How Much Can I Make with This Franchise?
From John W. Arden at, Trade Regulation Talk we learn about the liability of alleged oral mis representations about the terms contained in a written franchise.
"A franchisor of package delivery drivers could have [in the sense of the issue being material and triable] violated the antifraud provision of the New York Franchises Law by making oral misrepresentations to ten prospective franchisees regarding the terms of their franchise agreements, a federal district court in New York City has decided. "
According to the judgment,
"The Plaintiffs assert that they were not allowed time to read the agreement or accompanying materials prior to signing.Plaintiffs also assert that they were refused their own copy of the materials, despite having expressed concern about their lack of clarity regarding the agreement terms, in some cases due to their inability to speak and read English proficiently."
The dispute was relatively straightforward, framed in contract law and under the New York Franchise :
"Plaintiffs claim that Defendants are liable under contract law for failing to honor oral agreements regarding specific commission rates negotiated with individual Plaintiffs.Defendants contend that Plaintiffs' allegations of breach of oral contract are barred by the integration clause contained in the Subscription Agreement and by the Statute of Frauds."
The alleged oral agreements about specific commission rates were made after the signing of the integration clause, and so that clause could not act as a bar.
But, the applicability of the New York Statute of Fraud turned on an analysis of when the plaintiff's performance was to take place.
If the pleadings essentially alleged that the oral agreements were with respect to activities or contractual performance that were outside a year, then the Statute of Fraud would apply and only written contracts would be upheld.
Obligations long than a year are thought to require them being reduced to writing in order to be enforceable.
After analyzing the pleading, the Court concluded that:
"In the instant case, Plaintiffs allege that they were promised the higher commission rates on an ongoing basis, implicitly for an indefinite period, while Defendants argue that some such guarantees were made on a per-delivery basis, but not as part of an ongoing arrangement.The terms of the oral agreements as represented by Plaintiffs do not contain express terms that would potentially limit them to performance within one year.
Therefore, interpreting all ambiguities in the light most favorable to the Plaintiffs, the Court finds that the Statute of Frauds applies to bar enforcement of the oral agreements in question, and Defendants' motion for summary judgment is GRANTED as to Plaintiffs' contract claims."
However, the matter was different when it came to the franchise claims.
The plaintiffs claimed that the franchise documents that they signed were much different than the ones filed with the New York State agency.
The franchisor was in numerous breaches of the New York Franchise Act, which weighed also upon the Court's mind.
Trade Regulation summarizes the franchisee's case this way:
"The franchisor asserted that the franchisees' claims regarding the oral guarantees were barred from consideration by the parol evidence rule and by the doctrine of waiver.Evidence of the parties oral negotiations -after which the parties had signed an unambiguous agreement filed with the state- would ordinarily be barred as proof of fraud on the part of the franchisor, the court observed.
However, the franchisees disputed that the agreement they signed was the franchisor's registered offering prospectus.
They further alleged that the franchisor had refused to allow them to read the agreement prior to signing and had failed to provide them with a copy of the agreement.
The franchisor was able to produce signature pages of its offering prospectus for only six of the ten plaintiff franchisees."
Ten of the franchisee plaintiffs were able to resist the defendant's motion for summary judgment.
(The only plaintiffs who did not succeed in defending against the summary judgment motion were three who were out of time.)
Why did the franchisees succeed with their franchise claims and not common law claims? (By succeed, I mean only that they were able to resist a motion for summary judgment.)
I think that John has got it right over at Trade Regulation, when he says:
"The franchise law's goal of protecting potential franchisees from fraud or deceptive practices by made this a particularly relevant concern in evaluating the franchisor's liability. "
The entire decision can be read here.
Do you think that the decision would have changed if the plaintiffs had signed the ubiquitous questionnaires we are now seeing attached to franchise agreements?
