SENATE BILL 439

57th legislature - STATE OF NEW MEXICO - first session, 2025

INTRODUCED BY

Joshua A. Sanchez

 

 

 

 

 

AN ACT

RELATING TO BUSINESS; ENACTING THE DECEPTIVE FRANCHISE PRACTICES ACT.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:

     SECTION 1. [NEW MATERIAL] SHORT TITLE.--This act may be cited as the "Deceptive Franchise Practices Act".

     SECTION 2. [NEW MATERIAL] DEFINITIONS.--As used in the Deceptive Franchise Practices Act, "franchise" means an oral or written arrangement for a definite or indefinite period in which a manufacturer, distributor or representative grants to a person a license to use a trade name, service mark or related characteristic and in which there is a community of interest in the marketing of products or services related to marketing, service or repair of products at wholesale, retail, leasing or otherwise.

     SECTION 3. [NEW MATERIAL] FRANCHISE AGREEMENTS--UNLAWFUL PROVISIONS.--It is unlawful for a franchise agreement entered into between a franchisor and a franchisee who is either a resident of New Mexico or a nonresident who will be operating a franchise in New Mexico to contain any of the following provisions:

          A. requiring goods, supplies, inventories or services to be purchased exclusively from the franchisor or sources designated by the franchisor when such goods, supplies, inventories or services of comparable quality are available from sources other than those designated by the franchisor; provided that the publication by the franchisor of a list of approved suppliers of goods, supplies, inventories or services or the requirement that such goods, supplies, inventories or services comply with specifications and standards prescribed by the franchisor does not constitute designation of a source nor does a reasonable right of the franchisor to disapprove a supplier constitute a designation; and provided further that this subsection does not apply to the principal goods, supplies, inventories or services manufactured or trademarked by the franchisor;

          B. allowing the franchisor to establish a franchisor-owned outlet engaged in a substantially identical business to that of the franchisee within the exclusive territory granted the franchisee by the franchise agreement or, if no exclusive territory is designated, permitting the franchisor to compete unfairly with the franchisee within a reasonable area;

          C. allowing substantial modification of the franchise agreement by the franchisor without the consent in writing of the franchisee;

          D. allowing the franchisor to obtain money, goods, services or any other benefit from any other person with whom the franchisee does business, on account of or in relation to the transaction between the franchisee and the other person, other than for compensation for services rendered by the franchisor, unless the benefit is promptly accounted for and transmitted to the franchisee;

          E. requiring the franchisee to prospectively assent to a release, assignment, novation, waiver or estoppel that purports to relieve any person from liability to be imposed by the Deceptive Franchise Practices Act or requiring any controversy between the franchisee and the franchisor to be referred to any person, if referral would be binding on the franchisee; provided that this subsection shall not apply to arbitration before an independent arbitrator;

          F. allowing for an increase in prices of goods, supplies, inventories and services provided by the franchisor that the franchisee had ordered for private retail consumers prior to the franchisee's receipt of an official price increase notification; provided that:

                (1) a sales contract signed by a private retail consumer shall constitute evidence of each order;

                (2) price changes applicable to new models of a product at the time of introduction of such new models shall not be considered a price increase; and

                (3) price increases caused by conformity to a state or federal law, or the revaluation of the United States dollar in the case of foreign-made goods, supplies, inventories and services, are not subject to this subsection;

          G. permitting unilateral termination of the franchise if such termination is without good cause or in bad faith; provided that "good cause" within the meaning of this subsection includes any material violation of the franchise agreement;

          H. permitting the franchisor to fail to renew a franchise without good cause or in bad faith. The Deceptive Franchise Practices Act shall not prohibit a franchise agreement from providing that the agreement is not renewable upon expiration or that the agreement is renewable if the franchisee meets certain conditions specified in the agreement;

          I. requiring a franchisee to covenant not to compete with the franchisor for a period longer than two years or in an area greater than the exclusive area granted by the franchise agreement or, in absence of such a provision in the agreement, an area of reasonable size, upon termination of or failure to renew the franchise;

          J. limiting litigation brought for breach of the agreement in any manner whatsoever; and

          K. requiring the franchisee, at an expense to the franchisee that is indeterminate, determined by a third party or determined by a formula, unless the franchise agreement specifies the maximum percentage of gross monthly sales or the maximum absolute sum that the franchisee may be required to pay, to participate in any:

                (1) advertising campaign or contest;

                (2) promotional campaign;

                (3) promotional materials; or

                (4) display of decorations or materials.

     SECTION 4. [NEW MATERIAL] FRANCHISE AGREEMENTS--UNLAWFUL ACTS AND PRACTICES.--It is unlawful for a franchisor who has entered into a franchise agreement with a franchisee who is either a resident of New Mexico or a nonresident operating a franchise in New Mexico to engage in any of the following acts and practices in relation to the agreement:

          A. coercing the franchisee to:

                (1) order or accept delivery of any goods, supplies, inventories or services that are not:

                     (a) necessary to the operation of the franchise;

                     (b) required by the franchise agreement;

                     (c) required by law; or

                     (d) voluntarily ordered by the franchisee;

                (2) order or accept delivery of any goods, supplies, inventories and services offered for sale by the franchisee, which includes modifications or accessories that are not included in the base price of those goods, supplies, inventories and services as publicly advertised by the franchisor;

                (3) participate in an advertising campaign or contest, any promotional campaign, promotional materials, display of decorations or materials at an expense to the franchisee over and above the maximum percentage of gross monthly sales or the maximum absolute sum required to be spent by the franchisee provided for in the franchise agreement; provided that in the absence of such provision for required advertising expenditures in the franchise agreement, no such participation may be required; or

                (4) enter into any agreement with the franchisor or any designee of the franchisor, or do any other act prejudicial to the franchisee, by threatening to cancel or fail to renew any agreement between the franchisee and the franchisor; provided that notice in good faith to any franchisee of the franchisee's violation of the terms or provisions of a franchise agreement does not constitute a violation of this subsection;

          B. refusing or failing to deliver in reasonable quantities and within a reasonable time after receipt of an order from a franchisee for any goods, supplies, inventories or services that the franchisor has agreed to supply to the franchisee, unless the failure is caused by acts or causes beyond the control of the franchisor;

          C. denying the surviving spouse, heirs or estate of a deceased franchisee the opportunity to participate in the ownership of the franchise under a valid franchise agreement for a reasonable time after the death of the franchisee; provided that the surviving spouse, heirs or estate maintains all standards and obligations of the franchise;

          D. establishing a franchisor-owned outlet engaged in a substantially identical business to that of the franchisee within the exclusive territory granted the franchisee by the franchise agreement or, if no exclusive territory is designated, competing unfairly with the franchisee within a reasonable area; provided that a franchisor shall not be considered to be competing when operating a business either temporarily for a reasonable period of time, or in a bona fide retail operation that is for sale to any qualified independent person at a fair and reasonable price, or in a bona fide relationship in which an independent person has made a significant investment subject to loss in the business operation and can reasonably expect to acquire full ownership of such business on reasonable terms and conditions;

          E. discriminating unfairly among its franchisees or unreasonably failing or refusing to comply with any terms of a franchise agreement;

          F. obtaining money, goods, services or any other benefit from any other person with whom the franchisee does business, on account of, or in relation to, the transaction between the franchisee and the other person, other than compensation for services rendered by the franchisor, unless the benefit is promptly accounted for and transmitted to the franchisee;

          G. increasing prices of goods, supplies, inventories and services provided by the franchisor that the franchisee had ordered for retail consumers prior to the franchisee's receipt of a written official price increase notification; provided that price increases caused by conformity to a state or federal law or the revaluation of the United States dollar in the case of foreign-made goods, supplies, inventories and services are not subject to this subsection; and

          H. using deceptive advertising or engaging in deceptive acts in connection with the franchise or the franchisor's business.

     SECTION 5. [NEW MATERIAL] TERMINATION OR ELECTION NOT TO RENEW FRANCHISE--NOTICE.--Unless otherwise provided in the agreement, any termination of a franchise or election not to renew a franchise shall be made on at least ninety days' notice.

     SECTION 6. [NEW MATERIAL] ACTION TO RECOVER DAMAGES OR REFORM FRANCHISE AGREEMENT.--A franchisee who is a party to a franchise agreement entered into or renewed after July 1, 2025 that contains any provision set forth in Section 3 of the Deceptive Franchise Practices Act or who is injured by an unfair act or practice set forth in Section 3 of that act may bring an action to recover damages or reform the franchise agreement.

     SECTION 7. [NEW MATERIAL] LIMITATION OF ACTIONS.--No action may be brought for a violation of the Deceptive Franchise Practices Act more than five years after the violation.

     SECTION 8. APPLICABILITY.--The provisions of the Deceptive Franchise Practices Act apply only to agreements entered into or renewed, or an act or a practice occurring, after June 30, 2025.

     SECTION 9. EFFECTIVE DATE.--The effective date of the provisions of this act is July 1, 2025.

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