In determining whether an agency agreement between a family moving company, Ocean City Express, and an interstate moving company, Atlas Van Lines, is subject to the requirements of the New Jersey Franchise Practices Act (“NJFPA”), the federal district court in Newark (“Court”) held that a reasonable factfinder could conclude that this relationship falls within the requirements of the NJFPA in denying Atlas’ motion for summary judgment in Ocean City Express Co., Inc. v. Atlas Van Lines, Inc.

Here, Ocean brought suit against Atlas under the NJFPA for termination of a franchise without good cause after Atlas terminated the relationship effective January 2011. In response to this suit, Atlas filed a motion for summary judgment in its favor arguing that the NJFPA did not apply to this relationship because Ocean did not derive the requisite twenty percent gross sales from this relationship as outlined in the NJFPA.

Copyright: aprior / 123RF Stock Photo
Copyright: aprior / 123RF Stock Photo

In order to qualify for protection under the NJFPA, the franchise must be located or maintain a place of business in New Jersey, the gross sales of the franchisee must exceed $35,000 for the twelve months next preceding the lawsuit, and more than 20% of the franchisee’s gross sales are intended to be or are derived from the franchise relationship. Here, despite both parties admitting that Ocean actually derived less than three percent of its gross sales from the relationship with Atlas in the last fiscal year, under the NJFPA, the Court determined that it must also examine the intended revenues the parties expected to gain from this relationship.

At the outset of the relationship when the agency agreement was initially executed, Ocean earned more than $3 million in revenue from its relationship with Atlas primarily derived from its business with its largest client, Cartus. Thereafter, Atlas instituted certain policy directives that inhibited Ocean from gaining business from Cartus such that its revenues from Cartus business declined from 274 shipments in 2008 to 12 shipments in 2010. Based on this substantial decline in business Ocean derived from the relationship, the Court determined that a genuine issue of material fact existed as to whether the parties intended for Ocean to derive more than twenty percent of its gross sales from the relationship with Atlas. As such, the Court ruled that the mere fact that Ocean had not derived the requisite twenty percent floor was not enough to grant summary judgment in Atlas’ favor.

If you are a party looking to structure a deal to avoid inclusion under the NJFPA, it is important to consider not only the amount of gross sales the party is actually deriving from the relationship but the amount of gross sales the parties intend to be derived from the relationship.