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.

Consumer Class Action Denied in McDonald's French Fries Case

This posting was written by Jody Coultas, Editor of CCH State Unfair Trade Practices Law.

Certification of a nationwide class was denied in a consumer protection lawsuit against McDonald's because individual issues predominated, according to the federal district court in Chicago.

The action alleged false advertising about ingredients in McDonald's potato products in violation of the unfair trade practices laws of 50 states and the District of Columbia.

Gluten, Wheat, and Dairy-Free

McDonald's French fries and hash browns are fried in an oil made of 99% vegetable oil and 1% natural beef flavor, which contains wheat and dairy products. A group of McDonald's customers alleged that McDonald's falsely advertised its potato products as gluten, wheat, and dairy-free on its website and in literature at restaurants. The customers argued that, but for McDonald's representations, they would not have purchased the potato products.

In order to obtain class certification, the customers needed to show that: (1) common issues of law and fact predominated, and (2) a class action was superior to other forms of adjudication.

Individual Reliance

The customers failed to show that common issues of law and fact predominated, according to the court. Class treatment was inappropriate because the class was over-inclusive and each class member would have to be interviewed to determine whether they actually relied on McDonald's representations, the court ruled.

When a separate evidentiary hearing is necessary for each member's claim, the benefits of class treatment are outweighed by the challenges presented to the court.

Conflicts Among State Laws

Material conflicts between various state consumer protection laws also weighed against class certification, according to the court. Numerous courts have pointed out the material conflicts among the 50 states' laws, and have denied class certification on that basis. In this case, the court concluded that individual issues of law predominated and class treatment was not appropriate.

The decision is In re: McDonald's French Fries Litigation, ND Ill., CCH State Unfair Trade Practices Law ¶31,813.