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McDonald’s Seeks to Strike Down Iowa’s New Franchise Law

May 13, 1992

DES MOINES, Iowa (AP) _ McDonald’s Corp. has asked a federal court to throw out a state law that gives franchise owners new legal rights in their dealings with companies such as the fast-food giant.

McDonalds claims the law, which takes effect July 1, is unconstitutional and interferes with existing contracts.

″Unless the overall statute is repealed at the first opportunity, it will foster litigation and create uncertainty in many business relationships,″ said Ed Rensi, president and chief executive of McDonald’s U.S.A.

Among its provisions, the law voids any portion of a franchise contract that requires legal disputes to be resolved in courts outside Iowa.

It also bars termination of contracts without advance notice or ″good cause,″ requires franchisers to accept transfers of ownership to qualified relatives or partners if a franchisee is disabled or dies, and limits franchisers’ power to veto sales of the business.

The restrictions apply to fast-food restaurants, convenience stores, retail outlets and service businesses. The law doesn’t cover gas stations, auto and farm equipment dealers or real estate and insurance agencies.

Despite an intense lobbying fight, the bill breezed through the Legislature. Gov. Terry Branstad signed it April 23, despite threats from some of the nation’s biggest franchisors to halt growth in Iowa.

The lawsuit, filed Tuesday in U.S. District Court, asks for a ruling on the law’s constitutionality and whether it creates new conditions for the chain’s Iowa operations.

Franchising accounts for more than $200 billion in annual sales nationwide. Franchise owners who pushed for the law said they needed to protect their multimillion-dollar investments.

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