In Kroshnyi v. U.S. Pack Courier Services, Inc., a case pending for 13 years (and not over yet), numerous drivers claimed their package delivery franchisor violated New York's franchise law. From 1996 to 1998 the drivers entered into franchise agreements with U.S. Pack Services (USP), a New York franchisor. Drivers paid a $15,000 "subscription fee," training fees, beeper fees and other charges to receive delivery assignments from USP's central dispatch.

In 2001 the franchisees sued in federal court claiming violations of the New York Franchise Sales Act (NYFSA), for alleged misrepresentations in USP's Franchise Disclosure Document, and state labor laws. The court dismissed the labor claims. At trial a jury found the company liable to the drivers for franchise law violations.

However, an appeals court reversed the jury award. The NYFSA has a statute of limitations requiring any action to be brought "before the expiration of three years after the act or transaction constituting the violation."

The court agreed with the franchisor that the "act or transaction constituting the violation" occurred in 1998 and earlier when the franchises were sold. It ruled the claims were time barred because the lawsuit was not filed until 2001.

The franchisees argued that the statute of limitations started anew since they made payments to the franchisor over time and because their franchisor transferred the business to a new entity and provided them new "Rules and Regulations" that purported to be a new agreement. But the appellate court rejected their arguments that these acts created new franchise relationships.

The court opined that under New York law, "continuous violations do not toll the statute of limitations" and that the new Rules and Regulations expressly provided they did not alter the parties' original agreement. The court noted that the NYFSA requires disclosures and prohibits fraud in making an "offer" and "sale" of franchises, "but does not seek to regulate the ongoing operations of a franchise."

A few drivers bought their franchises after 1998. The appellate court ruled their claims were not barred. The company challenged the damages award to them, claiming the franchisees had profited so they could not have suffered damages. But the appellate court upheld money awards to the franchisees whose claims were timely, ruling that in view of the numerous expenses they incurred over the years, the jury could properly have found that they lost money.

The Appellate Court's decision underscores the importance to franchisees of bringing claims promptly, before statutes of limitations expire - and reminds franchisors of the benefit of these statutes in defending franchise law claims.

Click Kroshnyi v. U.S. Pack Courier Services, Inc. to read the Court's decision.