L. Michael Hankes  |  ATTORNEY AT LAW
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Meineke Officials Seek a Free Pass in the Latest
 Version of the Meineke Franchise & Trademark Agreement
 (Part 1 of 2)

This article is one of a series of articles about the Meineke System that the MDA Board of Directors has asked its legal counsel, L. Michael Hankes, to write. Mr. Hankes was lead counsel for the team of Meineke Dealers that negotiated the Meineke FTA in 1999-2000.

Members of the Meineke Dealers’ Association (hereafter “MDA”) who keep up with recent events posted on the new MDA website, now know that Driven Brands, Inc. (hereafter “Driven Brands”) and Meineke Car Care Centers, LLC (hereafter “Meineke”) were sold by Harvest Partners, LLC (hereafter “Harvest”) to the Roark Capital Group (hereafter “Roark”) on or about April 27, 2015. Three days after the closing of that sale, Meineke issued its Form 4/2015 Federal Disclosure Document (hereafter “FDD”). Meineke’s Form 4/2015 FDD contains Meineke’s most current version of the Meineke Franchise and Trademark Agreement (hereafter “FTA”). The Form 4/2015 Meineke FTA contained a number of substantial and material changes, one of which is the subject of this Article.

Roark Demands a Free Pass

In a few words, Roark insisted upon the inclusion of a general release of liability/covenant not to sue covering its controlling entities, attorneys, officers, employees and even vendors for any potential wrongful misconduct for which they may be legally responsible as individuals. This new general release/covenant not to sue not only attempts to exempt responsible individuals or entities for past misconduct, but seeks to give a “free pass” to all past, present and future responsible persons or entities. This article is the first installment of our analysis of the legal ramifications for Meineke Dealers presented by such egregious, contractual overreaching by Roark, Driven Brands and Meineke.

Excerpted below is the prospective general release/covenant not to sue added to Section 16.2 of the Meineke FTA in the Form 4/2015 version:

…    You acknowledge and agree that except as provided under an applicable guarantee of performance, none of our past, present or future directors, officers, employees, incorporators, members, partners, stockholders, subsidiaries, affiliates, controlling parties, entities under common control, ownership or management, vendors, service providers, agents, attorneys or representatives will have any liability for (i) any of our obligations or liabilities relating to or arising from this Agreement, (ii) any claim against us based on, in respect of, or by reason of, the relationship between you and us, or (iii) any claim against us based on any of our alleged unlawful act or omission.

This Section 16.2 will continue in full force and effect subsequent to and notwithstanding the expiration or termination of this Agreement.    …

(Form 4/2015 Meineke FTA § 16.2)(Emphasis added).

The Meineke Corporate Veil Does Not Shield Controlling
 Entities, Officers, Employees and Vendors from Their Own Wrongdoing

This new amendment to Section 16.2 of the Meineke FTA may appear innocuous to Dealers unfamiliar with the legal liabilities associated with misconduct committed by corporate officers, employees, parent corporations and controlling entities. This new language not only exempts such persons and entities from their legal responsibilities, but seeks to limit a Dealer’s legal recourse to the legal entity currently known as Meineke Car Care Centers, LLC.1 One potential consequence of the amendment to Section 16.2 would be that, in the event of a Bankruptcy of Meineke or Driven Brands, a Dealer’s legal recourse for wrongs committed could be severely limited in the Bankruptcy Court, if not extinguished altogether.

The Findings Against Controlling Entities and Officials in the Broussard Case

Those MDA Members who have kept up with the MDA Newsletter, know that we have discussed the Broussard class action, which occurred in the 1990s, on a number of occasions because of its importance and relevance to the Meineke System. The Broussard case was based upon a fraudulent advertising rebate scheme and abuse of the Meineke Advertising Fund (hereafter “MAF”) by Meineke and other defendants. The trial court final verdict was rendered on or about March 5, 1997. Broussard, et al. v. Meineke Discount Muffler Shops, Inc., et al., 958 F.Supp. 1087 (W.D. N.C. 1997). That trial court verdict, which will be posted on the MDA website in the “Members Only” section for MDA Members who want to review it, imposed liability for the $598,869,788.00 verdict not just on Meineke, but on one of Meineke’s responsible affiliates, two of Meineke’s controlling parent entities, and three individual Meineke Corporate Officials. These other six defendants were found legally responsible by the jury and the court for: (1) breach of fiduciary duty; (2) fraud; (3) violations of the North Carolina Unfair Trade Practices Act; (4) violations of the Texas Unfair Trade Practices Act; (5) negligent misrepresentation; and, other unlawful acts.

The individual findings by the jury for each count in the Complaint brought against Meineke and the other six defendants were published in the trial court decision at the very end of the case. Therefore, any MDA Member who wants to go to the “Members Only” section of the MDA website can read and review the actual jury findings made against those other six defendants. To be sure, the original trial court verdict was reversed by the Fourth Circuit Court of Appeals in August, 1998. Broussard, et al. v. Meineke Discount Muffler Shops, Inc., 155 F. 3d 1331, 41 Fed. R. Serv. 3d 1151 (4th Cir. 1998). That decision will also be posted in the “Members Only” section of the MDA website.

What is important for Meineke Dealers to take away from the discussion of the findings made against the non-parties to the Meineke FTAs which were part of the Broussard class action, is that Roark, Driven Brands and Meineke seek to cut off the legal responsibilities owed to the Meineke Dealers by Meineke’s responsible officers, attorneys, employees, vendors, affiliates and controlling entities. Not only does Roark seek to eliminate such legal responsibilities for past misconduct, but the language from amended Section 16.2 quoted above seeks to eradicate the legal responsibilities of people and entities who have not yet been hired and/or for actions and events which will take place in the future.

The legal responsibilities of corporate officers, attorneys, employees and controlling entities are not some new-fangled legal theory, but have long been recognized in the law. In fact, most responsible corporate entities routinely maintain Errors and Omissions or Officers and Directors insurance coverages to address these well established legal responsibilities.

The new amendment which Roark has added to Section 16.2 of the Meineke FTA seeks to allow Meineke’s officers, attorneys, employees, controlling entities, affiliates and even vendors to take whatever actions they may without having any legal responsibility for those acts independent of the Meineke corporate shield whatsoever. As noted above, the new language in Section 16.2 seeks to provide that exemption for all time and for all officers, attorneys, employees, vendors or corporate entities who might ever have a connection with Meineke, now or in the future.

Meineke’s Performance Under the Harvest Regime

In order to further delineate just how self-serving this new amendment actually is, we think it would be helpful to touch upon Meineke’s performance under the Harvest regime. MDA Members may recall that in the Summer of 2012, Harvest, Driven Brands and Meineke tried to impose an ill-advised tire program on the MDA Dealers in violation of Section 7.2 of the Meineke FTA. Their goal was to be able to collect unlawful rebates associated with that program, which were prohibited by Section 7.2 of the Meineke FTA. That Tire Program was resisted by the MDA on behalf of its Members and was never implemented. Rather, the current Cooper Tire program was developed largely by the MDA and implemented by Meineke. Rebates under the current Cooper Tire Program go to the Dealers, through the Meineke Dealers Association Purchasing Cooperative, Inc. (hereafter “MDPCI”), not Meineke.

If the ill-advised Tire Program had been pushed through in the Summer of 2012, who would have been legally responsible to the Dealers for the scheme to collect unlawful rebates in violation of Section 7.2 of the Meineke FTA? Would it just have been Meineke? Or, would it have also been the actors who participated in the scheme, including Harvest, Driven Brands, the responsible corporate officials and the participating vendor?

As the Harvest regime proceeded further, operations support for Dealer operations was curtailed significantly and advertising was not provided at all for significant periods of time. Moreover, the limited advertising done was not only ineffective but may have hurt the Meineke Brand Image. All Meineke Dealers know that Meineke has not had a Chief Marketing Officer for well over a year.

The failure to properly use MAF funds to promote the Meineke Brand Image and drive customers to the Dealers’ Center doors was not just some little thing. In this writer’s opinion, it hurt individual Meineke Dealers and it hurt the Meineke System. Individual Dealers have expressed their own thoughts on the advertising issues.

Moreover, not only did the Harvest regime slash and burn Meineke’s existing support hierarchy, but Meineke also severely curtailed contractually required in-house advertising staff. Pursuant to Section 8.2 of the Meineke FTA, Meineke receives 2.75% of yearly MAF fees to maintain an adequately staffed in-house advertising department. Meineke Dealer contributions to the MAF run approximately between $30,000,000.00 and $35,000,000.00 per year. Meineke thus receives roughly $950,000.00 per year from the MAF fees to fund the contractually required in-house advertising staff which someone decided to virtually eliminate. Yet, Meineke still took the money from the MAF to run that in-house advertising department.

As noted above, one of the results was that Meineke provided no advertising at all for significant periods of time. The failure to advertise was a system-wide failure, not just a failure in one or two markets. In 2013 and 2014, Meineke’s major advertising promotion was a $14.95 oil change which required the Dealers to absorb the real costs of product and labor on those services after paying their MAF fees.

Who is legally responsible to the Dealers for these actions? Is it just the current corporate version of Meineke? Or should the decision makers and actors also be held accountable? Under the new amendment to Section 16.2 of the Form 4/2015 FTA, Roark seeks a “free pass” for the responsible officials, controlling entities and even vendors, which if upheld by a civil Court, would exempt them from liability, no matter how wrongful their behavior might be.

The MDA has been so concerned about the potential mis-management of the MAF that it has been pressing for a forensic audit of the MAF for almost a year. Thus far, Meineke has been less than cooperative in permitting such a forensic audit of how the MAF funds have been used and spent over the past 3-½ years.

The Meineke Dealers Association Survey

The MDA, which has significant contractual consultation and oversight rights under the Meineke FTA, received such vigorous reports of member Dealer dissatisfaction by early 2014, that it conducted its own survey of Meineke’s performance as a franchisor. The MDA received its highest response level to any survey dating back to the 1997 $598,869,788.00 judgment against Meineke for abuse of the advertising fund during the Broussard era. Highlights from the survey include the following responses:

  • 69% reported that operational support had declined in the past two years;
  • 57.4% reported that they were less profitable in the past two years;
  • 51% reported that they were not profitable at all;
  • 65.1% reported that car counts were down from the previous year;
  • 54.4% reported that sales were down from the previous year;
  • 65.3% reported that the declines were due to the Franchisor’s inadequate performance;
  • 60.6% rated operations support poor to very poor;
  • 80.5% rated the level of marketing support they receive poor to very poor;
  • 81.7% rated the Franchisor’s meeting of its responsibilities owed to the Franchisees as poor to very poor; and,
  • 75.3% were less likely to expand given the Franchisor’s current level of support.

The Expansive Nature of Roark’s “Free Pass”

Again, all of this discussion begs the question of legal responsibility for Meineke’s unacceptable performance as the franchisor under the Harvest regime. Thus, not only do Roark, Driven Brands, Meineke and their officers and employees seek to limit their liabilities for actions taken during the Harvest administration, but they also want to exempt vendors from violations of FTA Section 7.2 and other legal responsibilities - forevermore and in perpetuity. In other words, those persons and entities responsible for decision making, including vendors, seek to have all controls for their actions and behavior removed permanently and for all time.

Not only does the inclusion of this new language raise a red flag as to the conduct of Meineke and other actors over the past 3-½ years, but it does not bode well for the conduct of those responsible persons and entities going forward. Who in the world would ever want to do business with any person or legal entity that insists up front upon a full release of liability for anything those persons or legal entities have done or might do at any time in the future, even including persons or entities not yet in place? Dealers should keep in mind that damages available to them for certain breaches of the Meineke FTA by Meineke are limited by the terms of the FTA itself. However, each individual Dealer and Meineke are the only two parties to the Meineke FTA. Until now, the potential liabilities of controlling entities, officers, attorneys, employees, and vendors for substantial wrongdoing fell outside the constraints of the Meineke FTA itself.

Meineke Flatly Rejected Attempts to Have the Amendment Removed

As noted at the outset, this article is just the first which will discuss the ramifications of this new Section 16.2 in the Meineke FTA. We will discuss other aspects of the impact of this new provision upon Meineke Dealers in the next newsletter. However, we want to make the MDA Membership aware that prior to the writing of this article, MDA officials attempted to have this new self-serving provision removed from the Form 4/2015 Meineke FTA. Meineke flatly refused, stating that this provision was in all of the franchise contracts of all of the franchise systems which Roark owns.

All of us were children once. Since when did the refrain “everyone else is doing it” pass muster as a justification for wrongful behavior on the Playground or anywhere else? Not only that, but a separate attempt to remove the word “future” from the amendment to Section 16.2 was also categorically rejected. We will have more on Meineke’s purported rationalizations for its insistence on a “free pass” and the dubious legality of such an overreaching and self-serving provision in our future discussions.

This is the first part of a two-part article. For part two, please click here.

  1. Meineke Car Care Centers, LLC was formed in the 2011-2012 time period and took the place of the former Meineke Car Care Centers, Inc. Appended to Meineke’s FDDs issued since that time, has been a guarantee of the performance of Meineke signed by Noah Pollack as Executive Vice President and General Counsel of Driven Brands.

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.