According to the Chatime agreement, what constitutes an unfair method of competition?
Chatime Franchise · 2025 FDDAnswer from 2025 FDD Document
NORTH DAKOTA ADDENDUM TO THE CHATIME FRANCHISE, LLC FRANCHISE DISCLOSURE DOCUMENT
THE SECURITIES COMMISSIONER HAS HELD THE FOLLOWING TO BE UNFAIR, UNJUST, OR INEQUITABLE TO NORTH DAKOTA FRANCHISEES (NORTH DAKOTA CENTURY CODE ("NDCC") §51-19-09):
- A. Restrictive Covenants: Franchise disclosure documents that disclose the existence of covenants restricting competition contrary to NDCC §9-08-06, without further disclosing that such covenants will be subject to the statute.
- B. Situs of Arbitration Proceedings: Franchise agreements providing that the parties must agree to the arbitration of disputes at a location that is remote from the site of the franchisee's business.
- C. Restrictions on Forum: Requiring North Dakota franchisees to consent to the jurisdiction of courts outside of North Dakota.
- D. Liquidated Damages and Termination Penalties: Requiring North Dakota franchisees to consent to liquidated damages or termination penalties.
- E. Applicable Laws: Franchise agreements that specify that they are to be governed by the laws of a state other than North Dakota.
- F. Waiver of Trial by Jury: Requiring North Dakota franchises to consent to the waiver of a trial by jury.
- G. Waiver of Exemplary and Punitive Damages: Requiring North Dakota franchisees to consent to a waiver of exemplary and punitive damage.
- H. General Release: Franchise Agreements that require the franchisee to sign a general release upon renewal of the franchise agreement.
- I. Limitation of Claims: Franchise agreements that require the franchisee to consent to a limitation of claims. The statute of limitations under North Dakota law applies.
- J. Enforcement of Agreement: Franchise agreements that require the franchisee to pay all costs and expenses incurred by the franchisor in enforcing the agreement. The prevailing party in any enforcement action is entitled to recover all costs and expenses including attorney's fees.
In recognition of the requirements of NDCC §51-19-09, the Franchise Disclosure Document of Chatime Franchise, LLC for use in the State of North Dakota will be amended to include the following:
- Item 17(c) will be supplemented by the addition of the following language:
You will not be required to sign a general release upon renewal of the Franchise Agreement or Multi-Unit Development Agreement.
Source: Item 23 — Receipts (FDD pages 58–262)
What This Means (2025 FDD)
According to the 2025 Chatime Franchise Disclosure Document, certain practices are considered unfair, unjust, or inequitable specifically for franchisees in North Dakota. These determinations are made by the North Dakota Securities Commissioner under North Dakota Century Code §51-19-09.
Specifically, Chatime franchise agreements that include restrictive covenants without disclosing that these covenants are subject to NDCC §9-08-06 are deemed unfair. This means any limitations on a franchisee's ability to compete, which are common in franchise agreements, must be explicitly acknowledged as subject to state law. Additionally, requiring franchisees to arbitrate disputes in locations remote from their business site is considered unfair, as is forcing North Dakota franchisees to consent to the jurisdiction of courts outside of North Dakota.
The North Dakota addendum also identifies liquidated damages or termination penalties, choice of law clauses specifying a state other than North Dakota, waivers of trial by jury, waivers of exemplary and punitive damages, requirements to sign a general release upon renewal, and limitations of claims as unfair. Furthermore, franchise agreements that make the franchisee pay all costs for the franchisor to enforce the agreement are also considered unfair; instead, the prevailing party in any enforcement action is entitled to recover all costs and expenses, including attorney's fees. Chatime's FDD states that it will amend its franchise agreement for use in North Dakota to reflect some of these stipulations.