Tennessee is considering new legislation to regulate franchises operating within the state. On February 6, 2007, the "Tennessee Franchise Disclosure Act of 2007" (the TFDA) was introduced to the state legislature. As of the date of this advisory, the TFDA is before House and Senate committees. If enacted into law, the TFDA will become effective July 1, 2007. The text of the proposed legislation - House Bill No. 332 and Senate Bill 367 - can be found online at the Tennessee legislative web site. Currently, Tennessee has no franchise law. The offer and sale of franchises in Tennessee is governed by the federal Franchise Rule, which is enforced by the Federal Trade Commission. While the federal Franchise Rule requires disclosure to prospective franchisees, it requires no prior registration for franchise sales and does not impose restrictions on the business relationship between franchisors and franchisees. If enacted into law, the TFDA will alter substantially the requirements for offering and selling franchises in Tennessee as well as the contractual relationship between franchisors and Tennessee franchisees. As proposed, the TFDA would require non-exempt franchisors to file a copy of their franchise offering circular with the Tennessee Attorney General's Office and pay an initial filing fee of $500. Although the TFDA generally contemplates filing of a franchise offering circular as merely a "notice" of an intent to offer and sell franchises in Tennessee, the Tennessee Attorney General would have the authority to reject offering circulars as being insufficient or even mandate that a franchisor stop offering franchises for sale in the state. Additionally, if the Attorney General's Office believes that a franchisor will be unable to fulfill its financial obligations, it may require that the franchisor place franchise fees and other funds received from franchisees in escrow. The TFDA also would make it more difficult for a franchisor to terminate its relationship with a franchisee. The proposed legislation states that a franchisor cannot terminate a franchise agreement prior to the expiration of its term except for "good cause," which includes:

• The failure of the franchisee to comply with any lawful provisions of the franchise agreement and to cure such default within thirty (30) days
• The franchisee filing for bankruptcy
• The franchisee voluntarily abandoning the franchise business
• The conviction of a franchisee for a felony or other crime which substantially impairs the good will associated with the franchisor's marks
• The repeated failure of franchisee to comply with the lawful provisions of the franchise agreement.

The TFDA further provides that a franchisor cannot refuse to renew a franchise without at least six months notice. In certain cases of non-compliance, the TFDA grants the franchisee the right to rescind the franchise agreement and the Attorney General to pursue criminal penalties as a Class B Felony. The TFDA also provides for joint and several liability for the principal executive officers or directors of a corporation and employees of a franchisor in the case of certain violations. At this stage it is difficult to predict whether this bill will ultimately become law in the State of Tennessee. It appears doubtful that it will become law during this legislative session. Waller Lansden will continue to monitor the status of this proposed legislation. If you have any questions regarding the information in this bulletin, please contact Bob Felber at (615) 850-8741 or Mark Plotkin at (615) 850-8567 or any other member of Waller Lansden's Intellectual Property Practice at (615) 244-6380. The opinions expressed in this bulletin are intended for general guidance only. They are not intended as recommendations for specific situations. As always, readers should consult a qualified attorney for specific legal guidance.