L. Michael Hankes  |  ATTORNEY AT LAW
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The Contractual Voice Given to Meineke Dealers by The Meineke FTA

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.

The Meineke FTA is somewhat unique in that it provides for active Dealer participation in the franchise relationship through the Meineke Dealers Association (hereafter MDA). Section 2.5 of the Meineke FTA entitled “Consultation with the Dealer Association Advisory Council” requires Meineke to consult with the MDA and its committees. Indeed, there are fourteen (14) different aspects of representative Dealer participation in the decision making process for the Meineke system that were included in that franchise contract.

The franchise agreement recognizes two Dealer entities associated with the MDA: (1) the Dealer Association Advisory Council (hereafter DAAC) and the Advertising Committee. Paragraph 2.5 of the franchise agreement entitled “Consultation with the Dealer Association Advisory Council” expressly recognizes both the MDA and the DAAC. It confirms Meineke’s agreement to consult with the DAAC on certain listed paragraphs of the franchise agreement (which unfortunately are incomplete and contain errors in the actual paragraph numbers) and asserts generally that Meineke may consult generally with the DAAC on other matters. The DAAC has evolved into a number of different MDA committees, such as Operations, Negotiations, Technology/Computer and Convention committees. In addition, the Product Committee of the Meineke Dealers Purchasing Cooperative, Inc. (hereafter MDPCI), liasons closely with the MDA.

For purposes of clarity, the MDA through its representative committees, which includes the Advertising Committee, has a say in the following areas of the Meineke FTA:

Paragraph 3.3 “Royalty Fee Administration”

In this paragraph, Meineke agreed to consult with the MDA’s committees on the amount of the royalty fee for any new products and services and “to consider, among other things, the potential profitability of such new products and services in determining the amount of the royalty fee”. This section should be read in conjunction with Meineke’s obligation in paragraph 7.1 entitled “Authorized Products and Services” to consult with the MDA with respect to decisions to add or delete Authorized Products and Services. Thus, under paragraphs 3.3 and 7.1 of the franchise agreement, Meineke is required to consult with the Dealer representative body before it adds the new services. To Meineke’s credit, it sat down with the MDA’s Negotiation Committee in 2006 and in 2009-2010 to discuss potential changes to the royalty structure of the Meineke FTA.

Paragraph 3.4 “Contributions to the Meineke Advertising Fund”

In this section, Meineke states that it has the right (without waiving any other rights or remedies) to notify the MDA or other regionally elected Dealer representatives (perhaps the National Council) of a Dealer’s delinquencies in payments to the Meineke Advertising Fund (hereafter MAF). Here, the Dealer representative bodies must be careful not to become a foil for Meineke’s disputes with individual Dealers. The Dealer representatives should recognize the impact that even a tacit approval of Meineke’s actions with respect to individual Dealers could have on the system. Those representatives have historically been vigilant in their monitoring of the MAF as noted in the discussion of paragraph 8.2 below.

Paragraph 7.2 “Parts and Supplies”

Under this section, Meineke is obligated to seek the advice of the MDA’s Committees as to the timing of any competitive building process for any “Preferred Supplier” arrangement. Meineke is also required to seek the advice of the MDA if it proposes to modify its specifications and standards or the list of approved suppliers. The MDA has the right to actually see “relevant information in order to verify the financial arrangements we may have with preferred third-party suppliers”. This means that the MDA has the right to review and confirm the actual contractual arrangements that Meineke has with approved suppliers, including any rebates, promotional allowances or other benefits.

Paragraph 7.6 “Changes to Specifications and Standards/Days and Hours of Operation”

Here Meineke is not only required to consult with the MDA as to material changes in the Operations Manual, but the MDA has a limited veto power as to required days and hours of operation. Any such changes to required days and hours of operation, if proposed, can’t be implemented unless Meineke meets the additional criteria for changing days and hours of operation spelled out in paragraph 7.6.

Paragraph 7.9 “Insurance”

In this paragraph, Meineke agreed to consult with the MDA on any material changes in the requirements for the “types and minimum amounts of coverage, exclusions and maximum deductibles” relating to insurance.

Paragraph 7.11 “Customer Warranties”

Here, as in the sections outlined above, Meineke must consult with the MDA if it proposes a new warranty or changes an existing warranty “on terms that are materially more favorable to consumers than are generally granted by major competitors in the automotive maintenance and repair industry”.

Paragraph 8.2 “Meineke Advertising Fund”

In this section, there are four separate issues on which the MDA and the Advertising Committee have significant influence.

This paragraph provides for the appointment of up to seven members of the Advertising Committee by the MDA. The MDA and Advertising Committee have four separate functions under this paragraph:

  1. Meineke will periodically seek the advice of the Advertising Committee “with respect to the creative concepts and media used for programs funded by the MAF”. This means that the Advertising Committee has the right to help structure the creative content of Meineke’s advertising and the means by which it is disseminated to the public;
  2. Meineke must seek the advice of the MDA as to which bank, trust company or other financial institution administers the fund;
  3. Meineke must seek the advice of the Advertising Committee before it changes the allocation of the 8% franchisee contribution to the MAF set out in paragraph 8.2 of the franchise agreement; and,
  4. Meineke is required to conduct an audit of the MAF each and every year. Every Dealer must be provided with a copy of the audit upon written request. On request, the Advertising Committee may periodically review the books and records of the MAF.

Obviously, the rights of individual Dealers and the Dealer representative bodies to review the annual audit of the MAF and the books and records of the MAF respectively, are important rights that should be exercised on a regular basis. The MDA has been conducting an annual audit of the MAF for at least the past five years.

The final two areas of the franchise agreement where the MDA can have a dialogue with Meineke are in the modification of the encroachment policy under Paragraph 17.3 entitled “Policy Regarding Meineke Expansion” and in the appointment of the ombudsman in Paragraph 17.15 entitled “Ombudsman”. The encroachment policy is not the best solution for encroachment issues which exist in areas outside the literal boundaries of a Dealer’s territory. However, it is an unusual written policy and could be improved. The provision relating to the Ombudsman has been little used.

However, with the voice that has been given to the Dealer representatives in the written franchise contract, the contractual rights exist for those representatives to have significant impact on the direction in which the Meineke System heads as businesses in the automobile aftermarket rise to meet the challenges of an ever more competitive landscape.

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.