A federal court in Minnesota recently dismissed a franchisee’s misrepresentation claims thanks to the franchisor’s carefully drafted franchise agreement.
Franchisee Moxie Venture L.L.C. (“Moxie”) brought suit against franchisor The UPS Store, Inc. (“TUPSS”) claiming violations of the Minnesota Franchise Act (“MFA”) and other common law claims. Moxie Venture L.L.C. v. The UPS Store, Inc., No. 15-3704 (D. Minn. Jan. 12, 2016). Moxie alleged that TUPSS violated the MFA by inducing Moxie to enter a franchise agreement by misrepresenting the franchise’s projected revenue, cash flow and operating profits and the best location for Moxie’s UPS Store. The court held that even if TUPSS made such misrepresentations, Moxie’s reliance on them was unreasonable due to key language in the franchise agreement.
The court cited three sections of the franchise agreement in which the franchisee acknowledged that (i) TUPSS had not made any claims or representations regarding revenues, earnings or profits; (ii) the franchisee did not purchase the franchise based on such representations; (iii) the franchise may never operate profitably, the franchisee could lose its entire investment, and that TUPSS could not guarantee profitability; and (iv) that the location of the UPS Store was the franchisee’s responsibility. The court also noted that the franchise agreement contained an integration clause, which stated that the franchise agreement was the entire agreement between the parties.
The franchise agreement’s acknowledgments, as cited by the court, are reprinted below.
Franchisors cannot control whether they are sued. But they can carefully draft franchise agreements to protect their interests in the event of litigation. The upfront costs of thoughtful drafting pay dividends when, as here, a case can be resolved on a motion to dismiss (one of the earliest stages of a lawsuit).
Franchise Agreement Acknowledgments:
“You understand and acknowledge that neither TUPSS, nor any of its officers, agents, employees or representatives, nor any TUPSS area franchisee, has made any claims or representations whatsoever regarding potential revenues, earnings, or profits that you may achieve as the owner of a The UPS Store franchise, and that you have not made a decision to purchase your franchise based on any such representations.”
“You understand that the creation and operation of a new business involve a number of risks, which means that if you are never able to operate the business profitably, you could lose part or all of your investment, plus any additional funds that you contribute to the business. You understand and acknowledge that TUPSS cannot guarantee that your business will ever achieve profitability and by your signature on this document you are agreeing to purchase a The UPS Store franchise with full knowledge of the risks described herein.”