Business locations owned and operated by the franchisor are referred to as company owned locations. When and if the franchisor sells a company owned location, the franchisor has considerable information about the historical earnings of the location. Does the franchisor have an obligation to share the historical earnings information about a company owned location when selling it to a franchisee? How about if the actual financial information of the specific company owned location is much less than the financial earning representations contained in the franchise disclosure documents?
Sound complicated? Let’s look at the case. The case is 7-Eleven, Inc. vs. Spear. 7-Eleven terminated franchisee Spear for failure to meet minimum sales requirements. 7-Eleven sought an injunction to force Spear to de-identify the franchise location. Spear countered saying that 7-Eleven violated state disclosure laws. 7-Eleven provided Spear with a disclosure document that included information about franchisee earnings (financial performance representation) in the disclosure document, but 7-Eleven did not provide Spear with historical earning information about the specific location Spear purchased. 7-Eleven owned and operated the location prior to Spear buying the location. The location’s specific historical earning information not disclosed by 7-Eleven differed from the financial performance representation contained in the disclosure document provide to Spear.
Did 7-Eleven violate state law? No, the court held that 7-Eleven’s failure to provide specific earnings information about the location purchased by Spear did not violate state disclosure laws, because per the FTC rule, the disclosure document contained disclaimers about the financial performance representations included in the franchise disclosure document.
Lessons from the Court Room: Use, read, and honor disclaimers. If you don’t, the court just might.