MIAMI BUSINESS LITIGATION: FRANCHISORS MAY BE LIABLE FOR THE NEGLIGENT ACTS OF ITS FRANCHISEES

Distinguishing between a franchise relationship and an agency relationship can be difficult in a jury trial. A jury deciding may need to understand the difference between them in business litigation. The two relationships are distinguishable. In a franchise relationship, the franchisor and franchisee are separate businesses. The franchisor licenses its business’ trademark(s) and operating system to a franchisee, in exchange for the franchisee’s agreement to run its business according to the franchisor’s standards and control. In an agency relationship, the agent acts as an extension of the principal as though it were the principal. Florida’s standard jury instruction on agency may be too general to account for contract provisions in a franchise agreement which are intended to protect the franchisor from liability for the negligent acts of the franchisee. Peter Mavrick is a Miami business litigation lawyer, and also represents clients in business litigation in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents clients in breach of contract litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

This dilemma occurred in the recent case of Domino’s Pizza, LLC v. Wiederhold, 5D19-2343, 2020 WL 6219551 (Fla. 5th DCA Oct. 23, 2020), where a motorist filed a lawsuit against restaurant franchisor, franchisee, and franchisee employee for injuries sustained when the motorist swerved to attempt to avoid the employee’s vehicle, and lost control of vehicle and eventually resulting in the motorist’s death. Yvonne Wiederhold (Wiederhold), the motorist’s wife and personal representative of his estate, asserted a wrongful death claim. After a jury trial, trial court denied franchisor’s motion for directed verdict and entered judgment on jury’s verdict for the motorist’s estate, and then denied franchisor’s post-trial motions for judgment notwithstanding the verdict or in alternative for new trial. Franchisor immediately appealed.

The appellate court held that Wiederhold offered substantial evidence that supported her position that franchisor was liable because its control over the franchisee, and its employee, went beyond brand maintenance or franchise support. The evidence showed that the franchisor controlled the day-to-day affairs of the franchise in the making and delivery of pizza. Wiederhold presented the Franchise Agreement and Manager’s Reference Guide, as well as witness testimony that the franchisee acted as an agent of franchisor. Franchisor argued that the Franchise agreement specifically referred to the franchisee as an independent contractor and contained exculpatory clauses to avoid legal liability for store operations, with which the franchisee was obligated to be in full compliance. The Franchise Agreement also required the franchisee to carry liability insurance that listed the franchisor as an additional insured. Deliveries could only be performed as authorized in the strict instructions of the Franchise Agreement.

Franchisor argued that the trial court abused its discretion is giving the standard jury instruction on agency, rather than the requested jury instruction. The critical importance of this jury instruction in business litigation is that it can determine whether a plaintiff can establish apparent agency of the franchisor over the franchisee, and therefore liable for its actions. Apparent agency exists only if each of three elements are present: “(a) a representation by the purported principal; (b) a reliance on that representation by a third party; and (c) a change in position by the third party in reliance on the representation.” Mobil Oil Corp. v. Bransford, 648 So. 2d 119 (Fla. 1995). Franchisor requested a jury instruction with a higher burden because the nature of the franchise agreement is that the franchisee must conduct operations exactly as instructed. For example, the franchisor’s strict instructions on how to carry out a delivery, i.e. uniforms and procedures, could communicate to the plaintiff the idea that the franchisor was exercising substantial control over the franchisee and satisfy the elements of apparent agency.

The appellate court held that a trial court’s decision not to give a requested instruction will not be reversed unless the error complained of resulted in a miscarriage of justice. In other words, “the instruction or failure to give the requested instruction was reasonably calculated to mislead or confuse the jury.” Domino’s Pizza, LLC v. Wiederhold. The appellate court concluded that the trial court did not abuse its discretion in giving the standard jury instruction on agency.

Peter Mavrick is a Miami business litigation attorney who also practices business litigation in Fort Lauderdale, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.