USA – ILLINOIS Law and Practice Contributed by: Carmen D. Caruso, Bill Whitner and Gage Meyers, Carmen D. Caruso Law Firm
Rescission and Damages Section 26 provides a private right of action for viola - tions of the IFDA, including violations of Sections 5, 6, 10, 11 or 15, allowing a franchisee to recover damag - es and, in some cases, seek rescission. See 815 ILCS 705/26. Thus, a franchisor’s failure to provide the Sec - tion 5 disclosure statement may give the franchisee a right to rescind. In Jensen v Quik Int ’ l , the Illinois Supreme Court confirmed that rescission is available under Section 26 but not mandatory – a franchisee may instead retain the agreement. See 213 Ill 2d 119 (2004). A prevailing franchisee may also recover dam - ages, including amounts paid for the franchise, less net income received, plus interest, attorney’s fees and costs, subject to the limitations period in Section 27. 815 ILCS 705/27. Termination The IFDA does not separately provide a general right to terminate the franchise agreement merely because the franchisor failed to provide an FDD. Rather, the principal statutory remedy is rescission under Sec - tion 26. The franchisee may have a separate right to terminate if the franchisor’s failure to disclose consti - tutes a material breach of the agreement, depending on the agreement’s terms, applicable law and other case-specific facts. Civil and Criminal Penalties In addition to private remedies, the IFDA authorises enforcement by the state. Under Section 24, the Illi - nois Attorney General may seek a civil penalty of up to USD50,000 per violation. See 815 ILCS 705/24. Sepa - rately, Section 25 makes wilful violations – including selling a franchise without complying with specified disclosure and registration requirements or making materially false or misleading statements in a dis - closure document – a Class 2 felony. See 815 ILCS 705/26. 2.3 Franchise Disclosure Exemptions Illinois provides several exemptions to the IFDA’s dis - closure requirements, but these generally apply to specific transactions or parties rather than exempting franchisees based solely on financial sophistication. Section 7 of the IFDA exempts certain transactions, including the sale of an existing franchise by a fran -
chisee for its own account not effected by or through the franchisor, and certain extensions, renewals and amendments of existing franchise relationships. See 815 ILCS 705/7. Section 8 (b) provides additional exemptions for sales to banks and insurance compa - nies. See 815 ILCS 705/8 (b). Illinois also provides exemptions based on the char - acteristics of the franchisor or franchisee. Section 8 (a) exempts transactions involving franchisors with a net worth of at least USD15 million, and entities operating at least five years with a net worth of at least USD5 million, from the Act’s registration requirements. These exemptions generally do not eliminate the obligation to provide the Section 5 disclosure statement. See 815 ILCS 705/8 (a). Accordingly, a franchisee’s finan - cial sophistication alone does not generally relieve an Illinois franchisor of its FDD obligation. Even where a registration exemption applies, Sec - tion 8 (a) generally still requires delivery of a disclo - sure statement meeting Section 5 (2)’s requirements, unless the Attorney General separately grants relief by rule or order. The Attorney General also retains broad discretionary authority under Section 9 to exempt particular classes of franchises from disclosure and registration where enforcement is unnecessary in the public interest, given the offering’s limited scope or the franchisees’ sophistication. The Attorney General, as the Act’s statutorily desig - nated “Administrator”, may also exempt particular classes of persons, franchises or transactions from specified requirements where application would be unnecessary or inappropriate. See 815 ILCS 705/9. 2.4 Franchise Disclosure Language/ Translation Requirements Illinois does not impose a statutory requirement that the franchise disclosure document be translated into any language other than English. However, English is the language of Illinois’ courts, statutes and adminis - trative filings, and the disclosure statement filed with the Attorney General is expected to be in English.
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