating purported to it from ISI’s enjoin Act could be used Jersey, the Act would than franchise states other New the States Clause of United Constitution. violate the Commerce I, art. cl. 3. U.S. Const. § moving the by to cross-motion responded ISI the before remanding issues to District for an the state-law Court order doctrine. Jersey the New courts under the Pullman abstention Co., 312 Texas v. U.S. See Railroad Comm’n Pullman of (1941). retained 85 L.Ed. 971 The District Court 61 S. Ct. “[a]pplication principles of jurisdiction over the case and case,” facts law the state court to the of this the determined * * * “administratively the matter remit terminated” and but following Jersey to courts the issues: ted the New (a) Act has reach the State of New Jersey the extraterritorial [w]hether beyond if what and and, extent; to so, (b) “li- interest,” and standards of of “community are definitions What cense” of business” under Act[?] and “place scope of protested After the limited the remand ISI directing to the state court instructions was tantamount opinion, That advisory render the court clarified order. an to determine “whether order authorized court community CCC,” not there of interest between ISI and and “whether ISI place meaning has a within business” acknowledged the Act. The District Court that the state court deciding would have to consider facts of case in those applied issues and whether the Act could be extraterrito- rially. Division,

When the matter returned Chancery was to the ISI complaint alleging Agree- filed a new that the Reseller ment had created a and “franchise” that CCC had violated the by failing Act agreement “good renew without cause” by imposing performance. unreasonable standards complaint sought rights “a declaration of the liabilities relationship,” CCC and ISI under enjoining their an order ISI, from terminating relationship damages, attorneys’ its with fees, parties agreed and costs. Both the the to submit case to Chancery Division based on the Court’s and District record discovery. without further Chancery declaratory judgment

The Division issued a that relationship parties the between the a constituted “franchise” subject and that that was the relationship to Act. Chancery importance

The ruled first Division that the of New Jersey’s protecting interest its franchisees nullified the 1984 agreement’s Next, provision. California choice-of-law the court found there could other that be “no reasonable conclusion” but “contemplated” plaintiff CCC and ISI had that have a would “place required by of business” New as the Act for granted coverage. The court then found that had ISI a CCC to finding use license to its trade name. The court based that on buying the conclusions that the school districts CCC perceived entities, had to ISI and CCC be the same and that competence having CCC had “vouched” for ISI’s train ISI to products. customers use CCC unequal bargaining The found court further there was power dependence parties and sufficient mutual the between “community-of-interest” requirement. Finally, form Act’s sought give Legislature had not that the the court found Rather, Jersey. it was beyond New effect Act extraterritorial contract which area in their by defining a market parties, Jersey, gave the who beyond the State of New states includes reach. Act the extraterritorial agree reversed, holding the 1984 Appellate The Division meaning of the within the constitute a franchise ment does not as that term grant ‘license’to ISI “did not Act because ” Instructional of ‘franchise.’ the Act’s definition used within N.J.Super. Corp., 243 Computer Inc. v. Curriculum Systems, declined to (1990). Appellate Division 53, 58, 578 A.2d 876 Act, applicable to the if it had been consider whether ISI, applied could have been and relationship between CCC 61-62, A .2d 876. extraterritorially. Id. certification, 126 for N.J. granted petition We ISI’s had based (1991). Appellate Division Because A.2d 879 issue, parties to brief asked the solely the license we decision on business, law, place of com remaining issues of choice reargu interest, extraterritoriality. heard We munity of We now reverse. ment on those issues. Agreement Reseller Background and

B. Technical must fully, we appeal this more understand In order to very something we know about which attempt to understand computer is not like a manual technology. A computer little — actually physical connec- can see typewriter, on which we output pressing key, input manually tion between —the — keys presses a few paper. One who striking a sheet of hammer on a information or text keyboard produces computer on a actually occurs largely of what video-display screen is unaware presented. to the information be the machine to allow within technology understanding computer of However, rudimentary a relationship CCC and ISI. grasp the between helps one to computer components in the involved There are three basic software, application hardware, and operating-system process: responsibilities components have distinct All of those software. harmony. See precision and carried out with that must be Encyclopedia McGraw-Hill Science & 124-26 Technology of (7th 1992) (McGraw-Hill); ed. Encyclopedia Computer of (1976). Science 641-49 Hardware, component computer most obvious of the process, consists physical objects up of all of the that make a i.e., computer; unit, (the a processing central part CPU computer circuits), that contains the keyboard, electronic a display, printer. a video generally a See Linda G. Christie Christie, Encyclopedia & John Microcomputer Termi (1984) nology (Microcomputer Terminology) (defining comput terms). Operating-system er-related directly software interacts with the hardware and the computer perform tells how to example, software-operat most basic functions. For without a ing system, computer a place would not how to know a charac ter on the video-display nothing screen and would be than more stated, a plastic. Simply useless mass of silicon operating- system software turns the hardware into usable machine. McGraw-Hill, supra, operating-system See at 125-26. The accompanies software often computer’s major hardware component, the Microcomputer CPU. su Terminology, See pra.

Application directly operating-system software interacts with comprise required software to the final set of instructions computer given perform Application make a task. software ranges packages, from “off-the-shelf” such as familiar word- programs WordPerfect, processing may pur- like which be store, neighborhood-software designed, chased at the to custom programs. Application user-specific software does not interact computer with exclusively hardware but interacts with McGraw-Hill, operating-system supra, software. See at 125- Therefore, application usually designed 26. software is type operating-system interact one with software. Ibid. limitation, computer industry developed Because of has operating-system packages standard with a software that run great majority computer hardware. notable Two most and “UNIX.”1 See “MS-DOS” operating systems are

standard at 96-97. Time-Life, supra, learning system consists of hard- computer-assisted

The CCC software, application software. ware, and operating-system amalgamation of numerous is the system’s hardware The CCC together into assembled that CCC has physical components operating-sys- The Microhost’s “Microhost.” what it calls the CCC, of the software, developed by is a modification tem also system’s application software system. CCC operating UNIX spent CCC has product line. essentially heart of the CCC developing extensive researching an twenty years over software, CCC de- which educational-curriculum library of scribes as “Courseware.” being what is system reinforces integrated-learning

The CCC “computer Visualize a in the classroom. taught to the student computer termi- working at numerous laboratory” of students four-digit computer a punches into the a student nals. When name, the first by the student’s number followed identification ” * * * screen. “Hello, on the terminal flash Student words begins the student finished computer where Each session answer, incorrect types an previous day. the student When the student suggests “Try again.” When politely computer lesson, displays the student’s results screen finishes the performance. the student’s computer records system computer-assisted instruction the CCC Students use learning and and to enhance classroom lessons to extend their Personal operating-system that runs the IBM software MS-DOS is the PC) Corporation. (or family developed See Microsoft Computer and was (1985) Books, Computer Understanding Computers Personal Time-Life —The PC-DOS, DOS, MS-DOS, ). system, (Time-Life operating referred to as That every the release of the shipped hardware unit since with IBM-PC has been original PC in 1981. developed by & T. UNIX and operating-system AT software UNIX is the greatest systems. very operating distinctions One are different MS-DOS application development operating systems is in the two between the industry systems. computer operating with the two software that interacts application greater generally software a much resource has created system. operating Id. 96-97. the MS-DOS interact with performance. accompany Teachers comput- their classes to the laboratory, er they help prob- where students understand the lems and relate the instructions from the classroom to the computer laboratory. expertise computer Teachers need no as operators programmers. or The teachers are trained on how system works and are familiarized with the soft- available curriculum, ware or Courseware. large

CCC is in measure Suppes, the creation of Dr. Patrick formerly of University, spent Stanford who over two decades researching developing system. Except and in CCC Northeast, markets, distributes, CCC products and sells its directly throughout to educational institutions the United past years, developed States.2 Over the fifteen CCC has a arrangement distribution in Phyllis the Northeast with Kaminer (Kaminer), the Evidently, President and CEO of ISI. Kaminer developed expertise some comput- the field of education and ers, and, company became associated with a known as Educomp position Educomp In Connecticut. her of Con- necticut, developed relationship Kaminer a with CCC. Follow- ing Educomp arrangement of Connecticut’s refusal to make an promotion products, with CCC for the Kaminer left CCC Educomp sought arrangement of Connecticut and her own with CCC. entered first Kaminer in

CCC distribution contract with time, principal company 1975. At that Kaminer was the of a Educomp Jersey, Tenafly, as located in known New New agreement gave Educomp Jersey. Jersey The 1975 of New right products in exclusive to market CCC the states of New York, region New and Connecticut and in the of Eastern point, products through company At one CCCdistributed its in the South Media; however, known as Southern Educational CCC terminated that busi- currently relationship in the and acts as the distributor of its ness mid-1980s Canada, products through products in the South. In CCC distributes its company known as Columbia Institute of Canada.

Pennsylvania.3 agreement The was to run until 1980. suggests record that sometime between changed company Kaminer the name of her to ISI and moved Cliffs, headquarters Englewood Jersey. New In agreement CCC entered into a with ISI. The new distribution agreement gave right purchase ISI the “exclusive or * * * products purposes selling, leasing license the for renting such to the market the States of Connect icut, Delaware, Maine, Massachusetts, Maryland, Hamp New shire, York, Island, Jersey, New Rhode Vermont Washington agreement D.C.” The 1980 was to run until 1984. ISI, agreement

The 1984 and “ReSeller between CCC labeled Agreement,” many provisions contained of the as the same agreement. highlights provisions ISI contained several agreement the 1984 it deems relevant: right products 1. an to sell and license CCCconferred on ISI exclusive CCC’s territory. within ISI’s required develop 2. CCC ISI to use “its best efforts to a demand for and * * Resell the within the Market Products [CCC] obligated energies develop- 3. CCC ISI to “devote all of its and resources to ing a demand for the Products.” [CCC] prohibited selling any products competitive 4. CCC ISI from with CCC’s products. required representatives 5. CCC ISI to maintain at least four full-time sales promote products. to and sell CCC’s * * * obligated adequate promote 6. CCC ISI to “maintain facilities to demand for and Resell Products.” [CCC’s] required promote products through “advertising 7. CCC's and CCC ISI shows, exhibition at trade conventions and the like.” name, logo 8. CCCauthorized ISI to extend its use of the CCC trademark and * * * “advertising public relations materials and manuals.” ISI’s right gave copyrighted 9. CCC ISI the to sublicense the CCC Courseware. original language agreement stipulated of the 1975 that CCC was entering "Educomp Corporation, Corpora- a contract with into Connecticut tion, Street, principal place with its of business at 196 Trumball Hartford However, document, Connecticut.” after Kaminer had received she had Inc., language changed "Educomp Jersey Jersey to read of New a New Corporation,” replaced by and the address in Connecticut was stricken and an Cliffs, Englewood address. 10. CCC allowed ISI to receive sublicense fees from its customers for the CCC Courseware and to CCC license fees for pay each sublicense in accordance with a schedule established price CCC. 11. CCC ISI to customers’ required sites for prepare installations of the CCC in accordance with product CCC specifications; CCC installed the products. 12. program CCC ISI to “establish and required maintain a for the benefit” of training users of the CCC so that obtain they the use may of the CCC operation products. agreement 13. The was to be in accordance with the laws interpreted State of California. view, In ISI’s under the agreement, terms of the 1984 it had responsibility customers, locating persuading them to purchase products, selecting CCC’s the site at prod- which the installed, uct was to placing be purchase orders with Following CCC. CCC’s product, installation of the ISI would train the teachers and instructors to product. use the Thereaf- ter, duty ISI had a follow-up provide with the customer to continuing training at those Ninety-seven percent locations. ISPs revenue products. came from the sale of CCC’s

In in an effort competitive to remain comput- within the industry er-assisted-instruction product and to avoid obsoles- cence, change CCC decided to the direction of its business. time, Around began negotiations with IBM to allow application software, Courseware, its to run on the MS-DOS operating standard system. By allowing Courseware to run MS-DOS, on CCCwould increase the accessibility product of its Thus, arrangement line. such an would allow CCC’s Course- to run popular ware on the IBM Computer family, Personal thereby eliminating CCC’sneed to assemble and market its own Presumably, Microhost hardware. arrangement such an would products allow CCCto market its competitively more to smaller school districts because the smaller districts would not be Microhost, purchasing “locked-in” to pur- and could expensive chase a less and more versatile IBM-PC instead. change CCC’s efforts to business directions caused CCC to relationship reconsider its with ISI. In CCC offered to (the agreement ISI a agreement) new written 1989 that modi- fied Agreement. the 1984 Reseller agreement That reduced marketing territory ISPs to three Jersey, states: New New territory York, prior of ISI’s The balance and Massachusetts. Vermont, Island, Maine, Hampshire, Rhode comprising Connecticut, Delaware, of Columbia Maryland, and the District directly by CCC by CCC and has been marketed was taken over agreement eliminated ISI’s August since 1989. The in the as- right the CCC Courseware exclusive to sublicense signed territory.

II Franchise Practices Act? is a “franchise” under the New Jersey What of whether the business relation- We now turn to issue protected constitutes a franchise ship CCC and ISI between agreement does not the Act. CCC asserts that under (1) granted to ISI a franchise because CCC never constitute a 56:10-3a; “license,” contemplated under as that term is N.J.S.A. ISI; (2) “community no of interest” between CCC there is (3) parties “contemplate” that ISI would maintain did not (4) Jersey; and ISI “place of business” within the State of New of New “place maintained a of business” the State never arguments Jersey. each of those in turn. We address forms, Although arrangements many take different franchise franchising involves a with a or service form, “in its company product simplest arranges group The for a of dealers to handle its distribution. company which line or service is known as the and the franchisor, with the product product, right sell the or service are dealers who exclusively acquire product as franchisees.” known Rights Limitations on Contract Termination Gellhorn, [Ernest —Franchise Cancellations, (quoting 1967 Duke L.J. Lewis Hancock, 465 n. & (1963) (Gellhorn)).] System Distribution Franchise general categories of franchises: There are three business Franchises, (1) goods Product under which a “franchisee[] distribute^] pro- * * * franchisor and which bear the franchisor’s trademark. duced by * * * gasoline include automobile and truck dealers, franchises Typical product and soft drink bottlers.” stations, service Franchises, Package (2) or Format under which “the franchisee is licensed to prepackaged business format established the franchisor do business under a * * * of format and identified with the franchisor’s trademark. Examples automotive or services.” franchises include fast food outlets and Franchises, (3) Fractional market manufacturer’s under which “franchisees In or format franchis- trademarked contrast to supplier’s products. product franchisor exerts minimal control over the franchisee’s busi- es, the fractional trade name. ness and the franchisee often under own [its] operations, operates

339 * * * Common fractional franchises include hardware stores independent [belonging sell a of to different variety manufacturers]." v. Atlas Metal Parts —The Wisconsin Dittmar, Foerster, Inc. S. [Kevin Court Takes a Narrow the Dealer's Financial Interest View Supreme of the Wisconsin Fair Law, Wis.L.Rev. 1985 by Dealership 155,167- Protected (footnotes omitted) (Dittmar).] 68 law, applicable At common freedom of contract was the rule Gellhorn, agreements. supra, to franchise 1967 Duke L.J. starkly simple 468. “The effects of termination were —the franchise, essentially franchisee would be ousted from the * * forfeiting his *. The franchisor then investment would regain full control the terminated and would be free business begin relationship with a new franchisee.” Dunkin’ Am., Corp., 100 Donuts Inc. v. Middletown Donut N.J. (1985) (citations omitted); Gellhorn, 495 2d 66 A. see also supra, (describing at 467 n. 5 the financial Duke L.J. distributor). hardship suffered a terminated beer Recognizing marketplace necessarily was not that the protector substantially-inferior best of those franchisees with bargaining power, this Court wrote: grossly bargaining Where there is disproportionate power, principle terms result. In such a

freedom to contract is non-existent and unilateral against grossly hesitate to declare void as situation courts will not public policy injury unfair contractual which tend to the public provisions clearly some way. (1973), v. 63 N.J. cert. Marinello, Oil Co. 307 A .2d 598 [Shell 402, 408, (1974) (citing Henningsen denied, U.S. S.Ct. L.Ed.2d 920, 94 (1960)).] v. N.J 161 A .2d 69 Motors, Inc., 358, 403-04, Bloomfield Franchising popular of distribution in the became a method Glickman, 2.01 at 2-3 Gladys Franchising late 1960s. 1 § (1969) (Glickman). franchising grew, popularity As the degree of control the franchisor concerns were raised about franchisee, particular, the franchisor’s exercised over the franchise. Id. at 2-3 power of “life or death” to terminate to 2-4. growth franchising, the Feder- response

In to the of national FTC) (or began setting guidelines for al Trade Commission 2-8. The FTC in the 1970s. Id. at 2-7 to franchises § 2.02[2] continuing “any as commercial relation- defines a “franchise” * * * * * * (hereinafter ship whereby person ‘franchisee’) a * * * offers, sells, commodities, goods, or or distributes servic (1)[i]dentified trademark, mark, by es are: which a service name, advertising symbol designat trade or other commercial person (hereinafter ‘franchisor’).” ing another 16 C.F.R. 436.2(a)(1992). requires The FTC definition further that the § “franchisor authority significant or to exert a exert[] [have] degree operation.” of control the over franchisee’s method of Compliance” accompanying Ibid.4 In the “Guides to the FTC rule, franchising the Commission states: give “The name which the to their is not relevant in parties relationship determining whether the is within the of the rule. relationship Thus, scope described the as “franchise” will not be covered the relationship by parties by rule unless it meets the definitional criteria of the rule; a self- conversely, described will be covered the rule if the definitional ele- ‘distributorship’ by ments are satisfied.” Franchising, (quoting at 2-8 n. 7 [Glickman, § Final Guides supra, 2.02[2] Franchising Fed.Reg. 49966).] with Rule No. Compliance § IA, 166, p. Therefore, determining relationship in whether a constitutes a franchise, dealings the FTC examines the entire course of parties. between the

Prompted large by practices measure the unfair of automo- major companies, Jersey passed bile manufacturers and oil Franchise Practices Act 1971. 56:10-1 to -12. N.J.S.A. sections, supplemented This Act was in 1977 with four two of specifically concern which automobile franchises. See N.J.S.A. 1982, Legislature passed 56:10-7.1 and 56:10-13. In Act, (now Motor Vehicle Franchises 56:10-16 to N.J.S.A. -25 -29). (the N.J.S.A. 56:10-16 to The Franchise Practices Act Act) provides protection against franchisees indiscriminate ter- by prohibiting minations cancellation or non-renewal of fran- good supporters for other chises than cause. The Act’s indicat- gives ed that bill neither franchisor nor franchisee “[t]his does, however, upper prevent hand. it arbitrary What is to 5233, 4 H.R. the "Federal Fair Franchise Practices Act,” has been recently Congress. introduced in The bill would a more definition of a adopt expansive franchise than under FTC Goodhard, definition. See Kim A. present Aug. L.J., Franchise Bills Would Have Broad Nat'l 23. Impact, generally vastly capricious actions the franchisor who has greater power than the franchisee.” Franchise Prac economic Assembly Judiciary Hearing on A. 2063 tices Act: Before Comm., 2063) (Hearing on A. (1971) Leg., 194th 2d Sess. Davis, (Statement of Charles W. Executive Vice-President New Ass’n). Jersey Hotel/Motel franchise as

The Act defines a arrangement period, person a written for a definite or indefinite in which a name, mark, grants person to another a license to use a trade trade service mark, characteristics, community there is a of interest or related and which wholesale, retail, lease, marketing goods by agreement, in of or services at the or otherwise.

[N.J.S.A. 56:10-3a.] However, protected; the Act not all franchisees are (1) performance contemplates

applies only or to a franchise the of which place requires of business within the the franchisee to establish or maintain (2) gross Jersey, the of sales of or services between State New where by franchise shall have exceeded franchisor and franchisee covered such pursuant $35,000.00 preceding suit to for 12 months next the institution of the act, (3) gross of the franchisee’s sales are this where more than 20% to be or are derived from such franchise. intended [N.J.S.A. 56:10-4.] HI parties Jersey apply all in the New Franchise Practices Act view Does govern interpretation having of their contract? law to the chosen California Jersey question is whether New law The threshold Agreement dispute. The Reseller govern this 1984 should “[Agreement provision stipulating that the shall be contains a by it interpreted, legal and the relations created construed and determined, of in with the laws of the State accordance shall be agreed parties to a contract have Ordinarily, when California.” state, Jersey particular New governed by the laws of a to be violate choice if it does not uphold the contractual courts will Motors, Jaguar v. Inc. Winer Jersey’s public policy. New Inc., 506 A. 2d 817 666, 671-72, N.J.Super. Triumph, 208 Rover Inc., Muscarelle, v. Jos. L. (App.Div.1986); Kalman Floor Co. 16, 21-22, (App.Div.1984), N.J.Super. 481 A .2d 553 aff'd o.b., (1985). N.J. 486 A .2d334 That view is reflected (1969) (Second) the Restatement Laws § Conflicts of of (Restatement), provides which that the law of the state chosen by parties apply, unless either: will

(a) the chosen state has no substantial or the relationship parties transaction and there is no other reasonable basis for the choice, parties’ (b) chosen be to a the law the state would fundamen- application contrary greater tal of a state which has a interest than the chosen materially policy * * * state in the determination issue and which would be particular the state of the law in the absence of an effective choice of law applicable the parties. (a) exception part ap set forth in of the Restatement proach apply headquartered does not because CCC Califor nia, relationship and hence California law has a “substantial (b) parties.” argues exception part under CCC apply Jersey the Restatement does not because New does not “materially greater concerning have a interest” than California rights Jersey. ISI’s distribution in states other than New argues Jersey regulating only that New has an interest in those borders, franchise terminations that occur within its but when, here, alleged being franchise is as terminated Jersey, states other than New has no interest in applying protecting rights its law of franchisees. Inc., Philips Systems,

CCC relies on Carlos v. Business (E.D.N.Y.), (2d Cir.1983). F.Supp. In aff'd, F.2d Carlos, dictating equipment a manufacturer of had failed to exclusive-distributorship agreement plaintiff, renew an the with Connecticut, Jersey, in who did business New and Ohio. The only court found that the states that had a “true interest” in litigation the outcome of the were those states in the which distributorship being “they terminated was because would be any the states which economic would bear burdens associated occurring with failures their business within borders.” Id. at applied Jersey 774 n. 4. The court thus New to determine law Jersey, in whether the termination was valid New and Connecti cut to determine if the in law termination was valid Connecti apply cut. Id. at 774-77. The court declined to the franchise- Jersey acts to the non- protection of either New Connecticut act, Ohio, stating: protection in had no franchise renewal which has nor for the to, The court not been cited can it find[,] any authority give Legislatures that the New and Connecticut to purported proposition Jersey legislation it Therefore, declines to so this extraterritorial effect. important them. apply at

[Id. 777.] argues is the that because the issue here discontinuation Maine, Vermont, distributorship Hampshire, in New of ISPs Island, Delaware, Connecticut, Maryland, the Dis- Rhode Columbia, Jersey an in this trict of New does not have interest “materially greater” Cali- litigation, let alone one that than the affected. fornia’s or states whose interests are Although we trial question, a close do not believe that the dispute the applying Jersey court erred New law to between Motors, N.J.Super. at 671- parties. supra, In Winer recognized 2d that the state in which 506 A. the court policy significant has a interest the franchisee is located parties, and determined governing the between the relations rather than the law of apply that the law of that state would There, the franchisee was contractually-agreed-on forum. specified New and the contract located Connecticut parties. disputes Jersey apply law between would Jersey law and determined that apply court declined to New govern apply law to Jersey New would its local just as New relationship franchisor and a between an out-of-state franchisee, govern law apply its Connecticut would franchisor and a Connecti the relations an out-of-state between 672-73, 506 A.2d 817. cut franchisee. Id. (7th Corp., 908 F.2d 128 Wright-Moore Corp.

In v. Ricoh Cir.1990), apply refused to a contractual clause court law, governing when the franchi law as selected York York the franchisee in Indiana. located in New sor was franchisor, law, reasoning that “a applied Indiana The court power, permitted not be through bargaining should superior legislatively provided to waive the to force franchisee directly provisions or indi through waiver protections, whether 344

rectly through case, choice of law.” at 132. The Id. Ricoh like case, (indeed, national) our involved a multi-state franchise. Nonetheless, subject to Commerce Clause considerations to be VI, 366-372, 146-148, discussed in Part 614 A.2d at infra governed Ricoh court held that Indiana law the franchise relationship. Although Jersey express New law contains no provision against protection, waiver the Act’s that the Act’s protection may appears not be assump waived to be a common tion. See Opportunities Franchise and Business Act Unif. 103, (Uniform (Supp.1992) Act) (“A 7A 104 party U.L.A. § to a franchise opportunity may or business right not waive a conferred, benefit duty imposed, or avoid a by this [Act] * * * ^[5]

That a principal place franchisee’s given of business in a state will afford the protection franchisee the of that state’s in law connection with by all sold the franchisee is implicit in other decisions as Corp. well. See Swan Sales v. Jos. Brewing, Schlitz Wis.2d N. W.2d (Ct.App.1985)(because any dealer did not do in business Wis consin, that state’s act applied franchise could not be to Swan’s sales). Despite overseas beer contrary precedent, some “[m]ost * * * courts parties have held that the agree a franchise ment cannot avoid the franchise law of the in state which the by providing franchisee is located agreement their that the laws of govern.” another state will Pitegoff, Thomas M. Choice Law in Agreements, Franchise 9 Franchise Law (1989). Journal

CCC contends Jersey that New does not have an interest in litigation this being because no franchise is terminated New Jersey. attempts split the contract into sales that occur However, and sales that occur in other states. purpose legislation behind franchise-act is that dealers approved The Uniform Act was in 1987 the National Conference (NCCUSL). thought Commissioners on Uniform State Laws The NCCUSL legislators drafting franchising guidance laws would benefit from the of a part uniform act in the field in because of the interstate nature of the franchise Act, supra, business. Uniform 7A U.L.A.at 105. to the “de geographically in a forum state are be “situated” legislation in order to make their of the sired beneficiaries bargaining equal Bimel- position more to manufacturers['].” (6th Cir.1986). Co., 840, 843 Raytheon v. 796 F.2d Walroth Co. spokes “hub-type” franchise would strip away To the of a legislation. purpose counter the of such example, that an automobile To use a mundane assume Montvale, a dealer in New gave manufacturer a franchise to Bergen County, Jersey as well as Jersey to serve northern New assume that the New County, Rockland New York. Would we if, plight Legislature to the dealer’s Jersey would be indifferent plant in the fixed having investment after made a substantial having a market for the manufacturer’s vehicle created cause, manufacturer, good took County, the without Rockland County itself? ISI’s situation is the Rockland market for over intrastate,” analogous. franchises are not identical but is “Few dispense protection afforded parties and were free to with acts, a choice any “large by franchisor insertion of by franchise application of the franchisor’s provision requiring the of law law, pen stroke of a remove could with a home state’s legisla remedial the franchisee’s state’s effect of beneficial 671-72, 506 Motors, N.J.Super. at supra, tion.” Winer of New parties’ choice reject “We will even A.2d 817. public fundamental preserve to Jersey local law order afford its statutes franchisee’s home state where policy of the 817; see also Busi protection.” 506 A.2d greater Id. Am., F.Supp. Corp. Sony ness Incentives Co. v. provision that (S.D.N.Y.1975)(declining apply a contractual Jersey New govern dispute between York law would New Sony prod company provided New York distributor and Jersey company). by the New for distribution ucts it make interpreting Jersey Act and the cases As the New strong policy protecting clear, Jersey favor New has a case, Jersey significant “con- New has In this franchisees. here and The franchisee is located the transaction. tacts” with Jersey. The in New employees reside majority of ISI’s below, primar- investments, relate referred franchise-specific ily to the assets in Jersey goodwill New developed for Jersey CCC New residents. Jersey New would undoubtedly be the applicable state of law had provision no choice-of-law existed. Chancery Division reasoned that because ISI maintained “place of business” in New Jersey and had met all other

requirements Act, Jersey New overriding had the inter- est in the fair treatment of its qualified franchisee. The court its interpretation of law to the extent it actually conflicted with the law of sister-states. The record is sufficient to Jersey allow New apply. law to

IV What is the standard of review? appropriate Having Jersey determined that governs New law this dis pute, we scope now address the of our review on the issues relating to the existence of a Although parties franchise. us, have not briefed the issue before we note CCC’s Court, brief to the United States District posed ques tion thus: “Summary judgment for is CCC mandated if a juror reasonable could not find that ISI subject has a franchise to the Act.” Am., See Corp., Inc. v. Allied 875 (3d Cir.1989) F. 2d 58 (affirming summary judgment); George R. Co., Darche (D.N.J. Assocs. v. Beatrice F.Supp. Foods 538 429 1981) (granting summary judgment), (3d aff'd, 676 F.2d 685 Cir.1982); Cassidy see also Lynch, Podell SnyderGen Inc. v. 1131, 1137 Corp., (3d Cir.1991) eral 944 F.2d (declaring whether relationship constitutes a franchise question is a mixed of fact law). and

Granted, there are cases that have held that the exis tence of a question franchise is a of law to be decided a court. See Kania v. Airborne Freight Corp., 746, 99 .2d Wis (1981) 300 (“[I]n N.W.2d the absence of a claim of ambiguity, might require evidence, which extrinsic the construc tion of a only written contract is question a of law for the court.”). However, we conclude proposition that that applies parties may be relationship the entire between only when arrangements. v. their See Kinn Coast deduced from written (find (E.D.Wis.1984) Corp., F.Supp. Catamaran clearly unambigu dealership agreement ing that written distributorship); see Ne also ously conferred non-exclusive Sass, 261, 247 Im-Pruv-All, v. 197 Neb. N. W.2d Inc. braska (1976) (stating in absence of sufficient factual issues, to existence of of contract determine interpretation law). matter of franchise is closely

Here, so related of the franchise is the existence business,” “li- findings “place dispositive factual cense,” appro- believe the “community of that we interest” presented was suffi- the evidence priate standard whether statutory that the permit a to determine factfinder cient Al- met. of a franchise were requirements for the existence summary for on cross-motions though case was decided this plenary if trial as judgment, it arises before Court from evidence would be agreed that no further parties because Chancery presented Division. to the

Y a franchise CCC and ISI constitute between Does the business relationship Practices Act? the New Franchise under Jersey protected A. a Agreement ISI would maintain place that contemplate the 1984 Reseller Did in New Jersey? of business governed by relationship is not argues that with ISI its CCC in “place maintain a of business” ISI does not the Act because contemplated by Act. CCC the that term is Jersey as New require- “place-of-business” satisfy in order the argues that to to required have ISI ment, Agreement must Reseller the 1984 Jersey. further contends in New its business conduct Jersey in New place a of established business had not ISI any its at location conducted business could have because ISI territory. its within applies only

The Act performance to a franchise “the of contemplates requires which or the franchisee to establish or place a maintain of Jersey.” business within the State of New 56:10-4(1). According statute, “place N.J.S.A. to the of busi- ness” means geographical a fixed location which the sale franchisee for and sells displays goods

the franchisor’s or offers for sale sells the franchisor’s services. storage, Place business shall not mean an a office, warehouse, a a place residence or a vehicle. 3(f).]

[N.J.S.A. 56:10— Thus, statutory permit terms a franchisee to receive protection performance Act’s if of the franchisee’s activities contemplates requires either Jersey place or a New of busi 56:10-4(1). Hence, ness. N.J.S.A. franchise gov a would be place erned the Act required whether contract a Jersey in parties business New reasonably whether the anticipated that the franchisee would establish New Jersey Therefore, place statutory of business. condition met if * * * parties a fixed business location for the “consider[ed] products.” sale of the SnyderGeneral, supra, franchisor’s F.2d at 1145.

There support finding was sufficient to evidence Agreement fact “contemplated” 1984 Reseller that ISI ' would have a Jersey. “fixed business location” New Since marketing facility has Jersey. had a in New From ISI 1986, marketing 1977 to facility Englewood located in was Cliffs, Jersey. operations Hackensack, New ISI moved its to specifically 1986. ISI constructed Hacken facility sack so displayed that CCC could be prospective demonstrated customers. To assist those demonstrations, purchased ISI and installed CCC Microhost computer years, hardware. Over the ISI had used its market ing product facilities conduct hundreds of CCC demonstra professionals tions for education all country. from over the conducting demonstrations, Besides also ISI allows remote cus- computers telephone-line via to “rent” Microhost a tomers the remote customer site. connection from Hackensack to business,” the “place statute For a franchisee to have a of “display[ for sale requires that franchisee ] sell[ ] goods or for sale and franchisor’s franchisor’s sell[ offer[ ] ] 56:10-3(f). provides The statute further services.” N.J.S.A. office, warehouse, or place storage, a residence “an a a of that The qualify “place Ibid. a do not as a of business.” vehicle” “place aspect of business” significant is the more of the latter only those businesses requirement because it ensures operate genuine protection as will obtain the franchises * “ * * there must be sales [requirement] means a Act. ‘This through an Jersey. Mere distribution office location in New ” Inc. qualify.’ Cleaning, would not Greco Steam warehouse 594, 598, N.J.Super. Corp., 257 Dry v. Associated Goods Div.1992) Sweeny, Apply J. (Law (quoting A .2d 1010 William Distributors, 125 N.J.L.J. Franchise Act to Terminated ing (1990)). satisfy “place argues that ISI does not an merely maintains “office” requirement because it business” specifically by the terms Jersey, which is excluded New 3(f). Darche, supra, F.Supp. Relying on N.J.S.A. 56:10— “place Jersey is not a a New sales office CCC asserts that business,” calls made supervise sales even when used Darche, plaintiff was territory. In throughout a multi-state representative for the serving a independent as an contractor a plaintiff The had ten-state manufacturer. defendant food from Jersey location which territory, only “New office but one through its employees they as rode circuit supervised it its own a as soliciting at 431. court held territory orders.” Id. “place not office sales was of law that the matter summary defendant business,” granted the and therefore at 434. judgment. Id. requirement CCC, “place of business”

According to franchisee, promi- from which the specified location means 350

nently displaying own, goods they the franchisor’s as if were public creates the perception merely it is not a seller of the goods part closer, franchisor’s but is in a “special fact of relationship” organization. unified Finlay See & Assocs. —one 210, v. Borg-Warner Corp., N.J.Super. 219, 146 369 A .2d541 (Law Div.1976) (discussing special relationship between the parties as licensing), it to relates other grounds, on aff'd N.J.Super. denied, 933 (App.Div.), A.2d 77 N.J. certif. (1978). 391 A.2d 483 “places would limit CCC protected business” that are under the Act to the familiar prototypes restaurants, franchise McDonald’s the Midas —the shops, dealerships, Muffler comparable the Buick show rooms or retail outlets. type

That ISI is not same prototypi- establishment as a cal undisputed. franchise is prototype, Unlike the franchise consumer of general CCC’s is not patron who walks in off if buy Thus, the street hamburger. as car or ISI has no free-standing highway facility that is dedicated exclusively displaying goods. Instead, only CCC’s ISI has facility one headquarters office located on the sixth floor —its of a building commercial office in Hackensack. From that manages office operation. ISI its entire argues that such an office does “place not constitute a of business.” But there is more to the New Franchise Practices Act prototypes hamburger than the stands. See Morgan Limousine, Inc., v. Air Brook N.J.Super. (Law Div.1986). A. 2d 1197 (Although case involved the Act, -48, Consumer Fraud presupposed N.J.S.A. 56:8-1 to it that a limousine company service could constitute a franchise specific albeit there no was “place discussion of the of busi requirement.) ness” facility ISI Hackensack is much more than a mere sales 6,000

office or warehouse. That location is a square foot (about facility courtrooms). the size of three conventional One can computer-software demonstrate a system only by installing facility equipped with a using it. Hackensack it and ISI’s “labora- modeled to simulate the classroom demonstration room There, feeling how the tory.” experience the may customers setting. ISI system function an actual school-room would year giving has than one hundred demonstrations been more Although have facility. some ISI customers at its Hackensack and have demonstrations out- visited installation sites received reality not detract from the Jersey, side that fact does of New just more an office. facility is than that the Hackensack short, finding that ISI In sustains the trial court’s the record customers, facility where its up marketing set a in Hackensack computer system inspect can the CCC professionals, education operation of its com- a demonstration and receive sales found facility thus could be plex product. Hackensack ISPs Act. “place of business” under the constitute a B. granted finding ISI a court’s that has been record the trial Does the support “license”? to the subject may be a franchisee party a deemed Before granted “a that it had been protections, Act’s it must show mark, mark, name, service trade license to use a trade Arguably, 56:10-3a. N.J.S.A. related characteristic[ ].” * * * is trade mark” broad “license to use statutory language granting owner of a trademark enough to include the act grantee’s advertis its name in the permission use restricted infringing grantee permission the would be ing. Without Indeed, legislators right in trademark. grantor’s on the despite the wording limit the statute’s were not moved to defini stated that the of the bill who warning opponent of an every ar all-inclusive, embrace business and would tion “is Hear trade name used.” rangement a trademark or where Dorn, Secretary (testimony Peter at 3 ing supra, on A. Commerce). Jersey State Chamber of the New grant But it is obvious every permission that not to use a goods trademark the sale of or services is a “license” within meaning of the example, Franchise Act. For department store that sells clothing brand-name or television sets cannot realistically market those using without the distinctive name and trademark of the manufacturer.

Setting “community-of-interest” aside the requirement, even if fifty percent department of the store’s total revenue were particular derived from the product, sale of a brand of circumstance would arrangement not render the a “license” within meaning simply Act because the distributor is permitted to use the manufacturer’s prod name to market the ucts. To define a might “license” otherwise every convert distributorship into a franchise. As the Third Circuit said Industries, Colt Inc. v. Pump Compressor Fidelco & Corp., (1988), 844 F.2d “if agreement this limited constitutes trademark, a license to use a any selling then business a name would, product brand Jersey law, under necessarily be holding considered as a license.” The Act’s requirement “license to use” does not encom pass a sense, definition of “license” in the word’s broadest that is: something “Permission to do without the license [that] would not (5th be allowable.” Dictionary Black’s Law 829 ed. 1979) (citing Great Atl. & Pac. Tea City Lexington, Co. v. 595, 894, 256 Ky. 76 (Ct.App.1984)). Instead, S.W.2& 896 term “license” as used the context of the Act constitutes a narrowly-defined type more language entitlement. In the Finlay, supra, the term “license” means “to if use as it is one’s * * implies own. It proprietary a interest N.J.Super. 146 219, minimum, at 369 2dA. 541. At a the term “license” means alleged that the franchisee must use the name of the franchisor “in such a manner as to create a reasonable part belief on the consuming of the public that there is a connection between the * * * licensor and licensee vouches, which the licensor itas were, for activity Neptune licensee.” Appli T. V. & Inc., Serv., Sys., N.J.Super. Inc. v. anee Litton (App.Div.1983). 462 A. 2d supra, no Finlay, found because the distribu

In license was name. tor had not conducted business under manufacturer’s Industries, N.J.Super. at Colt 541. So too in 369 A.2d supra, no license was found because plaintiff prohibit had been part using the name as of its own. ed from defendant’s T.V., supra, Neptune In at 120. the court found F.2d license, presence only plaintiff had held of a but because Litton service source.” 190 N.J.Su an itself out as “authorized 156-57, per. 462 A.2d 595. grant “license” as contends it did not

CCC that ISI response, points to section is used in Act. In ISI that term authorizing Agreement expressly as the 1984 Reseller 6.02 of use of the trademark: and trademark name, shall use its best efforts to maintain CCC’s promote ISI long Agreement logo so is authorized, on the Products. as this

and ISI * * * advertising, logo in exhibits, and its effect to use CCC’s trademark name, manuals as the same relate to relations materials and shows, trade public Products. are so rights granted under section 6.02 replies that the CCC satisfy broadest relationship not even the limited that the does of license. definition has not name as its is true. ISI

That ISI does use CCC’s own name, it under trade and admits always operated its own cards, stationery, or not use CCC’s name on business does V., Neptune T. However, ISI has signs. as any on business quite from that is different relationship with CCC established computers. Apple IBM department that sells of a store required Agreement ISI to 6.02 of the 1984 Reseller Section name, promote CCC’s “use its best efforts to maintain added). (emphasis logo on the Products” trademark “off- system is not an computerized-educational-learning neighborhood- at product purchased that can be the-shelf” Rather, unique combination of hardware it is a appliance store. integrally that of identity is related with whose and software 354 Significantly, Agreement

ISI. prohibited 1984 Reseller ISI selling from any products competitive products. with CCC Moreover, prohibited developing CCC ISI from designing any products might that compete products. with CCC’s Further- more, obligated CCC ISI to educate and train users of CCC continuing on a Surely, basis. a factfinder could find presence Neptune of the repeat T.V. criteria here. To requirements T.V., Neptune supra: hallmark of the franchise [A] is the use of another’s trade name in relationship consuming such a manner as to create a reasonable belief on the of the part that there is a connection public between the trade name licensor and licensee which the licensor as it for by vouches, were, of the licensee in activity subject v. Carvel of trade name. Susser respect See Corporation, 206 (S.D.N.Y.1962), (2d Cir.1964),

F.Supp. F.2d 636, aff’d 332 dism. 381 app. (1965) U.S. S. Ct. L.Ed.2d in which the court explained * * * the cornerstone of a franchise must be the trademark or trade system name of a It is this product. and control of its uniformity product quality and distribution which causes the to turn to franchise stores for the public product. N.J.Super. at 462 A .2d

[190 595.] transpose T.V., To Neptune words of “We are satisfied that this present hallmark was by designa here since [CCC’s] tion of as an [requirement]” and its [ISI] [exclusive distributor] promote name, that ISI trademark, maintain and CCC’s logo, “gave imprimatur enterprise business [ISI’s] respect of product consuming public and induced the [CCC’s] expect from uniformly acceptable quality controlled [ISI] service endorsed N.J.Super. 160-61, itself.” 190 [CCC] 462 A .2d 595. dissenting

Our Neptune members view the T.V. standard as insufficient to create a relationship; they franchise would insist that the identities of the two merged; they be look for an alter- ego relationship on the model of the stereotypes franchise —the McDonald’s restaurants. That require standard would such a operate business under the manufacturer’s name before it fits the However, franchise definition. the inclusion of independently-named implicit businesses is in the Act’s definí- “where Act’s limitation to a franchise tion of franchise gross are intended to of franchisee’s sales more than 20% 56:10-4(3). from such franchise.” N.J.S.A. be or are derived Therefore, “mirror-image” relationship could consti only if a superflu franchise, Legislature have added a would tute a franchise sales constitute requirement in the Act that the ous of that The addition twenty percent of the entire business. sales, gross seems to contem of language, “more than 20%” franchise” described creation of the “fractional plate the 131, 338, which the II, 614 A. 2d at under supra at Part unique trade name. under its own operates franchisee the fran- alter-ego standard for to seek an Even were we with evidence replete record is requirement, the chise-license reputa- actually ISI’s identity existed. merger that such exclusively as a always has been throughout tion the Northeast CCC in the Northeast wanted If a customer CCC distributor. explicitly through CCC only ISI. it could find them products, Training of custom- exclusive distributor. promoted ISI as its Any purchaser through ISI. products occurred ers on CCC relationship,” “special perceived that a reasonably could have existed 369 A.2d N.J.Super. Finlay, supra, Indeed, the educational one member of and CCC. between ISI remarked, Lambert, “Although L. community, Brother William CCC, I and the company from separate appears to be a ISI always have throughout the Northeast community educational to the respect with ego of CCC as virtual alter dealt with ISI products.” and use purchase Nonetheless, satisfied that we are Certainly, ISI is not CCC. the relation find that evidence to had sufficient trial court Neptune T. standard: V. and CCC satisfied ship between ISI * * * autho the extent circumstances [CCC’s] these “Under sufficient name was to use the rization [CCC] [ISI] 190 N.J.Su contemplated by the Act.” as a license constitute 595. 462 A. 2d per. at

c. finding Does the record the trial court’s that ISI has a support “community interest” with CCC? As opinion, ambiguous noted at the outset of our “com munity inquiry problematic of interest” is the most issue this community-of-interest requirement case. The addresses the inequality bargaining power parties between the and is in distinguishing types critical franchises from other of busi Nevertheless, relationships. only ness Jersey one New state court, Neptune T.V., supra, appropriate has discussed community definition of in Neptune interest. The court T.V. community-of-interest inquiry found that the emphasizes the “vulnerability alleged of the franchisee to an unconscionable tangible intangible equities.” loss of his N.J.Super. at 165, 462 plaintiff A.2d 595. Because the in Neptune T.V. features, court, lacked those ruling that after there had been a trademark,” “license to use a found that the business relation ship did not constitute a franchise. at Id. 462 A. 2d 595. argues

CCC that it community-of-interest does not share a Relying American, with ISI. on supra, 875 F. 2d 58, CCC contends that makes unique what the true franchisee protection and in need of vulnerability the Act’s is the that arises because required the franchisee is to make substantial * * * franchise-specific investments “that [only] are valuable if remains a particular licensee” of that fran [the franchisee] Usually chise. at 62. tangible Id. those capi investments are investments, building tal such designed as “a style to meet the franchise, special equipment only produce useful product, signs.” franchise example, franchise For Ibid. McDonald’s required many years franchisees were pur for Arches,” chase and install “Golden which were of little if value the franchise Franchise-specific were lost. may investments intangible assets, also goodwill constitute such as the business operating associated with under the franchisor’s name. Ibid. The Act’s concern is that once a business has made substan- franchise-specific tial investments it loses all virtually or all of original bargaining power regarding the continuation of the franchise. Specifically, the anything franchisee cannot do termination, risks because that would result in a loss of much or all of franchise-specific Thus, the value of its investments. the franchisee has no choice but to accede to the demands of franchisor, no matter how unreasonable those may demands be. Id. 62-63. argues

CCC placed ISI has not itself the vulnera position genuine ble of a franchisee it because has not made franchise-specific substantial investments. CCCclaims that ISI presented no evidence that it capital has made non-transferable in buildings, equipment, investments signs, anything or else specific to particular, points CCC. In following to the support position: facts in of its (cid:127) building ISI’s office is an commercial only office if ordinary Hackensack; ISI could use that office for terminated, of businesses many types sublease it to some other party. (cid:127) ISI does not maintain CCC in its so there is no any products inventory, that ISI would have stranded inventories if possibility terminated. Ordinari- ISI does not order from until ly, CCC it has a sales order already from an end user. (cid:127) signs ISI has not invested in its office as that of a any CCC identify logo “franchisee.” does not the CCC or trademark []ISI on office put door or directory. (cid:127) While ISI has some CCC and software for its own use purchased equipment (that services), timesharing is, for demonstration or to the purposes provide investment is minimal, not the easily transferable, []was required by Agreement. Reseller Although acknowledging developed goodwill has ISI for respect, argues CCC and has benefitted CCC in that goodwill ISI’s investments are not of type the that the Act protects. American, supra, CCC relies on New for the proposition only goodwill that the Act is concerned with invest- franchise-specific goodwill ments that are in that the is tied to dependent on the continued use of some sort of asset franchise, trademark or unique to the such as the franchisor’s 875 F.2d at 62. place franchise of business. product cannot be goodwill generally for a develop To Otherwise, any enough community of interest. to create a product claim it has a distributing could licensee a brand-name depart supplier. example, For community of interest with its selling Sony products could claim a communi ment store name despite the fact that ty of interest with the manufacturer intimately not tied goodwill investments are department store’s the economic character and therefore lack to the manufacturer genuine franchise investments. noted, interprets leading Jersey case that As Neptune supra, is T. “community of interest” standard V. There, 153, appliance-repair an busi N.J.Super. 462 A.2d 595. a manufacturer of into a service contract with ness entered whereby it became an “authorized Litton microwave ovens 156, 595. In for Id. at 462 A. 2d service source” Litton ovens. addressing community of interest existed between whether “context of the nature of parties, the court focused on the franchising this form of business and the abuses to which 2d enterprise singularly susceptible.” is Id. at 462 A. 595. “is community-of-interest that the standard The court found advantages continuing complex on the of mutual and based his ultimate consumer induced the franchisor to reach which which, although legally through his own entities other than economically dependent upon him.” separate, are nevertheless 163, 462 595. Id. at A.2d Oil, conceptual supra,

Returning to the framework Shell original purpose, the 307 A. 2d and the Act’s 63 N.J. community court concluded that what characterizes potential triggered interest is the for abuse that when network, “reputation good primarily by of the created and will franchisees, passes efforts of each of the individual back the Nep compensation franchisor without to the franchisee.” 164, T.V., 595. The supra, N.J.Super. at 462 A.2d tune court “broad, summarized its views of the elastic and elusive” concept of community of reflecting interest as “symbiotic character of a arrangement true franchise consequent and the vulnerability alleged franchisee to an unconscionable loss tangible intangible of his and equities.” 165, Id. at 2dA. 595. The recently Third Circuit reasoning: echoed that “[C]om munity of interest exists when agreement the terms of the parties between the or the nature of the franchise business requires licensee, in the interest of the licensed business’s success, to make a goods substantial investment in skill will utility be of minimal outside the franchise.” SnyderGener al, supra, 944 F.2d at 1143.

The Neptune court community T.V. concluded that no interest parties existed between the in that case because their * * * relationship “lacked symbiotic character a true arrangement.” 165, franchise N.J.Super. at 462 A.2d 595. Although the Neptune contract had authorized repre T.V. to sent and hold itself out as an “authorized Litton service source” letterheads, advertising, cards, in its calling and service vehicle markings, community no of interest existed because Litton’s sole repair Neptune perform interest business was that repairs in satisfactory manner. at Id. 462 A .2d595. business, Litton had no interest in plaintiff’s the volume of and its own interests products required were best served if its as warranty repairs possible. few profit as Ibid. Litton did not performed through from nor had it repair business operations, Neptune building did not contribute toward Furthermore, Litton’s business. Ibid. Litton’s business ac only thirty-eight percent Neptune’s counted for income. Id. Hence, Neptune independent at 595. A.2d lacked an continuing financial interest in Litton’s business and was not particularly susceptible any to abuse as inequita a result leverage parties. ble-financial between the Id. 462 A .2d 595. Jersey Legislature

Because the New had not defined “com Act, munity Neptune of interest” in the T. court looked V. 360 community-of-inter jurisdictions’ interpretation

to other of the requirement. requirement of that is est The fullest discussion Rexnord, Inc., 593, 139 .2d 407 Ziegler found Co. v. Wis (1987), 147 reh’g granted grounds, N. 873 on other W.2d Wis.2d 308, (1988). community-of- 433 8 In that case the N.W.2d requirement part Dealership interest was of Wisconsin’s Fair 135.02(3)(1991). Ziegler, In court Law. See Wis.Stat. § legislature consciously phrase said that defined the com “[t]he munity encompass extraordinarily of interest to an set diverse relationships of not limited to the traditional franchise. business * * * exists, determining dealership whether a courts ‘[I]n trappings solely should not focus on the telltale of the tradition Id., (quoting 407 al franchise.’” N.W.2d at 878 Bush v. Na Studios, Inc., 407 tional School Wis.2d N. W.2d (1987)). Ziegler although percentage court concluded that particular supplier important income derived from a is an interest, community community-of-interest indicator of a requirement equation.” “cannot be reduced to a mathematical Rather, guidepost Ibid. one to determine the existence of a community “continuing there is a finan interest whether companies. cial interest” between the Ibid. The court stressed “requirement contemplates that that a shared financial interest operation dealership marketing good in the or the of a addition, community In service.” Ibid. of interest is shown by “interdependence” parties, to the between which refers “degree grantor cooperate, the dealer and which coordinate goals their activities share common their business rela Id., Thus, tionship.” N.W.2d 879. a dealer must “dem relationship large enough onstrate a stake in the make terminate, grantor’s power to cancel or not a threat to renew the economic health of the Ibid. [dealer’s business].” franchise-practice comparable

States with acts to the New employed community Act have similar definitions of Washington’s example, interest. For Franchise Investment community continuing Protection Act defines a of interest as “a financial interest between franchisor and the franchisee operation of the franchise business.” See Wash.Rev.Code 19.100.010(2)(1991). Inc., In Sugar Spice, Lobdell v. ’N Wash.App. (1983), 658 P.2d 1267 the court found the requisite community of interest a company between that had granted candy been a distributorship for certain counties and the distributorships. parties’ seller of those agreement The continuing evidenced a sufficient financial interest in the resale of the prove merchandise to a of community interest it because agreement purchase contained an to trade-name merchandise as supply Id., well as a for contract a definite term. 658 P.2d at addition, 1274. In the distributor’s financial interest was evi by obligation denced ample contractual “to maintain an supply diligently promote products.” Ibid.; of and company Bank, see also Chase Manhattan v. N.A. Clusiau Sales & Rental, Inc., (Minn.1981) (finding N.W.2d a suffi community cient of interest under Minnesota franchise act between muffler company a and an exclusive the dealer when pipes according dealer sold and installed mufflers and tail to specifications); Investors, the manufacturer’s Martin Inc. v. Bie, (Minn.1978) (finding Vander 269 N.W.2d 874-75 a community sufficient of interest under Minnesota franchise act computer-service between a company that matched the needs of potential potential borrowers to and a lenders consultant who system, computer sold the company when the service had a right percent contractual to proceeds one the of each loan consultant). placed by the interpretations community suggested by

The of interest Neptune the T. courts courts Ziegler V. are similar. Both beyond trappings look “telltale the the traditional franchise.” Ziegler, supra, Neptune V., at In N. 2d 878. T. the court W. suggested considering relationship” “symbiotic ex whether parties. analysis ists between the That is similar to “inter the dependence” requirement urged by Ziegler takes court and into licen account extent of licensor’s control and the dependence by see’s economic discussed other courts. See addition, 1140. In supra, at SnyderGeneral, F.2d in Zie “continuing requirement interest” articulated financial a stake by emphasizing that the franchisee “demonstrate gler, grantor’s large power make the relationship enough in the terminate, to the health or not a threat economic cancel renew supra, person,” Ziegler, 407 N.W.2d echoes franchise-specific by other investment discussed extent relationship. as of the franchise See courts a hallmark American, supra, at 62. 875 F.2d Shapi- A. Ordover and Carl experts, CCC’s Professors Janusz ro, transferability invulnerability of ISI’s emphasize the Profes- joint declaration of franchise-specific investments. Shapiro order to conclude sors Ordover and maintains franchise, specific one find that ISI made that ISI must to a “intimately are tied” investments in CCC granted Shapiro aver license CCC. Professors Ordover and made in furtherance of a business that all investments necessarily franchise- enterprise not rise to the standard of do They investments as “rela- specific investments. describe ISI's investments,” to tionship give sufficient to rise which are not they are existence a franchise because an inference of the opportunistic and are not not to behavior CCC” “vulnerable “intimately to ISI's status as a licensee.” tied Shapiro

Professors Ordover and reason further investment, training personnel, although an is transfer- ISI’s goodwill products. They to assert ISI’s able non-CCC a termi- will not lost the event of investments CCC be nation, name always operated has under its own because ISI relationship. independent and its customers are aware of its Thus, reason that ISI is not franchise because Professors merely typical distributor has made investments that a ISI “knowledgeable make to a manufactur- must in order be about products that the distributors sell.” er’s experts, countervailing Despite affirmations CCC’s suggests to court that has evidence was submitted the trial ISI franchise-specific made example, investments. For the Micro- purchased hosts that ISI from demonstrating CCC for CCC’s software and Courseware involved an approxi- investment of $100,000. mately termination, In the event of a ISI would not be able to resell prohibited the Microhosts because it would be licensing from Courseware, the CCC software and and without the CCC software and Courseware the are Microhosts essential- ly addition, by CCC, useless. In if terminated ISI has no products alternative line of that it could substitute and sell in place product twenty years, CCC line. For to close ISI persuaded has its customers system. to choose the CCC goodwill Shapiro and contacts that Professors Ordover and exploit believe ISI could continue to would vanish in the event argues of a termination. ISI that had it lost its status as a CCC distributor, competitors, including CCC, denigrate ISPs would prior ISI product with references endorsement of the CCC argues products Jersey, line. ISI that to sell CCC New York, Massachusetts, competitive and at the same time sell products throughout impossible. the Northeast would be emphasizes many

ISI “sunk investments” that it has made in the sale of CCC that are In non-transferable. particular, following recites ISI as “sunk investments”: at $250,000 purchase least for the of Microhosts and Microhost $30,000 upgrades; purchase at least for the of CCC hardware Servers”) (“Graphics given potential that ISI has customers purchases products; as an incentive for future purchase computer of numerous CCC terminals that ISI has purchases donated to school districts as an incentive for future products; conducting of CCC the cost to ISI of studies for many respect products. school districts with to the use of CCC ISI views all those investments as non-transferable. goodwill

ISI asserts that the most critical asset in the form of developed it has for CCC’s benefit is the “installed base ISI, Earely, argues clients” in the Northeast. will a school integrated-learning system district switch from one to another. Therefore, on-going profits result from the customer base con- upgrading expanding or

tinually renewing their licenses and systems. their Kidder-Peabody documents of the

ISI submitted confidential advisor, court, Company, exclusive financial trial CCC’s described will not discuss detail. Those which we documents analysis industry “the standard.” That CCC’s Courseware as their ninety-five percent noted of CCC’s customers renew years year and that most curriculum leases each over expanded systems. That confidential customers have their emphasized currently an information further that “CCC has 13,000 systems and terminals in installed base of more than 300 1,000 nationwide, company schools which the estimates consti- fifty-five percent [computer entire tutes a market share industry.” report That describes CCC as assisted instruction] having system.” “a dominant market argues opportunistic behav-

ISI that it vulnerable CCC’s generated profits ior all of the future that are from because Northeast, exception of states installed in the with the base Massachusetts, York, Jersey, and will accrue to New Moreover, reap the in those states of all CCC. CCCwill benefit goodwill projects that ISI has undertaken to and various generate additional sales. interdependence in various

ISI’s and CCC’s is evidenced obligating ways. controlled business ISI to CCC ISI’s developing a energies “direct all of its and resources to demand products,” by prohibiting develop- from for the ISI [CCC] might ing designing any products compete or with CCC Therefore, any depart- unlike a location. ISI was Sony ment store that could sell and Zenith both televisions Apple computers. only IBM sold one market both ISI Hence, computer-assisted-learning system ISI could —CCC’s. develop only product- a clientele that was wedded to CCC line. required maintain at least four full-time sales ISI to adequate promote

representatives and to maintain facilities to products. and sell required CCC’s ISI was monthly- submit reports, sales-forecast right CCC retained the to monitor performance by ISI’s inspecting ISI’s books. CCC trained ISI marketing personnel imposed way restrictions on the ISI supplemental could market its products. CCC also con- quality trolled the by requiring ISI’s services prepare ISI to the customer site for installation in speci- accordance with CCC fications, and to training programs maintain product for CCC users. addition,

In sales, ISI and jointly cooperated CCC in market- ing, and maintenance personnel activities. ISI and jointly CCC represented products CCC at educational conventions. CCC supplied ISI with regarding brochures and with information potential customers its territory. within Both CCC and ISI jointly cooperated problems to resolve maintenance and shared costs associated with projects prospec- model-demonstration for tive promotional customers. CCC’s literature described ISI’s regional noted, Hackensack office as a “CCC office.” As evidence revealed that ISI customers considered ISI and CCC synonymous. as

Finally, prohibited selling any products CCC ISI from which competitive products. are required with CCC’s CCC ISI to use products. its “best efforts” to obligated sell CCC’s ISI was energies use “all of developing and resources to a demand” products. for granted right CCC’s ISI the to sublicense copyrighted the CCC perhaps impor- Courseware. And most tant, ninety-seven percent of ISI’s revenue came from the sale products. of CCC’s record, light

In the relationship this the CCC-ISI differs markedly T.V., from that Neptune supra, described in N.J.Super. purported A. 2d in which franchisee repaired appliance manufacturers. Further more, case, unlike this appliance repair Neptune service fully T.V. was transferable. Nor is the relationship CCC-ISI Industries, relationship like the supra, Colt 844 F. 2d a non-exclusive distributor purported franchisee had which subject or no control the manufacturer. ship and was to little relationship in relationship like the Nor is the CCC-ISI 58, American, the distributor Jersey supra, 875 F .2d where relationship linings. Finally, the many suppliers used of brake supra, 944 SnyderGeneral, in the one in this case differs from conditioning sale and the distributor’s air F. 2d where The distributor in fully was transferable. service business repair other of air condi could sell and brands SnyderGeneral refrigeration heating equip or well as other similar tioners as ment. extraordinary intricate relations that

Because of the symbiot computer products, a “close arise in the distribution of necessity manufactur relationship” ic arises almost of between Brooks, Kennedy A. ers and or resellers. See distributors VADs, VARs, the Franchise and Authorized Dealers —Do Hastings 12 Computer Industry?, Comm. Apply Laws to the (1989). computer A or reseller distributor & Ent.L.J. to, on, completely focused if not dedicated “whose business is unlikely to resist particular manufacturer is the hardware likely to resist demands and even less initial manufacturer policies requirements.” shifts in the manufacturer’s future relationship by Neptune described symbiotic at 35. This is Id. T.V., as a “hall supra, N.J.Super. at A.2d relationship.” mark of the franchise short, finding in say In cannot that the trial court erred we relationship community of interest. CCC-ISI showed a that the

VI have extraterritorial reach to If there is a New does the Act franchise, Jersey activities in states other than New Jersey? franchise initial choice-of- question closely related to the This 341-346, III, supra at 614 A. 2d question discussed Part law law, law, Jersey rather than California 133-135. If New application Jersey stop law at New applies, does the of New Jersey’s border? Recall Chancery that the Division reasoned although Legislature did not intend that the Act’s provision apply extraterritorially, parties given had the law reasoning that effect. The echoes that of a Florida court that ruled that a Florida Mercedes dealer could Jersey’s invoke New Franchise Practices Act because the Jersey subsidiary New granted Mercedes that dealership expressly Florida had made the Jersey applicable New law to the contract. Mer Department Vehicles, cedes-Benz N. Am. v. Motor (Fla.Dist.Ct.App.1984). So.2d 404 We are not so analogy certain that the same can be drawn Surely nothing here. indicates agreed that CCC intended or Jersey that the New law would cover its activities the sister Hence, states of Jersey. New question we are remitted to the Legislature of whether the intended the Act to apply to franchise outside activities of the state. To return to gave the illustration that we the choice-of-lawsection of this opinion, 344-345, 134-135, supra at 614 A. 2d would the at Legislature protect have intended to Jersey businessper New son who had invested in Jersey-based substantial assets a New operation? hub of a multi-state franchise In some question depends measure the answer to that on the power extent of may State as lawmakers have it. understood Obviously, Jersey power, interest, has no New and therefore no regulate to entirely beyond commerce that occurs its borders. Institute, Inc., 324, 2491, Healy See v. Beer 491 109 U.S. S. Ct. (1989). 105 In Healy, L.Ed.2d 275 a Connecticut statute con trolling pricing attempted regulate price liquor beer to the by equating price price sold outside of the state that with the liquor Supreme in sold the state. The Court held that statute violated the Commerce Clause because it had the effect controlling activity occurring wholly commercial outside Con facially against necticut and it discriminated interstate brewers importers, advancing thus justifica not the state’s claimed Ibid.; insuring prices. tion of the lowest in-state beer see also 2629, Edgar Corporation, v. MITE 457 102 U.S. S.Ct. 73 368 (1982) regulating (holding an Illinois statute

L.Ed.2d 269 that beyond Illinois borders was im- tender offers to shareholders outweighed permissible commerce that burden on interstate corporations). putative local benefits to in-state distinguishes Edgar that decision from a The feature Illinois Act “could be case such as ours is that the Takeover applied regulate a tender offer which would not affect a single Illinois at at shareholder.” Id. S.Ct. Thus, reasoned that the Commerce L.Ed.2d at 283. the Court precluded application to commerce Clause of a state statute place wholly took outside of Illinois’ borders. also See 337, 109 2500, 105 at L.Ed.2d at Healy, supra, 491 U.S. S.Ct. (“Connecticut statute has the undeniable effect of control ling activity occurring wholly boundary commercial outside State”). however, analogy, apply

The same does not here. To the regulates in applicable, extent that it is the New Act example, For state conduct that has out-of-state effects. Media, Inc., Management, Family Mon-Shore Inc. v. (S.D.N.Y.1984), F.Supp. argued defendants that the applied Act could not to a New York Franchise Sales be Pennsylvania Jersey. franchise offer to franchisees in and New court, however, apply held York Fran That regulated though chise Sales Act even it conduct sister states appropriate, important aspect particular of a was because “an buy, franchise transaction —an offer to sell or or actual sale— state, state, operate occurs or the will in the franchise added). (emphasis resides here.” Id. at 191 or the franchisee statute that affects interstate The court reasoned that a state “ ‘regulates upheld long evenhandedly commerce so as it will be legitimate public effects to effectuate a local interest and its upon only are unless the interstate commerce incidental ... imposed clearly on such commerce is excessive rela burden ” putative (quoting at 190 tion to the local benefits.’ Id. Pike v. Church, 137, 142, 844, 847, 397 90 25 Bruce U.S. S.Ct. L.Ed.2d 174, (1970)). here, in Edgar, 178 So too contrast to the State

369 regulation applicable only affecting transactions specific Jersey, i.e., New “place franchises that have a of business” in Jersey. otherwise, Were it nearly aspect every of substantive state law would affecting be disabled from the conduct of multi-state corporations. Jersey imposes When New legal law duty on the volitional contracting behavior of a party, ruling will often beyond have effects state example, boundaries. For if the issue in this case were straight law, i.e., that of contract precluded had the contract termination of the out-of-state terri- tory, the New upholding common law the contract would regulating be commerce that place wholly takes outside of the state’s borders. In power, terms of state whether state con- tract statutory applied law or state law is to the activity in-state makes no difference. Cipollone Liggett Inc., See Group, v. U.S.-,-, 2608, 2635, 505 112 S.Ct. 120 L.Ed.2d (1992)(Scalia, J., concurring (declar- in part, dissenting part) ing any legal duty imposed on volitional behavior is one law). imposed by way looking

Another at the extraterritorial reach of the statute is in the due-process context of limitations on state Norchi, choice of Brilmayer law. See Lea and Charles Federal Extraterritoriality Process, and Amendment Due Fifth (1992) Norchi). (Brilmayer leading Harv.L.Rev. 1217 The dealing due-process case with limitations on state choice of law is Allstate Hague, Insurance Co. v. U.S. S.Ct. (1981). 66 L.Ed.2d 521 Hague authors summarize the process formulation thus: requires choice of “[D]ue [in law] forum, with the arising ‘contacts’ ‘interests’ out of these con- tacts, Norchi, and ‘fairness’ to Brilmayer the defendant.” supra, at 1242. Harv.L.Rev. That test echoes the Com- merce Clause test of Pike v. Bruce Church in terms of the legitimacy of the local interest and regu- reasonableness of the lation.

370 proposition “fairly

The is may well established that a state residents, regulate they acting its even when are outside of the (discussing Florida, state.” 1241 Id. at v. 313 Skiriotes U.S. 69, 924, (1941)). Skiriotes, 61 S.Ct. In L.Ed. the State applied who, its law to one of its residents while outside the waters, state’s regula territorial had violated environmental Supreme tions. upheld Ibid.; Court the State’s action. Skiriotes, supra, 313 at U.S. S.Ct. at L.Ed. power 1201. A State’s over its own citizens should extend to protection rights dealing of its own citizens’ when with others though may even there be incidental effects in jurisdic other tions: analyzing

When constitutionality of a statute with inci- effect, dental legislative extraterritorial intent and constitution- power (under Clauses) al the Commerce and Due Process will core, merge. tend to Jersey At its the New Franchise Practices Act is meant to deal with the practices unconscionable business affecting New franchises. Hague Under the formula- surely forum, tion we find “contacts” with the “interests” arising contacts, out of those and “fairness to the defendant” in the statute. implicit

Fairness to the defendant is require the statute’s definition, By Act, ments. particularly community- requirement, of-interest protect parties intended to business who made franchise-specific capital investment of either goods Jersey. or services in Serv., See Centre Westfield Co., Inc. v. (1981) Cities Serv. Oil 86 N.J. 432 A. 2d 48 (inequities Legislature trying was to correct under the Act unequal resulted from bargaining power parties, leading that, provisions imperiled unconscionable termination inno cent investments). franchisees with substantial losses of their terms, Thus the including statute’s own community-of- good-cause requirements, interest and application will allow the only of the Act in situations in which there are “contacts” with forum, arising contacts, “interests” out of those and “fair ness to the defendant” in the sense that a defendant who acts fairly oppressive regulation. with a franchisee need fear no Therefore, the Act’s any impermissible own terms curtail extra- constitutionality territorial effect and ensure its under Com- due-process analysis despite merce Clause or some incidental extraterritorial effects. noted,

As a critical factor in case is this the installed base of up twenty-year period. customers that ISI has built over a peculiar relationship Because of the between the hardware and software, arrangements the to terminate the franchise could be devastating within that customer base and could allow the unconscionably reap franchisor to the harvest of the franchi long years might see’s of effort. But a termination not be equally devastating jurisdictions. “good in all The Act defines by cause” for termination as “failure the franchisee to substan tially comply requirements imposed upon by with those the [it] franchise.” 56:10-5. To the extent that the franchi N.J.S.A. any imposed requirements develop see has not met the foreign jurisdiction, may good franchise in the there be cause “good In for termination. order to resolve the issue of cause” (the substantially comply imposed franchisee’s failure with weigh requirements), inevitably the factfinder will have to interests, including percentage jurisdic in those of sales installed tions to be terminated and the franchisee’s base customers, goodwill, to that and other investments attributable franchise-specific in to the investment of jurisdiction relation Jersey. If the franchisee will suffer goods or services New business, supra 614 2d “threat to the health” of its at A. no (unlike hypothetical jurisdictions loss of those at York), stripped of its customer base New Montvale car dealer protection against unconscionable con of the Act’s invocation may duct not be warranted. industry apparently computer-aided instruction has en- phase in entirely enter an new which the

tered or is about to content of its principal product of CCC will be the intellectual programs. The hardware-software software —its curriculum dominant, diminishing relationship thereby may become less However, of customers. importance of the installed base C, 355-366, court, supra in Part V at trial as discussed 140-145, finding that the err in on this record A. 2d at did not community of interest sufficient relationship showed a CCC-ISI require protections the Act’s evaluation to invoke “good justify asserted to the termination. cause”

VII

CONCLUSION profound difficulties of many ways In this case illustrates statutory lan- encapsulating concept of economic fairness speaker prophecy of the first guage. This case fulfills hearing Noting on the Franchise Practices Act. the 1971 franchising long many time and had been with us embraces techniques, involving all relationships and distribution types of services, ruefully predicted he that “this kinds of decide, case-by- power the to on a delegates bill to the courts basis, right else’s person a has a to use someone case whether long Hearing or trademark as as he so chooses.” trade name Dorn, (testimony Secretary supra, at 3-4 of Peter on A. Commerce). posed of He a Jersey of the New State Chamber Act, the hypothetical questions that he foresaw under series of these, validity many of similar and asked: “Must the day franchising agree- provisions, present common to which are ments, any certainty in there can be be tested courts before long for as as the they not bestow a franchise will * * case, In chooses to.retain it *?” Id. at 4.6 this franchisee However, “yes.” question appears to be the answer to that addressed such this is the first time the Court has because detail, that, general, parties are left questions in we doubt agree uncertainty. All of the Court such members with Jersey decided under New law. Concern- the issues are to be treble-damage provision a that was deleted from the We omit reference to bill. final ing facts, application the of might that law to the a factfinder possibly have reached a different result in this case because the closely Moreover, issues are indeed only part balanced. of the Obviously, case has been decided. in the somewhat unusual posture of this case our courts were not called on to decide all in dispute, voluntarily issues such as whether ISI had states, supra surrendered its claims certain at 614 A.2d imposed perfor- or whether CCC had “unreasonable ISI, ibid., mance standards” on or even whether CCC had “good cause” under the Act to terminate the franchise foreign jurisdictions. Chancery adjudicat- All that the Division relationship parties ed was that the between constituted a relationship subject “franchise” and that that to the was Act. startling technological changes The of the recent era will legislative perhaps growth occasion of the Act. review “The computer industry fast-paced has and manufacturers been flexibility need and freedom from unreasonable contractual respond rapidly changing restraints in order to markets.” Brooks, (footnote supra, Hastings at 35 Comm. & Ent.L.J. omitted). Yet, the author asserts conflicts between “[t]hese * * * powerful manufacturers and weaker are [distributors] types designed the exact of issues that the franchise laws were now, regulate.” attempt Ibid. For courts must to deter- “case-by-case relationship mine on basis” nature just obligations parties and the to the franchise contract. compelling inequity injustice, sense of courts Absent do not private parties. seek to reorder the contracts of matters Such judgment contracting are left to the sound economic best parties. trap Franchise Practices Act is not a unwary. contracting parties, for the are certain that even We rapidly evolving industry computer industry, in a such as the gauge develop performance suitably can standards that will expec- performance franchisee’s and whether it has fulfilled the if questioned product of the contract. No one has tations quotas product disparaged, sale are not met or is a franchise justly Corp. should be terminated. See Amerada Hess v. 374

Quinn, (Law Div.1976) 143 362 2d. 1258 N.J.Super. A. (addressing relationship termination of a franchise for failure substantially perform). judgment Appellate

The of the is Division reversed and the judgment Chancery Division is reinstated.

D’ANNUNZIO, (temporarily assigned), dissenting. J.A.D. (the Act) Jersey very New Franchise Practices Act strong provides part may medicine. It that a franchise not terminated, cancelled, good be or non-renewed “without cause.” narrowly “good The Act N.J.S.A. 56:10-5. defines cause” as by substantially comply “failure the franchisee to with those requirements imposed upon him the franchise.” Ibid. Thus, if a dealer deemed to abe franchisee under the Act is fulfilling obligations, supplier its contractual its would not be permitted good changes way to make structural in the faith it product changes markets its or if the service included termi nation of the dealer’s “franchise.” See Centre Serv. Westfield Co., (1981); v. Cities Serv. Oil 432 .2d48 N.J. A American, (3d Corp., Inc. v. Allied 875 F. 2d 58 Cir. 1989); Inc., Philips Sys., F.Supp. Carlos v. Business (E.D.N.Y.), (2d Cir.1983). aff'd, Moreover, many F.2d 1432 attempts by good a franchisor to terminate a franchise for in litigation, judge jury cause will result in which a will be permitted to review the franchisor’s business decision. light

In of the Act’s restrictions on a franchisor’s business and, therefore, ability discretion on adjust to market developments competitive pressures, abroga Act’s the. principles regarding tion of expi common-law termination and contracts, scrupulously ration of extending we must avoid beyond Legislature’s Miller, Act’s reach intent. See In re 210, 218-219, (1982) (declaring perpetual 90 N.J. 447 A .2d 549 performance law); contractual is not favored in the Bak-A- Prod., Inc., 123, 129, Corp. Building Lum v. Alcoa 69 N.J.

375 (1976) (holding distributorship agreement 2d terminable A. 349 notice); without cause on Owens v. Press Publish reasonable 537, (1956) Co., 550, (explaining 442 ing 20 120 A.2d N.J. term); upon expiration ceases to exist Karl’s contract 487, 495, Bros., 592 N.J.Super. 249 Sales & Serv. v. Gimbel right (App.Div.) (holding A. 2d that where to terminate 647 absolute, regard to motive or may it be exercised without denied, 548, (1991); reasons), 606 127 A. 2d 362 N.J. cf. certif. (1992) 290, 310-11, Shaw, 415 Oswin v. 609 A.2d N.J. meaning derogation of statute in (stating that doubt about be in favor of ‘the effect which common law “should resolved common change least rather the most in the makes the than ” Singer, Statutory (quoting law’ 3 Norman J. Sutherland 61.01, (4th 1986)). at 77 ed. Construction § did to reach Legislature There is no doubt that the not intend despite Legislature’s use of supplier-dealer relationships, all language enough relationships. all such broad to include much. of broad parties majority as The use and concede premise that the language acceptance and the universal application literal of that Act’s is more than the reach limited establishing the language place on courts the burden of course, terms, consistent, with Act’s in more limits concrete present intent. do this to decide the legislative We must objective community provide case to the business with requires guidance. predictability it for standards Legislature Although task is determine what our its use of that franchise, it defined the word intended when Club, 54 Skyline significant. word is v. Cabana Gabin Cf. 554, (1969) statute (explaining 2d 6 title of N.J. 258 A. legislative apply narrowly the broad may intent indicate Wasserman, v. enactment); D. Inc. language of the Samuel 143, 147, (App.Div.1952) Klahre, N.J.Super. 93 A. 2d 628 construction); is relevant to its (declaring that statute’s title Male, N.J.Super. 178 A.2d Casey v. accord (Law Div.1962).1 understanding There is a common of what the (McDonald’s; Hut), word franchise evokes: fast food Pizza ice (Carvel; Inn; Hilton), Dairy Queen), (Holiday cream hotels and (AAMCO; Muffler) service facilities Midas are well automobile examples known of business format franchises. See United Commerce, Department Opportunities States Franchise (1991) (hereinafter Opportunities) Bryce and Web- Handbook (1986) ster, (for compre- Franchising The Insider’s Guide offering hensive lists of businesses franchises the United States). (Exxon; AMOCO), deal- Gasoline stations automobile Motors; (Mac (General Ford), Tools) erships tools and water (Culligan International) conditioning examples product are Marinello, 402, 409, franchising. v. 63 N.J. See Shell Oil Co. (1973), denied, 920, 1421, 307 2d 598 415 94 A. cert. U.S. S.Ct. (1974); Corp., Tynan 39 L.Ed.2d 475 v. General Motors 248 654, denied, (App.Div.1991), N.J.Super. 591 A.2d 1024 certif. 548, (1991), dissent, part 127 606 A. 2d 362 rev’d in on 127 N.J. 269, (1992); Opportunities, supra, 604 2d at 268-69. N.J. A. 99 known, Manufacturing franchises are less well but the soft franchising industry heavily beverage drink relies on the Webster, production. agree majority I supra, at 6-7. with the prototypes Legislature are the the envisioned when it those Indeed, adopted legislative history Act. indicates Jersey the New Gasoline Retailers Association and the New principal support- Association Automobile Dealers were A.2063, Hearing ers of the Act. Franchise Practices Act: on Comm., (1971). Assembly Judiciary Leg., 194th Sess. prototypes legislative The inform us The intent. prototypes primary product have two characteristics: or primarily through recognition; service is marketed brand-name 1 franchising The Act is titled: “An Act to unfair prohibit practices supplementing Title 56 of the Revised Statutes.” for Compare, example, statute, Wisconsin is titled the which Wisconsin Fair Law. Wis. Dealership (1991). § Stat.Ann. 135.01 to 135.07 As its title it is broader than the implies, granted right Act. It to contracts which a to sell applies "by person 135.02(3). goods or services.” § distribute Wis.Stat.Ann.

377 name as adopts franchisor’s trade its own the franchisee name, substantially franchisor. presenting as unit of the itself Compressor Corp., Pump Inc. v. Fidelco & See Colt Indus. Corp., 206 v. Carvel Susser 117, (3d Cir.1988); 844 F.2d 119 F.Supp. aff'd, 332 F.2d Cir.1964), (2d (S.D.N.Y.1962), 505 636 dismissed, 85 S.Ct. L.Ed.2d 1364, cert. U.S. 125, 14 284 381 N.J.Super. Borg-Warner, Finlay & Assocs. v. 210, 146 (1965); grounds, on other o.b. (Law Div.1976), 369 A.2d 541 aff'd denied, N.J.Super. (App.Div.), 77 A. 2d certif Webster, supra, also 4-5; see (1978); N.J. 391 A.2d Advantage Franchise Boroian, D. Donald Patrick J. Trap the Trust- Franchising: Brown, (1987); 16-17 Harold for Serv., Inc. v. Neptune Appliance But T.V. & ing (1969). cf. Inc., Sys., N.J.Super. 153, 160, (App. Litton 462 A.2d 595 Div.1983) public perception in terms (defining “franchise” of a licensee). for licensor vouches F.Supp. Corp., supra, Susser v. Carvel

The trial court 640-41, of of a some the characteristics aptly at described franchise: operate agreements require plaintiffs’ to their the franchisees The franchise (SOP). Operating This Manual with a Standard Procedure

stores accordance respects. regulates operators of It in a number the business of the SOP store, may operators products their the advertis- which the sell at describes the store, use, they paint ing they may the when the must their hours which color they carry, lights, they put of must must their the amount insurance on uniforms, many public To the employees’ details. of and other colors their part organization operator appears to be of a national individual franchise type of uniform and a limited of which manufactures distributes part integral of the chain.” quality. store as “an SOP refers to each The Carvel businessmen; system independent it of The creates a class ... franchise get product public opportunity a at numerous provides an to uniform with contractors, employees independent from points rather than of from small sale good operation system for the of is therefore of a vast chain. The franchise economy. system However, or must be the trademark of a franchise the cornerstone uniformity product its product. and control of It this of trade name of a public for quality turn to franchise stores which causes the to and distribution product____ It is advertising this of stores and and this uniformity operation, and the knowledge of the of the public uniformity that draws quality product the business to the Carvel The name Carvel constitutes a operators. trademark great of value to the defendant and to the companies franchise operators. actual, perceived, acceptance of a brand name in a regional national or representing market as a quali- useful and ty product or service is what makes the franchise valuable potential Through franchise, franchisee. the franchisee reap believes that it will recognition benefits brand attainable, all, otherwise would be if only through substan- expense. tial effort and perceived It is this gives value that upper franchisor the ability hand and the to dictate the terms of its franchise. And inequality it was that bargaining power resulting and the frequently onerous terms imposed on franchi- sees that many legislatures moved state to consider and enact statutes, Act, Jersey’s similar to New purporting protect Brown, franchisees. supra. See The major benefit of use, a franchise —the franchisee’s as its own, of the franchisor’s trademark and trade name—becomes a major disadvantage if the franchise is terminated. On termi franchise, nation of a the franchisee cannot convert to its own goodwill benefit the helped it has by years to sustain of work. Marinello, See Shell Oil Co. v. supra, 63 atN.J. 307 A. 2d 598. Even if the terminated franchisee ownership retains physical plant equipment, it effectively capital cannot years ize on .restyling effort its former nationally- recognized hamburger fast-food Hamburger outlet as “Joe’s Palace,” or, in the case of manufacturing franchise, a by producing a soft drink newly-created whose trademark and name are unknown to soft drink consumers.

The context in Legislature which the adopted Act, the see Educ., Board Asbury Hoek, 213, Park v. 38 N.J. of (1962), A.2d 633 and the “background circumstances revealing the sought remedied,” evil to be Consumer Discount Oxford Stefanelli, 549, 565, Co. v. 102 N.J.Super. 246 2d (App. A. 460 Div.1968),persuade me that the first element of the definition franchise, person a arrangement of written ... in which “a name, grants person a license to use trade trade another mark, characteristics,” mark, service N.J.S.A. 56:10- related name, substantially refers to to use trade etc. as a license the pres the which the licensee licensee’s own circumstances unit, licensor. ego, ents itself as a or the of the alter Cf. 338, 342, (1969) Sharper, Roman v. 250 A .2d N.J. (holding adding inferential legislative “by intent effected phrase "qualified language to the of a statute Iy" the to vote” elections). authorizing the franchise recall This formulation of definition, definition, distinguishes a prototype objectively the arrangements, thereby supplier-dealership franchise other from guidance legislative giving providing the intent and effect to greater predictability communi degree of to the business and ty. College N.J. Locals v. State Bd. Council State of Cf. of (1982) (“Statutes 18, 36, Educ., 449 A .2d 1244 Higher 91 N.J. only include those be in a manner to should read reasonable by Legislature.”). legitimately contemplated situations the vague subjective the prototype The definition avoids Neptune Inc. developed in T. & Service definition V. Appliance Inc., 462 .2d N.J.Super. A supra, Litton Systems, v. 595: a manner to create a reasonable use trade name in such as of another’s [T]he consuming between the there is a connection

belief on the public part as vouches, were, the licensor it the trade licensor and licensee which name subject the of the trade name. the licensee in for respect activity it relies on seriously flawed because Neptune definition proving difficulty of what public’s In addition to the the belief. believes, ignores the statute’s public Neptune definition licensor grant authority from the on the reliance the Act’s definition of a 56:10-3a. Under licensee. N.J.S.A. parties that is con- agreement between the franchise it is the erroneous, perhaps possibly undet- trolling, public’s not erminable, Moreover, Neptune definition introduces belief. the licensee’s vouching for imprecise new and element infirmity as a activity. suffers from same That element application literal probably of the Act’s definition: it exists in all relationships. licensor-licensee

The majority is suggests incorrect when it that N.J.S.A. 56:10-4(3)precludes prototype pro definition. That section vides that applies only the Act to a franchise ... “where more gross than of the 20% franchisee’s sales are intended to or be are derived According from such franchise.” to the majority, “the inclusion of independently-named implicit businesses is the Act’s definition of franchise the Act’s limitation to a generates franchise” which more than of the franchisee’s 20% gross sales. Ante at 614 A. 2d at 140. The majority misunderstands applicability of the limitation. It is 20% applicable to a franchisor who sells complementary to product the franchised or who has multiple franchises. The operator neighborhood gasoline station franchised to sell national petroleum products brand of may generate more than gross tires, of its batteries, accessories, 80% sales from work, e.g., mechanical see Co., the facts in Muha v. United Oil Inc., (1980), 180 Conn. may A.2d 1009 also be Goodyear tires, franchised to sell or to rent automobiles under a Hertz franchise. In those circumstances the franchisee does not name; rather, do business in its own adopts it the names of presents franchisors and itself as units of each of the companies. (or franchisor more) If one of the franchises does generate not more sales, than gross the franchisee’s 20% then the applicable Act is not to that franchise.2

The relationship between CCC and ISI is not a franchise under the Act. majority “[tjhat concedes ISI does not use own____ CCC’sname as its always ISI has operated under its 2 Multi-point dealerships provide example automobile multiple another holding franchises. A dealer may a franchise from a domestic manufacturer import. import’s also have a franchise to sell an If the sales do not exceed 20% sales, of the dealer’s applicable total then the Act is not to that franchise. examples applicability Other prototype of the 20% minimum to fran- chise situations abound. name, use name on that it does not CCC’s trade and admits own cards, signs.” any or on business Ante stationery, business its great significance, not mentioned 614 2d 139. A. at Of sale, makes a the majority, the fact that once ISI is of sale ISI and customer. contract is between right gives a limited agreement and CCC ISI The between ISI 6.02 of trade name and trademark. Section to the use of CCC’s name, trade- Agreement obligates “promote ISI to CCC’s added.) (Emphasis It also logo and mark on the Products.” hereof, ISI, provisions Part 11 to the “subject authorizes advertising, name, in exhib- logo and its use CCC’s trademark shows, its, public materials and manuals as trade relations added.) (Emphasis to the Products.” same relates It authority. the boundaries of ISI’s 6.03 establishes Section name, rights in enjoy any provides that ISI “shall not under section 6.02. logo” except permitted as trademark or its of CCC’s trade- specifically restricts ISPs use Part more 11.01, only agrees it shall “ISI Pursuant to section mark. to, orally or designate, either use, or otherwise make reference trademarks, in writing, or its licensors’ trademarks CCC’s imposes 11.02 Section promotion or of the Product.” Sale ISI uses part, It that when provides, additional restrictions. “ISI shall products, CCC’s in connection with CCC’strademark ‘CCC’,” ownership and of the trademark clearly indicate CCC's has any represent that it owner- matter that “ISI shall not provides Finally, 11.02 section ship in the trademark ‘CCC’.” use, prior adopt for without CCC’s “ISI at no time will likely or consent, mark which is similar to any word or written with the trademark ‘CCC’.” to be confused use of CCC’s parties’ agreement severely limits ISPs selling products it identification of the and name to the mark use agreement authorize ISI to products. The does not as CCC present itself as a CCC as own or to name or mark CCC’s CCC, it is present itself as Thus, ISI not only not does unit. name as its mark or adopting using CCC’s prohibited from Consequently, own. the first element of the definition “franchise” has not been established. ISI is a dealer autho- rized to sell products; and service CCC’s it is anot franchisee.

I would affirm judgment Appellate Division. joins Justice CLIFFORD in this dissent.

For WILENTZ, reversal and reinstatement —Chief Justice HANDLER, O’HERN, STEIN, Justices Judge KING—5. CLIFFORD, For Judge affirmance —Justice D’ANNUNZIO—2.

614 A.2d 154 HOUSTON, IN THE MATTER OF JAMES F. AN ATTORNEY AT LAW.

October 1992. CORRECTED ORDER Disciplinary having Review Board filed report with the recommending Court KEYPORT, that JAMES F. HOUSTON of who was admitted to the bar of this State be disbarred knowing for the misappropriation of client funds the advanc- ing legal fees to himself in real estate matters before the title, fees due closing were him at thereby invading other funds, client and the having independent Court found on its review of record convincing clear and respon- evidence that knowingly funds, misappropriated dent good appear- cause ing;

It is ORDERED that JAMES F. HOUSTON be disbarred and that his name be stricken from attorneys the roll of of this State, 27, 1992; effective October it is further

Case Details

Case Name: Instructional Systems, Inc. v. Computer Curriculum Corp.

Court Name: Supreme Court of New Jersey

Date Published: Oct 19, 1992

Citation: 614 A.2d 124

Court Abbreviation: N.J.