Franchisor’s Presale Representations Did Not Violate Florida Franchise Act

This posting was written by Pete Reap, Editor of CCH Business Franchise Guide, and John W. Arden.

An ice cream shop franchisor’s alleged misrepresentations about a prospective franchisee’s chances for success did not violate the Florida Franchise Act, absent evidence that the franchisee relied on a misrepresentation in making its decision to purchase the franchise, the U.S. Court of Appeals in Atlanta has decided.

Reliance

Although the franchisee argued that it did not need to show reliance, that argument was contrary to Florida law. The parties' franchise agreement included a detailed disclaimer and explanation regarding the risks of owning and operating a franchise and encouraged franchisees to conduct an independent investigation of their chances for success.

The agreement did not promise that the purchaser would profit, the court observed. Evidence demonstrated that the purchaser understood the agreement and conducted an independent investigation of its prospect for success.

"Little FTC Act"

The franchisor also did not violate the Florida "little FTC Act" by allegedly causing two of its franchisees, acting as its agents, to make misrepresentations to the complaining franchisee about the franchise's prospects or chances for success, the court ruled.

The franchise agreement clearly stated that other franchisees did not have the authority to make representations on the franchisor's behalf about profit margins, the court noted.

It also included a detailed discussion of financial information, including the average gross revenues from the franchisor's franchises, but added that "[a]ctual results vary from unit to unit, and we cannot estimate the results of any particular Franchise."

Further, the agreement encouraged prospective franchisees to conduct an independent investigation of the cost and expenses it would incur, which the prospective purchaser did conduct. Under these circumstances, it was not likely that a consumer acting reasonably would have been deceived by the alleged statements made by the two existing franchisees, the court held.

The June 3 not-for-publication decision is Cold Stone Creamery, Inc. v. Lenora Foods I, LLC, CCH Business Franchise Guide ¶14,144.