Maybe you have heard by now, a group of the consumers have gotten together and sued Papa John’s franchisees, Papa John’s the franchisor, and one of Papa John’s vendors. The consumers are suing over unwanted text messages under the Telephone Consumer Protection Act. Yes, this is the same law that brought you the “do not call list.” The consumers claim, contrary to the Telephone Consumer Protection Act, Papa John’s sent “unsolicited advertisements” using a “telephone facsimile machine.” Who, What, Ha? What is a “telephone facsimile machine?” Work with me here. This is legal jargon for “equipment which has the capacity (A) to transcribe text or images, or both, from paper into an electronic signal and to transmit that signal over a regular telephone line, or (B) to transcribe text or images (or both) from an electronic signal received over a regular telephone line onto paper.” Don’t blame me. I am just quoting the statute.
Well, any way, the consumers are seeking $250 million and allege that there are upwards of 500,000 text messages at issue. Consumer protection laws, per one commentator, are becoming the next hot bed of litigation replacing personal injury claims post the enactment tort reform laws, which limit damage in personal injury cases. I can see why! With consumer protection laws, there is not a fight about damages. The law lays out the damages. And, the damages are meant to blow your hair back. Take this case, for each wrongful text---- $500 dollars. If it is found to be a willful wrongful text, the damages sky rocket.
This blawg is about business and franchising. So for all you business folks beware of consumer protection laws! For you, franchisors and franchisees, take note: this consumer claim took place in the franchise context. So let’s take a look at that. I made a little schematic. It is like a game of hot potato!
At the end of the day the franchisor may claim: ‘I am not liable! The franchisee is responsible for complying with the law per the franchise agreement and I am indemnified by the franchisee under the Franchise Agreement.’ The franchise vendor may claim: ‘I have a limitation on damage clauses and disclaimers in my contract with you, franchisee/franchise, and therefore, if I am Iiable at all, I am only liable for a small percentage of the damages.’ And the franchisee says: ‘I am not the only one in this mess! Franchisor you were in on this with me and vendor, you should’ve known.’
Vendor contracts commonly have provisions that limit the vendor’s liability exposure. It can be in the form of an indemnify clause, a disclaimer, or other provisions in the contract. How well do they hold up in court? They are upheld sometimes, maybe and they are seen in vendor contract with ever greater frequency and variation.
Franchise agreements have historically contained boil plate provisions that require the franchisee to comply with the law and indemnify the franchisor. The rationale is that the franchisee is an independent owner/operator and the franchisee is in the best place to ensure business operations comply with the law. This is especially true with local and state laws.
But look at this case. This was a federal law and the franchisor learned very quickly that the texting campaign was bothersome to consumers, but they could not stop the ball in motion. The franchisor initially indorsed and promoted the texting campaign. And then, the franchisor was on the receiving end of consumer complaints
Consumers don’t care. Consumers sue everyone, the franchisee, the franchisor, the vendor.
Lesson from the Court: Don’t trust that the other guy knows or is following the law. If you do, the damages may blow your hair back!