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When can a Franchisor be Liable for the Actions of a Franchisee (March Litigation Quarterly 2009)

March 1, 2009

By its very definition, a franchisee is an independent business separate from its franchisor.1 However, even though a franchisee is an independent business, its franchisor can still be liable for the franchisee’s actions in situations where the franchisee is found to be the agent of the franchisor.2 “The party alleging the agency relationship bears the burden of proving it.”3 Whether that party is successful in establishing the agency relationship will be a question of fact, unless the party’s allegations, if taken as true, fail to meet even the minimum requirements necessary to prove that an agency relationship existed.4

There are two types of agency relationships: (1) actual agency; and (2) apparent agency.5 To prove the existence of an actual agency relationship, a party must prove three elements: “(1) acknowledgement by the principal that the agent will act for him or her, (2) the agent’s acceptance of the undertaking, and (3) control by the principal over the actions of the agent.”6 In establishing whether the franchisor has control over the franchisee, the question is whether the franchisor has the right to control the actions of the franchisee.7

In analyzing whether an actual agency relationship exists, the analysis should begin with a review of the franchise agreement.8 However, because it is not unusual for a franchise agreement to use conclusory terms in an attempt to establish that the franchisee is independent of the franchisor, one must consider the entire agreement when analyzing whether an agency relationship exists between the franchisor and the franchisee.9 For example, in Parker v. Domino’s Pizza, Inc., the Fourth District Court of Appeal (“Fourth District”) reversed the trial court’s ruling that as a matter of law the franchisee, J & B Enterprises, was an independent contractor, and not an agent of Domino’s Pizza, Inc.10 Even though the franchise agreement labeled J & B Enterprises as an independent contractor, the Fourth District looked at the entire franchise agreement and the operations manual for Domino’s Pizza, Inc. and concluded that it was error to determine that as a matter of law Domino’s Pizza, Inc. did not have the right to control J & B Enterprises.11 Ultimately, there is no bright-line rule for determining whether an actual agency relationship exists between the franchisor and the franchisee.12 Rather, the specific facts of the relationship between the franchisor and the franchisee will determine whether an actual agency relationship exists.13

To prove the existence of an apparent agency relationship, a party must also prove three elements: “(1) a representation by the purported principal; (2) a reliance on that representation by a third party; and (3) a change in position by the third party in reliance on the representation.”14 The theory behind the doctrine of apparent agency is that “[t]he principal is estopped [from denying] the authority of the agent, because he has permitted the appearance of authority in the agent and thereby justified the third party in relying on that appearance of authority as though it were actually conferred upon the agent.”15

In analyzing whether an apparent agency relationship exists, one must first look to the actions of the purported principal.16 There must be some “genuine factual representation” by the purported principal that it is exercising control over the purported agent.17 For example, in Mobil Oil Corporation v. Bransford, the Supreme Court of Florida ruled that the use of Mobil symbols and products throughout a gas station, along with Mobil providing support services, was insufficient to establish the required level of control to establish an agency relationship.18 The Court reasoned that “[i]n today’s world, it is well understood that the mere use of franchise logos and related advertisements does not necessarily indicate that the franchisor has actual or apparent control over any substantial aspect of the franchisee’s business or employment decisions.  Nor does the provision of routine contractual support services refute this conclusion.”19

On the other hand, in Orlando Executive Park, Inc. v. P.D.R., the Supreme Court of Florida ruled that a hotel’s use of “signs, national advertising, uniformity of building design and color schemes” was enough to establish that The Howard Johnsons Company had the required level of control over the hotel to create an agency relationship between the owner of the hotel and The Howard Johnsons Company.20 The Court reasoned that “[t]here was sufficient evidence for the jury to reasonably conclude that [The Howard Johnsons Company] represented to the traveling public that it could expect a particular level of service at a Howard Johnson Motor Lodge.”21

In addition to proving the required representation by the purported principal, in order for a party to successfully prove the existence of an apparent agency relationship, that party must show that it actually relied on the purported principal’s representation in making his or her decision to use the services of the franchisee.22 For example, in Orlando Executive Park, Inc. v. P.D.R., the Court found that there was enough evidence presented that the patron of a hotel selected that hotel because of the belief that she was dealing with The Howard Johnsons Company.23 Without evidence of this reliance, a party cannot be successful in establishing an apparent agency relationship.24

In conclusion, when analyzing whether a franchisor can be liable for the actions of a franchisee, one must look beyond the franchising agreement to the specific facts of the case to determine whether an actual or apparent agency relationship exists between the franchisor and the franchisee.  If such an agency relationship is found to exist, a franchisor could be liable for the actions of a franchisee.

(Endnotes)

1         Fla. Stat. § 817.416; see also Font v. Stanley Steemer International, Inc., 849 So. 2d 1214, 1216 (Fla. 5th DCA 2003).

2         Mobil Oil Corporation v. Bransford, 648 So. 2d 119, 120 (Fla. 1995).

3         Font, 849 So. 2d at 1216 (citation omitted).

4         Parker v. Domino’s Pizza, 629 So. 2d 1026, 1027 (Fla. 4th DCA 1993); Mobil Oil Corporation, 648 So. 2d at 121; see also Caranna v. City of Clearwater, 466 So. 2d 259, 264 (Fla. 2d DCA 1985).

5         See Mobil Oil Corporation, 648 So. 2d at 120-21; and Font, 849 So. 2d at 1215-16.

6         Font, 849 So. 2d at 1216 (citations omitted).

7         Parker, 629 So. 2d at 1027.

8         See Font, 849 So. 2d at 1217; see also Parker, 629 So. 2d at 1028.

9         Font, 849 So. 2d at 1218-19.

10       Parker, 629 So. 2d at 1029.

11       Id. at 1027-29.

12       Font, 849 So. 2d at 1219.

13       Id.; Sapp v. City of Tallahassee, 348 So. 2d 363, 367 (Fla. 1st DCA 1977) (citation omitted).

14       Mobil Oil Corporation, 648 So. 2d at 121 (citations omitted).

15       Orlando Executive Park, Inc. v. P.D.R., 402 So. 2d 442, 449 (Fla. 5th DCA 1981) (citation omitted).

16       See Mobil Oil Corporation, 648 So. 2d at 121.

17       Mobil Oil Corporation, 648 So. 2d at 120-21; see also Orlando Executive Park, Inc., 402 So. 2d at 449-51.

18       Mobil Oil Corporation, 648 So. 2d at 120-21.

19       Id. at 120.

20       Orlando Executive Park, Inc., 402 So. 2d at 450.

21       Id. at 450 (citations omitted).

22       See Orlando Executive Park, Inc., 402 So. 2d at 451; see also Caranna, 466 So. 2d at 264.

23       See Orlando Executive Park, Inc., 402 So. 2d at 451.

24            See Caranna, 466 So. 2d at 264).


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