The Victory of Common Sense: Why Randall v. Lady of America Matters
Editor's introduction: Michael Garner is an attorney with Dady & Garner, P.A., representing franchisees, dealers and distributors in their disputes with suppliers and franchisors. He recently represented franchisee Randall and others. He won in what Blue MauMau ranks as the #1 most significant case impacting franchisees in 2007. Our online franchisee community welcomes Mr. Garner's legal insights and his new blog. Randall v. Lady of America, 2007's most important franchise case, is a victory not so much for franchisees as it is for common sense.
Let's say you want to buy a franchise. You find something you're interested in and you're at the franchisor's on discovery day. After a good, long visit, you're very interested and feel you've built up some rapport with the director of sales. So over a coffee break in the late afternoon, you ask how much you can expect to make. The director of sales says, "Well, we can't really show you numbers, but I'll give you an idea." He then pulls out some spreadsheets that show the financial statements of company-owned stores. They're terrific, and you're enthused. "Now, you understand, we're not supposed to show these to you, so you can't expect to get the same results, but this will give you an idea." You agree.
You decide to buy -- in large measure because of the figures you saw. You understand that you're not going to replicate the same results exactly, but you've got a really good feeling, based on those financials. When it comes time to sign up, the franchisor gives you a questionnaire and tells you it's required by "the lawyers." You glance it over and sign.
A year passes, and you've opened. Your business is a disaster. It's nowhere near the performance levels you were shown. You find out that in fact, the company results that you were shown were wrong. Someone had cooked the books. You bring suit.
The franchisor takes out that questionnaire you signed and says you're out of court: in the questionnaire, you acknowledged that no one had shown you figures, and that you hadn't relied on any.
Should you be thrown out of court? Of course not. Not to protect the franchisor from its own fraud. This is, in essence what the Randall court said: a franchisor can't protect itself from its own fraud simply by making you sign a paper to that effect. It's simple. It's straightforward. It cuts through a lot of legal mumbo jumbo.
Within the last month, a New York appellate court made the same holding -- when a franchisor induces a franchisee to sign up on the basis of fraudulent statements, it can't escape simply by having the franchisee sign a paper.
Let's hear it for common sense!
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