Selective Enforcement of Franchise Standards

Selective enforcement of system standards occurs when a franchisor enforces standards against one franchisee which it does not enforce against other franchisees.

While selective enforcement may not be fair, courts have held that it is legal.

In Original Great American Chocolate Chip Cookie Company v. River Valley Cookies [970 F.2d 273 (1992)], the influential jurist Richard Posner of the 7th Circuit wrote what has become the seminal opinion on this frequent complaint of franchisees.

Mr. & Mrs Siegel were absentee owners who lived in St. Louis but bought a store in Illinois and hired a manager who was quite bad. Financial and operational problems resulted, and the franchisor terminated the franchise.

Judge Posner found no merit to the Siegels' claim that the franchisor had selectively enforced standards and that they had been the victims of a bad manager:

The fact that the Cookie Company may...have treated other franchisees more leniently is no more a defense...than laxity in enforcing the speed limit is a defense to a speeding ticket. ...that their violations may have been the fault...of their manager and that they ceased when the manager was replaced is similarly irrelevant. Liability for breach of contract is strict.

Great American has come to be an often-cited case, and franchisees should read the full opinion with care since many of the circumstances found in that case apply with frequency to all franchisees.

Some of the facts such as the debt taken on by the franchisees (Mrs. Siegel's father even pledged his retirement fund as loan collateral) and the operational difficulties (Posner cited "ignorant and improperly dressed employees") will be familiar to anyone who has owned a franchise.

Other facts such as the court finding that a less than 3 percent alleged under-reporting was significant are a cautionary lesson to any franchisee in a cash business where employees are prone to pocket reciepts, particularly where the owner is absentee.

Judge Cudahy's dissent contains a witty skewering of "Chicago School" basis of current franchise law, and the classic observation:

While I do not in principle approve the use of 'counterfeit' cookie batter, I would not single this out as a leading social evil of our time.