A New Jersey Court of Appeals found that a retailer was not a franchisee under New Jersey’s Franchise Practices Act (NJFPA) and therefore NJFPA’s termination requirements did not apply to the retailer’s termination.
Eastern Outdoor is a New Jersey retailer of custom outdoor kitchens. AMD is a manufacturer of outdoor grills. In 2010, Eastern Outdoor began selling grills manufactured by AMD. The grills were displayed in Eastern Outdoor’s showroom. The products were purchased on a wholesale distributorship basis.
In 2019, AMD terminated Eastern Outdoor’s distributorship in favor of a competitor. Eastern Outdoor filed a complaint against AMD alleging a violation of its franchise rights under the NJFPA along with claims of tortious interference with prospective business relations and common-law indemnification.
At trial, the court granted summary judgment in favor of AMD, dismissing Eastern Outdoor’s claims under the NJFPA, finding that there was no written agreement establishing a franchise between the parties. On appeal, the court disagreed with the earlier finding that a “comprehensive and integrated written agreement” is required. Instead, the NJFPA defines a franchise to consist of a written arrangement. Nonetheless, the court reached the same conclusion and granted summary judgment because Eastern Outdoor failed to provide sufficient evidence to establish a written arrangement.
The NJFPA protects franchisees against indiscriminate terminations by prohibiting cancellation or non-renewal of franchises for other than good cause. Good cause is the franchisee’s failure to substantially comply with requirements imposed upon it by the franchise.
Analyzing the NJFPA’s statutory language, the court determined that Eastern Outdoor had to prove: (1) there was a written arrangement between Eastern Outdoor and AMD; (2) within that arrangement, AMD granted a license to use its intellectual property; (3) the arrangement reflects a community of interest between the parties; (4) the parties contemplated or required Eastern Outdoor to maintain a place of business in New Jersey; (5) gross sales between the parties exceed $35,000 for 12 months preceding the institution of suit pursuant to the act; and (6) more than 20% of the franchisee’s gross sales are intended to be or are derived from such franchise.
The court determined that while Eastern Outdoor sold AMD’s products as a wholesale distributor, nothing demonstrated that it was granted a license, and a distribution agreement or relationship was insufficient to establish a franchise under the NJFPA. Additionally, it was undisputed that AMD never sought or exerted control over Eastern Outdoor’s marketing and sale of AMD’s products and never had access to or reviewed Eastern Outdoor’s financial records. The court held that summary judgment was appropriately granted dismissing Eastern Outdoor’s claims.
Not every business relationship qualifies as a franchise. States have different requirements for establishing a legitimate franchise relationship. Franchisees should consult counsel to determine whether their business arrangements and/or agreements are sufficient to establish a franchise relationship in their respective states.
N.A.R., Inc. v. Eastern Outdoor Furnishings, No. A-3990-22 (Super. Ct. App. Div. Jan. 24, 2025)
