Nelson v. NAT'L FUND RAISING CONSULTANTS

823 P.2d 1165, 64 Wash. App. 184
CourtCourt of Appeals of Washington
DecidedFebruary 10, 1992
Docket26266-1-I
StatusPublished

This text of 823 P.2d 1165 (Nelson v. NAT'L FUND RAISING CONSULTANTS) is published on Counsel Stack Legal Research, covering Court of Appeals of Washington primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Nelson v. NAT'L FUND RAISING CONSULTANTS, 823 P.2d 1165, 64 Wash. App. 184 (Wash. Ct. App. 1992).

Opinion

64 Wn. App. 184 (1992)
823 P.2d 1165

SCOTT NELSON, ET AL, Respondents,
v.
NATIONAL FUND RAISING CONSULTANTS, INC., Appellant.

No. 26266-1-I.

The Court of Appeals of Washington, Division One.

February 10, 1992.

*185 Charles K. Wiggins, John W. Hathaway, and Edwards, Sieh, Wiggins & Hathaway, P.S., for appellant.

Gary M. Abolofia, for respondents.

AGID, J.

Appellant National Fund Raising Consultants, Inc. (NFRCI), appeals the injunctive relief granted by the trial court below. Its arguments focus on the trial court's determination that royalty payments required under NFRCI's agreement with the respondents, the Nelsons, were unenforceable as a violation of the Franchise Investment Protection Act, RCW 19.100, while, at the same time, restraining NFRCI from operating within the exclusive territory granted the Nelsons in that same agreement for a period of 18 months. We affirm in part and reverse in part.

NFRCI is a Colorado corporation formed in 1983. It now operates in 19 states and specializes in coordinating pizza fund-raising programs for nonprofit organizations. Maurice DeShazer is one of NFRCI's founders and its president. Scott and Katherine Nelson (the Nelsons), respondents herein, entered into a business relationship with DeShazer *186 in April 1985, becoming "area managers" or commissioned salespersons for NFRCI in Washington. As area managers, the Nelsons earned $1 for each pizza sold. NFRCI paid all costs associated with the sale and was paid directly by the nonprofit organization.

In October 1985, the Nelsons became "area directors". Unlike area managers, area directors were paid directly by the nonprofit organizations and paid the costs associated with the sales themselves. As area directors, the Nelsons entered into a "Total Requirements Agreement" with NFRCI. Under the terms of that agreement, the Nelsons paid both an initial $15,000 fee and ongoing royalties. In return, they were granted an exclusive territory in the state of Washington within which NFRCI promised not to compete or to sell a franchise to any other person. Other assistance and materials provided by NFRCI to the Nelsons included information concerning customers, sales, revenues and income of managers and directors in other areas, training manuals, incentive programs and awards, a monthly newsletter, liability insurance, legal assistance, and various sales paraphernalia. DeShazer also created a Colorado corporation known as National Fund Raising Consultants of Washington, Inc. (NFRC of Washington), which was transferred to the Nelsons after the new corporation had ratified the Total Requirements Agreement.

The Total Requirements Agreement further provided that the Nelsons were to purchase all supplies through NFRCI, which made arrangements for the provision of pizza materials by a local distributor. The ongoing royalty payments required under the terms of the agreement were calculated as a percentage of the cost of those supplies. Based on their own calculations, the Nelsons determined that the markup was 20 percent.

NFRCI did not become a registered franchiser in Washington until February 1988, when it came to understand that its attempt to avoid the franchise laws was in fact unlawful. NFRCI presented a new agreement, revised to reflect the franchise registration, to the Nelsons in April *187 1988. The Nelsons, who had by then become the most successful area directors within NFRCI, declined to execute that agreement. Negotiations with respect to the franchise agreement and the possibility of the Nelsons' purchasing a portion of NFRCI ensued and continued through 1988 and into 1989. The Nelsons stopped making royalty payments to NFRCI in February 1989. On June 7, 1989, the Nelsons sent DeShazer a letter advising him that NFRC of Washington intended to operate independently of NFRCI after that date. Negotiations continued after DeShazer received the letter, however, and the trial court found that the letter did not terminate the parties' relationship. On October 24, 1989, DeShazer sent the Nelsons a letter purporting to accept their resignation as tendered in their June 7, 1989, letter. Because DeShazer sent the letter by regular mail and not by registered mail as required by the Total Requirements Agreement, the court found that it, too, did not terminate the agreement.

In October 1989, NFRCI hired Randy Nelson[1] as an area manager to conduct fund-raising activities within the same area of Washington state covered by the exclusive territory clause in its Total Requirements Agreement with the Nelsons. In November 1989, NFRCI, through DeShazer and Randy Nelson, sent each of Scott and Katherine Nelson's customers Thanksgiving cards from which those customers could have inferred that it was NFRCI with which they had previously dealt, rather than the Nelsons' corporation, NFRC of Washington. The Nelsons then brought this action to enforce the exclusive territory covenant in the Total Requirements Agreement.

Both sides sought injunctive relief. The trial court found that the relationship between NFRCI and the Nelsons was a franchise not exempt from registration under Washington law; the transaction was therefore the unlawful sale of an unregistered franchise by DeShazer and NFRCI in violation of RCW 19.100.020; the percentage markup cost of the *188 materials and the requirements provision was unenforceable both as a violation of the Franchise Investment Protection Act, RCW 19.100.180(2)(d), and as an unfair and deceptive business practice under the Consumer Protection Act, RCW 19.86; and competition by NFRCI with the Nelsons within their exclusive territory was a violation of RCW 19.100.180(2)(f) and an unfair and deceptive business practice under RCW 19.86.

The court granted the following injunctive relief: (1) restraining each side from using the information provided by the other with respect to customer organization names, sponsors, and data concerning sales made, which the court had determined constituted a trade secret; (2) requiring that any benefit obtained as a result of the use of such information, including the mailing of the Thanksgiving cards, was to be passed on to the party that was the source of that information; and (3) because of potential customer confusion between the names of the two corporations, restraining the Nelsons from doing business under the name NFRC of Washington. This portion of the order was subject to a 6-month grace period to expire on August 8, 1990, after which neither party was to use the name "National Fund Raising Consultants" in the exclusive Washington territory until August 8, 1991, when NFRCI was again permitted to do business under that name in Washington.

The parties appeal only the trial court's grant of injunctive relief.

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Bluebook (online)
823 P.2d 1165, 64 Wash. App. 184, Counsel Stack Legal Research, https://law.counselstack.com/opinion/nelson-v-natl-fund-raising-consultants-washctapp-1992.