Release Agreement Barred Michigan Franchise Law Claims

This posting was written by Pete Reap, Editor of CCH Business Franchise Guide.

Michigan Franchise Investment Law claims brought by a terminated insurance agency franchisee against its franchisor were barred by a release agreement that waived the franchisee’s right to bring any claims in exchange for the franchisor’s waiver and deferral of certain franchise fees, a federal district court in Detroit has decided.

The franchisee alleged that the franchisor violated the Michigan franchise law by:

(1) Making untrue statements of material fact and omitting material fact; and

(2) Failing to provide a copy of its Uniform Franchise Offering Circular at least ten business days prior to the execution of the parties’ franchise agreements.

However, the release agreement signed by the parties approximately two years after the execution of their franchise agreements provided for a blanket waiver of any and all claims the franchisee held against the franchisor, including claims under the franchise statute.

The franchisee adduced no evidence refuting the conclusion that the release was fairly and knowingly made, according to the court. The release was a short, two-page document, the bulk of which was comprised of the paragraph setting out the terms of the franchisee’s release of his claims.

Although the franchisee asserted that he did not grasp the clear intent of the release and that the franchisor failed to inform him that by signing the release he was waiving his rights to sue the franchisor, given the clear and unambiguous terms of the release, this alleged failure to inform fell short of a misrepresentation of the contract or other fraudulent or overreaching conduct.

The franchisee argued that the release was void under the Michigan Franchise Investment Law provision that a "requirement that a franchisee assent to a release, assignment, novation, waiver, or estoppel which deprives a franchisee of rights and protections provided in this act" is "void and unenforceable if contained in any documents relating to a franchise."

However, the release was not a "document relating to a franchise" within the meaning of that provision because the franchisee was not required to release his franchise law claims as a condition of the franchise agreements, the court determined.

Moreover, the Michigan Franchise Investment Law also stated that this provision did not preclude a franchisee, after entering into a franchise agreement, from settling any and all claims. Under the circumstances in which the release was executed more than two years after the franchise agreement in exchange for the waiver of fees, the release was more akin to a settlement of claims than a "document relating to a franchise."

The decision is NBT Associates, Inc. v. Allegiance Insurance Agency CCI, Inc., DC Mich., CCH Business Franchise Guide ¶14,726.