Why Franchisee Questionnaires May Make or Break a Case?

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Image provide by http://morguefile.com

It is common place within the franchise industry that a franchisor requests a franchisee to complete a questionnaire before signing the franchise agreement saying that franchisor followed disclosure protocol:

 

  • Franchisee was given the franchise agreement with all blanks filled in 7 days before signing or paying any money; and
  • Did the Franchisor provide Franchise Disclosure Document [FDD] 14 days before signing franchise agreement or paying any money; and
  • Did the franchise rely on any earning or financial representation other than those disclosed in the franchise agreement.

In some instance the franchisor may ask the franchise to attest to the proper disclosure and no financial performance as provision of the franchise agreement.

 

Is this just more boilerplate, or do these questions and attestation have any teeth.  Do they preclude the franchisee from later alleging that they did not have proper disclosure or that there was an improper earning claim or financial performance representation made?

Franchisee Questionnaires Ask

One case provides antidotal evidence that the franchisee’s attestation and answers on the questionnaires do have meaning.  The case is Fantastic Sams Salons Corp. v. PSTEVO, LLC.  In the body of the franchise agreement there was a disclaimer that read:

 

  • NO ORAL, WRITTEN OR VISUAL CLAIM OR REPRESENTATION WHICH CONTRADICTED THE DISCLOSURE DOCUMENT WAS MADE TO ME, EXCEPT: and
  • NO ORAL, WRITTEN OR VISUAL CLAIM OR REPRESENTATION WHICH STATED OR SUGGESTED ANY SALES, INCOME, OR PROFIT LEVELS WAS MADE TO ME, EXCEPT:

 

There was space provided for the franchise to insert comment or statements.  The franchisee wrote ‘none’ after each disclaimer and initial his statement.

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The court reasoned that the franchisee could not have been fraudulently deceived by franchisor’s representations.  The franchise wrote none when asked.  The franchisee argued that the disclaimer did not squarely ask about the representations he alleged.  The court tossed that argument to the wind saying the franchisee should have said something, wrote something other than ‘none.’

Case dismissed.

The franchisee lost his case against the franchisor.  The franchisee’s attestation in the franchise agreement, coupled with his none response, prevented the franchisee from winning its fraudulent misrepresentation case against the franchisor.

 

It the franchisee won his case, he would have been entitled to reimbursement of his initial franchise fee, all the money he spent attempting start-up and operation of the franchise, and perhaps much more.

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