Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. N.J.: Moving company’s wrongful termination claims under New Jersey franchise law may proceed, (Sep 15, 2014)

By Linda O’Brien, J.D., LL.M.

A moving and storage company agent alleged sufficient facts to pursue claims against its principal under the New Jersey Franchise Protection Act for termination of its agency agreement without good cause, the federal district court in Camden, New Jersey has decided (Ocean City Express Co., Inc. v. Atlas Van Lines, Inc., September 11, 2014, Simandle, J.).

In 2006, moving and storage company Ocean City Express entered into an agency agreement with Atlas Van Lines. After Atlas terminated the relationship in 2010, Ocean City filed suit, alleging Atlas terminated the agreement without cause. Specifically, Ocean City asserted claims for violation of the New Jersey Franchise Protection Act (NJFPA) and breach of the implied duty of good faith and fair dealing.

In July 2013, the court dismissed, without prejudice, the plaintiff’s complaint for failure to plead sufficient facts to show that it qualified as a “franchise” under the New Jersey statute and could not maintain a claim under the implied covenant of good faith and fair dealing because Indiana law, which governed the action, does not recognize such claims. In dismissing the plaintiff’s amended complaint in February 2014, the court determined that Ocean City failed to plead that its business location is a qualifying place of business under the NJFPA.. Ocean City filed a second amended complaint and Atlas again moved for dismissal.

Place of business requirement. The court determined that the plaintiff adequately set forth factual allegations to satisfy the “qualifying place of business” requirement under the NJFPA. To meet the place of business requirement, the NJFPA requires the existence of an actual sales location in New Jersey at which a substantial level of customer marketing and sales-related customer interaction occurs. Atlas’ argument that Ocean City failed to plead the location from which its sales derived or that its principal place of business constitutes “a locus of sales activity involving interaction between plaintiffs’ salespeople and actual or potential customers of” the defendant’s services was rejected.

According to the court, the plaintiff’s allegations that its place of business constituted the hub of its day-to-day business and marketing operations was sufficient to show a sales location of sufficient substantiality under the NJFPA. The plaintiff asserted that it regularly used its business location as the core of its sales activities, housed all of its sales force at this location, and conducted direct telephone and in-person customer interaction at the location. Accepted as true, the plaintiff’s allegations stated a valid NJFPA claims.

Preemption. The Federal Aviation Administration Authorization Act (FAAA Act) did not preempt the application of the NJFPA to the parties’ agreement. The FAAA Act generally preempts state and local regulations “related to a price, route, or service or any motor carrier . . . with respect to the transportation of property.” In rejecting the defendant’s argument that the application of the NJFPA would indirectly result in increased costs and interfere with the defendant’s obligations under federal law, the court noted that the NJFPA provision prohibiting the termination of a franchise agreement without written notice demonstrating good cause was too remote and tenuous an impact on rates, routes, or services to fall within the FAAA Act’s preemption.

Although, the NJFPA recognizes the historic power disparity between franchisors and franchisees, the statute expressly enables a franchisor to terminate a franchise agreement where the franchisee acts in contravention of the franchise or fails to substantially comply with its requirements. Consequently, the NJFPA, by its own terms, preserves Atlas’ autonomy in a manner consistent with the FAAA Act, the court concluded.

The case is No. 13-1467.

Attorneys: Jeffrey H. Sutherland (Jeffrey H. Sutherland, PC) for Ocean City Express Co., Inc. Gary Francis Seitz (Rawle & Henderson, LLP) for Atlas Van Lines, Inc.

Companies: Ocean City Express Co., Inc.; Atlas Van Lines, Inc.

Cases: FranchisingDistribution NewJerseyNews