L. Michael Hankes  |  ATTORNEY AT LAW
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Dealing with Encroachment Issues in the Real World

This arti­cle fol­lows our ini­tial arti­cle on encroach­ment deal­ing with the impact of the 50,000 car pro­tec­tion per shop found in para­graph 2.3 of the cur­rent Meineke fran­chise con­tract. In late 2002, a Meineke dealer in Brick, New Jer­sey faced a poten­tial place­ment of a new Meineke shop in Tom’s River, New Jer­sey. The loca­tion cho­sen was mea­sured by a Meineke rep­re­sen­ta­tive prior to Meineke’s approval at less than three miles from the exist­ing Brick, New Jer­sey shop. That find­ing should have trig­gered the dealer’s right of first refusal under para­graph 2.3 the new fran­chise con­tract, which states:

If, dur­ing the Term, we want to oper­ate, or to grant some­one else the right to oper­ate a Meineke shop out­side the Pro­tected Area, but at a pro­posed loca­tion within a 3-mile radius from the Premises, we will first offer a fran­chise to you on our then stan­dards and con­di­tions for a new Meineke shop, pro­vided you are Option Eli­gi­ble (as defined below).1 If you do not accept our offer within 30 days, we will be enti­tled to oper­ate, and to grant some­one else the right to oper­ate, a Meineke shop at the pro­posed location.

Unfor­tu­nately, Meineke pro­ceeded to approve the loca­tion with­out noti­fy­ing the exist­ing dealer of his right of first refusal. The affected dealer quickly ana­lyzed the zip codes in his mar­ket area that would be affected. Under the dealer’s analy­sis, which he reported to Meineke, his sales would have been impacted by a min­i­mum of 23.5%. For that dealer, the poten­tial open­ing of this new shop could have reduced his pre­vi­ous year’s sales by more than $250,000.00 in the first year alone.

The Brick, New Jer­sey dealer, who had a back­ground in account­ing and finance, also real­ized that the much crit­i­cized encroach­ment pol­icy nego­ti­ated in con­junc­tion with the new Meineke fran­chise con­tract in the 1999–2000 time period would not com­pen­sate him for his losses. The dealer quickly hired legal coun­sel2 and although Meineke vig­or­ously denied that the right of first refusal was applic­a­ble, it then offered that first refusal right to the dealer. The dealer opted to pay the $18,750.00 for a new fran­chise and exer­cised the first refusal right. It was later reported that Meineke made the sit­u­a­tion right for the new dealer by buy­ing out the lease.

The entire sit­u­a­tion could have been avoided how­ever, if Meineke had hon­ored the 50,000 car pro­tec­tion accorded the Brick, New Jer­sey dealer under para­graph 2.3 of the new fran­chise con­tract. The dealer’s lat­est Meineke report card, which is issued peri­od­i­cally by Meineke to every dealer in the Meineke chain, clearly showed that there were only 38,866 cars reg­is­tered within three miles of the exist­ing Brick, New Jer­sey shop. Thus, since a wider radius would have been required to encom­pass the full 50,000 car pro­tec­tion, there should never have been, in the opin­ion of this writer, a place­ment in the Tom’s River loca­tion at all, regard­less of the right of first refusal. Had the 50,000 car per shop pro­tec­tion been hon­ored at the out­set, all par­ties would have been saved con­sid­er­able expense, delay and aggra­va­tion. While hind­sight may often be 20/20, the encroach­ment issue remains one of deep con­cern to many Meineke dealers.

  1. To be option eli­gi­ble, the fran­chisee must not be in arrears more than 30 days, have no default notices in the pre­ced­ing 12 months and have no out­stand­ing cus­tomer com­plaints more than 30 days old.
  2. The dealer was rep­re­sented by the author.

This article is intended for informational purposes only and is not to be relied upon as legal advice, as individual facts and circumstances may vary.