Wednesday, December 02, 2009

Franchisee’s Solicitation of Minor over Internet Warranted Immediate Termination

This posting was written by John W. Arden.

A franchisee’s arrest for soliciting a minor over the Internet warranted immediate termination of a franchise, without an opportunity to cure, under a “Damage to Goodwill” provision of the franchise agreement, according to a Florida circuit court.

A breach of contract claim brought by the franchisee’s wife and partner—arguing that she should not be bound by the actions of the franchisee—was rejected by the court.

In 1999, the husband and wife purchased an AmeriSpec franchise, with territory in Rhode Island and Massachusetts. In late 2004, the couple sold the franchise and purchased another existing AmeriSpec franchise in Sarasota, Florida, taking assignment of the franchise agreement.

Notice of Immediate Termination

On January 26, 2006, the husband was arrested and charged with transmitting harmful material to a minor by use of a computer and with using a computer for child exploitation. After learning of the arrest and negative publicity, the franchisor terminated the agreement immediately by letter dated February 6, 2006.

The termination letter cited a provision of the franchise agreement permitting termination of the franchise agreement upon receipt of notice for the franchisee’s engaging “in conduct which reflects materially and unfavorably upon the operation and reputation of the Franchised Business or the AmeriSpec system.”

Subsequently, the franchisee was convicted and/or pled guilty to multiple violations of Florida Statutes 847.0138. He currently is registered with the Florida Department of Law Enforcement as a sexual offender.

Liability for Acts of Partner

The franchisee’s wife and partner then brought an action against the franchisor for breach of contract and unjust enrichment, among other claims. The franchisor moved for summary judgment on the contract and unjust enrichment claims. The court framed the issue as whether the wife and partner “is bound by the actions of her partner and husband under the terms of the franchise agreement and Florida law.”

Initially, the court noted that both the husband and wife signed the franchise agreement as the franchisee. “Only one ‘franchise’ was granted, and there is no indication in the agreement that the rights of [the husband and wife] were divisible or separate.”

Florida law holds that individual partners are liable jointly and severally for all obligations of the partnership and that a partnership is liable for a partner’s actionable conduct. Florida Statutes 620.8305. Thus, the husband and wife were liable for the actions of the other.

The decision is Cleveland v. AmeriSpec, Inc., Circuit Court of the 12th Judicial Circuit, Case No. 2007 CA 008747 NC, November 16, 2009. Full text of the decision will appear at CCH Business Franchise Guide ¶14,267.

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