COURT WATCH

Franchisee's Fraud Claim May Proceed Despite Release

The California Court of Appeal (Second District) reversed an order of the trial court that granted summary judgment in favor of a franchisor against a claim by a former franchisee for failing to disclose in its Uniform Franchise Offering Circular that one of the franchisor's officers was barred from selling franchises in the State of California pursuant to a cease-and-desist order issued by the California Department of Corporations. Sferrino v. Custom Food Franchise Group, 2003 WL 289488 (Cal. Ct. App. 2003).

In 1999, Sferrino bought a Love's restaurant franchise from Custom Food Franchise Group (CFG). Under the franchise agreement, Sferrino was required to pay royalties of 6% beginning in the second month of the agreement. Later that year, CFG agreed to reduce the royalties to 3% for the first 6 months of operation and 4% for the next 6 months in exchange for Sferrino's agreement to enter into a mutual release.

Despite the release, Sferrino brought suit against CFG and its officers for breach of contract, selling franchises by means of untrue or misleading statements in violation of the California Franchise Investment Law, negligent and/or intentional misrepresentation, fraud, and deceit. Sferrino alleged, among other things, that CFG failed to disclose in its Uniform Franchise Offering Circular that one of its officers was prohibited from selling franchises in the State of California as a result of a cease-and-desist order. CFG moved for summary judgment on two grounds. First, it argued that Sferrino failed to provide admissible evidence that there actually was a cease-and-desist order entered against a CFG officer that it failed to disclose; and second, even if there was such an order, Sferrino could not sue because she waived and released all claims in exchange for an agreement to reduce the royalties.

The trial court granted summary judgment in favor of the franchisor. It held that Sferrino failed to introduce any admissible evidence of the cease-and-desist order; failed to introduce any admissible evidence of the terms of such order; and failed to offer any explanation for her failure to produce such evidence. The trial court, apparently, did not address the issue of whether or not Sferrino released such claims.

On appeal, the California Court of Appeal granted Sferrino's somewhat unusual request to take judicial notice of the existence of the cease-and-desist order against CFG's officer. The court then turned to the more difficult issue of the release. It found that since there was credible evidence that Sferrino was unaware of the existence of the cease-and-desist order at the time that she released all claims against CFG and its officers, the general release that she signed did not bar her from bringing her misrepresentation claims against CFG. The court also found that since it took judicial notice of the existence of the cease-and-desist orders, Sferrino also had a viable claim against the franchisor and its officers for a violation of the California Franchise Investment Law.

Court Refuses to Enjoin Former Franchisee's Covenant Not to Compete Without an Evidentiary Hearing

The U.S. District Court for the Northern District of Illinois has denied a franchisor's motion for preliminary relief because it believed that an evidentiary hearing was necessary despite what it found was clear and unequivocal evidence that a former franchisee planned to de-identify and join a competing brand at the same location in violation of a covenant not to compete. Baskin-Robbins Incorporated v. Patel, 2003 WL 742182 (N.D. Ill. 2003).

In 1996, Baskin-Robbins entered into a franchise agreement and sublease for a Baskin-Robbins retail ice cream store in Glenville, IL, with J. Bhavani, Inc. The franchise agreement contained a covenant not to compete for 2 years after the termination of the franchise agreement at the premises or in the building or group of buildings in which the premises were located. The franchise agreement was signed by the defendant Patel. The franchise agreement expired in 1997, but Patel continued to operate his Baskin-Robbins franchise with the franchisor's consent. On November 21, 2001, however, Patel sent Baskin-Robbins a letter informing it that he intended to de-identify and join a competing brand ' Kaleidoscoops. Baskin-Robbins did not consent to Patel's plan. But Patel subsequently discontinued using the space as a Baskin-Robbins store and opened up a Kaleidoscoops retail ice cream store in the same location.

Baskin-Robbins filed a complaint for breach of contract. It also moved for a preliminary injunction to enforce the covenant not to compete. In support of its application, Baskin-Robbins argued that it was likely to succeed on the merits of its claim because the non-compete clause was enforceable; and that it would suffer irreparable harm if the injunctive relief was not granted because Patel's de-identification and opening a competing store at the former Baskin-Robbins location would unfairly allow Patel and Kaleidoscoops to benefit from Baskin-Robbins' goodwill at the location. It also claimed that Baskin-Robbins' relationship with its other franchisees would be damaged because a message would be sent to other franchisees that their franchise agreements did not protect the franchisor and could be disregarded, which would cause additional irreparable harm.

Patel argued that Baskin-Robbins had already determined that his current location was not an attractive one for a Baskin-Robbins' franchisee and, therefore, Baskin-Robbins was not likely to open another franchise at the same shopping center or on Patel's premises. Patel also argued that the balancing of the hardships weighed in his favor because an injunction would effectively put him out of business because moving to another spot would be too costly.

While the court appeared to agree with Baskin-Robbins that the covenant not to compete was enforceable, particularly because it was limited in scope and duration and that Baskin-Robbins would suffer irreparable harm if the injunction were not issued, it held that an evidentiary hearing was required before the court would enter the relief sought. The court noted that all of the cases cited by Baskin-Robbins generally referred to decision after trial. According to the court, as far as it knew, Baskin-Robbins had no interest in developing a franchise in Patel's neighborhood, even if Patel shut down. Or there might be evidence that Patel could sell the assets of his business, which would undercut his contention that he would be grievously harmed if the injunction was entered. Also, there was evidence that Baskin-Robbins may have permitted other former franchisees to operate Kaleidoscoop franchises in their former Baskin-Robbins locations, which would undermine Baskin-Robbins' contention that it needed the relief in order to send a message to potential breakaway franchisees. The court therefore concluded that it needed more information though an evidentiary hearing before it could comfortably assess the relative and irreparable nature of the harm.

New Jersey Consumer Fraud Act Does Not Apply to Acquisition of Franchise

The U.S. District Court for the District of New Jersey has held that the New Jersey Consumer Fraud Act (the 'Act') does not apply to the acquisition of a franchise because it constitutes the purchase of a business rather than the purchase of a consumer good or service. Christy v. We The People Forms and Service Centers, USA, Inc. and Distenfield, ' F.R.D. '2003 WL 751018 (D.N.J. 2003).

We The People Forms and Service Centers, USA, Inc. ('WTP') is a California-based franchisor of paralegal document preparation services. In September 1999, Christy became a WTP franchisee pursuant to a franchise agreement to operate a WTP business in Camden County, NJ. Christy began to operate his first WTP franchise in February 2000. On September 12, 2001, Christy filed a four-count complaint against WTP, alleging, in part, that WTP failed to provide adequate disclosure to him during his acquisition of the franchise in violation of the Federal Trade Commission's (FTC) franchise disclosure rules. According to Christy, WTP's violation of the FTC Rule resulted in a violation of the Act, which prohibits the use by any person of any unconscionable commercial practice, deception, fraud, misrepresentation, or the knowing concealment or omission of any material fact in connection with the sale or advertisement of any merchandise or services. 

Specifically, according to Christy, WTP failed to provide him with a Uniform Franchise Offering Circular ('UFOC') 10 business days before accepting his payment for a WTP franchise. In fact, Christy claimed that he did not receive a UFOC until after he signed the franchise agreement and paid the franchise fee. Christy also claimed that the UFOC that he did receive contained a financial statement only for the fiscal year ended 1997 in further violation of the FTC disclosure rule.

WTP filed a motion for judgment on the pleadings as to Count 1 of plaintiff's complaint, which alleged a violation of the Act. It claimed that the Act did not apply to the sale or acquisition of a franchise because a 'person' who purchases a franchise is not a 'consumer' for the purposes of the Act, and where franchises are available to the general public, their purchase is excluded from the Act because the item for sale is a business, and not consumer goods and services. Christy argued that the Act was applicable because the application of the Act is to be decided on a case-by-case basis, and this particular franchise relationship was consumer oriented.

As a threshold matter, the court first decided that despite the franchise agreement's choice of California law, New Jersey law applied to the franchisee's claim for violation of the Act. After determining that New Jersey law applied, the court then turned to the substantive issue. It agreed with WTP and granted its motion for judgment on the pleadings with respect to Christy's claims under the Act. According to the court, the Act clearly did not apply to Christy's purchase of the WTP franchise because a franchise purchaser is not the ordinary consumer of merchandise in the marketplace, and where franchises are available to the general public, their purchase remains excluded from the Act because the item for sale is a business, and not consumer goods and services. As a result, the court granted WTP's motion for judgment on the pleadings.

Franchisor Not Liable for Franchisee's Sexual Harassment

The Supreme Court of Alabama has affirmed an order from the lower court granting summary judgment in favor of a restaurant franchisor against former employees of one of its franchises alleging that the franchisor was vicariously liable for its franchisee's sexual harassment in a workplace. Kennedy v. The Western Sizzlin' Corporation, ' So.2d ', 2003 WL 857010 (Ala. 2003).

In January 1998, The Western Sizzlin' Corporation (WSC), a restaurant franchisor, entered into a franchise agreement with Lambert Restaurant Company, Inc. (LRC), a corporation owned by Bryan Kogut and Robert Lambert. Kogut served as the president of LRC, and Lambert served as the vice-president, managing the deli operations of the restaurant. According to the court, the evidence showed that Lambert had a history of sexual misconduct and sharassment in the workplace, including even a criminal conviction for attempted sexual abuse. In fact, Lambert had previously worked as a district manager for the Waffle House chain in Florida, and he was terminated from that position following an investigation of a sexual harassment claim.

Within 3 months of the opening of LRC's franchise, several former employees of the Western Sizzlin' restaurant began to complain about sexual harassment by Lambert. Lambert's partner, Kogut, called the director of franchise operations for WSC to inform him of the sexual harassment allegations the employees had made against Lambert. But WSC concluded that it could not legally terminate Lambert's interest in the franchise unless and until Lambert was arrested or criminally charged. Kogut then spoke to Lambert about the allegations and instructed him that he should not return to the restaurant in any capacity. But Lambert did return to the restaurant in late November 1998. In April 2000, several former LRC employees filed suit against WSC asserting claims of negligent hiring, training, and supervision; assault, battery, invasion of privacy, intentional infliction of emotional distress, breach of contract, and fraud.WSC moved for summary judgment claiming that it could not be liable for the actions of one of its franchisees because no agency relationship existed between Lambert and WSC, or, alternatively, it never authorized or ratified Lambert's conduct, and that the alleged acts were outside the scope of Lambert's employment.

The plaintiffs argued, on the other hand, that an agency relationship was created between WSC, on the one hand, and LRC and Lambert, on the other hand, because WSC retained a right to control the operations as LRC's Western Sizzlin' restaurant. Specifically, the plaintiffs argued that WSC had required its franchisees to operate their businesses in strict compliance with standard procedures, policies, and rules established in WSC's operations manual; WSC had the right to modify the operations manual at any time; WSC had a right from time to time to inspect LRC's restaurant without notice; and, WSC employees trained Lambert.

The Supreme Court of Alabama agreed with WSC and the trial court and it affirmed the award of summary judgment in favor of WSC. The court observed that a franchise agreement, without more, does not make the franchisee an agent of the franchisor. The court further observed that when a plaintiff is alleging liability based on the principle of respondeat superior (a doctrine providing for liability of an employer for the wrongful acts of its agent), the test for determining whether an agency relationship exists is whether the alleged principal reserved a right of control over the matter of the alleged agent's performance. However, according to the court, retaining the right to supervise the alleged agent to determine if that person conforms to the performance required by a contract with the asserted principal does not, itself, establish control under the law.

According to the court, the plaintiff failed to present substantial evidence of the existence of an agency relationship between WSC on the one hand, and LRC and Lambert, on the other. The court observed that the plaintiffs presented no evidence indicating that WSC controlled the day-to-day operations of LRC's Western Sizzlin' restaurant. To the contrary, according to the court, WSC's control was limited to ensuring that LRC complied with the franchise agreement and the operations manual. The court further observed that LRC, through its shareholders, Kogut and Lambert, retained sole control over employment decisions at the restaurant; WSC had no authority to interfere with LRC's employment decisions. Thus, according to the court, there was no actual agency relationship.

Plaintiffs further argued, in the alternative, that even if there was no actual agency relationship, WSC was liable under the principles of respondeat superior because Lambert acted with the apparent authority of WSC. However, the court noted that although one of the plaintiffs testified that she thought that WSC and LRC were the same entity, the plaintiffs offered no evidence indicating that WSC did anything to create an appearance of authority in Lambert. Also, there was also no evidence indicating that WSC permitted Lambert to hold himself out as its agent. In fact, according to the court, the franchise agreement specifically prohibited him from doing so. Therefore, the court concluded that there was no agency relationship between WSC, on the one hand, and LRC and Lambert, on the other hand, under theory of apparent authority. The court therefore affirmed the lower court's order granting summary judgment in favor of the franchisor.

This month's Court Watch was written by Susan H. Morton, a partner, and David W. Oppenheim, an associate, with New York's Kaufmann, Feiner, Yamin, Gildin & Robbins LLP.  

Franchisee's Fraud Claim May Proceed Despite Release

The California Court of Appeal (Second District) reversed an order of the trial court that granted summary judgment in favor of a franchisor against a claim by a former franchisee for failing to disclose in its Uniform Franchise Offering Circular that one of the franchisor's officers was barred from selling franchises in the State of California pursuant to a cease-and-desist order issued by the California Department of Corporations. Sferrino v. Custom Food Franchise Group, 2003 WL 289488 (Cal. Ct. App. 2003).

In 1999, Sferrino bought a Love's restaurant franchise from Custom Food Franchise Group (CFG). Under the franchise agreement, Sferrino was required to pay royalties of 6% beginning in the second month of the agreement. Later that year, CFG agreed to reduce the royalties to 3% for the first 6 months of operation and 4% for the next 6 months in exchange for Sferrino's agreement to enter into a mutual release.

Despite the release, Sferrino brought suit against CFG and its officers for breach of contract, selling franchises by means of untrue or misleading statements in violation of the California Franchise Investment Law, negligent and/or intentional misrepresentation, fraud, and deceit. Sferrino alleged, among other things, that CFG failed to disclose in its Uniform Franchise Offering Circular that one of its officers was prohibited from selling franchises in the State of California as a result of a cease-and-desist order. CFG moved for summary judgment on two grounds. First, it argued that Sferrino failed to provide admissible evidence that there actually was a cease-and-desist order entered against a CFG officer that it failed to disclose; and second, even if there was such an order, Sferrino could not sue because she waived and released all claims in exchange for an agreement to reduce the royalties.

The trial court granted summary judgment in favor of the franchisor. It held that Sferrino failed to introduce any admissible evidence of the cease-and-desist order; failed to introduce any admissible evidence of the terms of such order; and failed to offer any explanation for her failure to produce such evidence. The trial court, apparently, did not address the issue of whether or not Sferrino released such claims.

On appeal, the California Court of Appeal granted Sferrino's somewhat unusual request to take judicial notice of the existence of the cease-and-desist order against CFG's officer. The court then turned to the more difficult issue of the release. It found that since there was credible evidence that Sferrino was unaware of the existence of the cease-and-desist order at the time that she released all claims against CFG and its officers, the general release that she signed did not bar her from bringing her misrepresentation claims against CFG. The court also found that since it took judicial notice of the existence of the cease-and-desist orders, Sferrino also had a viable claim against the franchisor and its officers for a violation of the California Franchise Investment Law.

Court Refuses to Enjoin Former Franchisee's Covenant Not to Compete Without an Evidentiary Hearing

The U.S. District Court for the Northern District of Illinois has denied a franchisor's motion for preliminary relief because it believed that an evidentiary hearing was necessary despite what it found was clear and unequivocal evidence that a former franchisee planned to de-identify and join a competing brand at the same location in violation of a covenant not to compete. Baskin-Robbins Incorporated v. Patel, 2003 WL 742182 (N.D. Ill. 2003).

In 1996, Baskin-Robbins entered into a franchise agreement and sublease for a Baskin-Robbins retail ice cream store in Glenville, IL, with J. Bhavani, Inc. The franchise agreement contained a covenant not to compete for 2 years after the termination of the franchise agreement at the premises or in the building or group of buildings in which the premises were located. The franchise agreement was signed by the defendant Patel. The franchise agreement expired in 1997, but Patel continued to operate his Baskin-Robbins franchise with the franchisor's consent. On November 21, 2001, however, Patel sent Baskin-Robbins a letter informing it that he intended to de-identify and join a competing brand ' Kaleidoscoops. Baskin-Robbins did not consent to Patel's plan. But Patel subsequently discontinued using the space as a Baskin-Robbins store and opened up a Kaleidoscoops retail ice cream store in the same location.

Baskin-Robbins filed a complaint for breach of contract. It also moved for a preliminary injunction to enforce the covenant not to compete. In support of its application, Baskin-Robbins argued that it was likely to succeed on the merits of its claim because the non-compete clause was enforceable; and that it would suffer irreparable harm if the injunctive relief was not granted because Patel's de-identification and opening a competing store at the former Baskin-Robbins location would unfairly allow Patel and Kaleidoscoops to benefit from Baskin-Robbins' goodwill at the location. It also claimed that Baskin-Robbins' relationship with its other franchisees would be damaged because a message would be sent to other franchisees that their franchise agreements did not protect the franchisor and could be disregarded, which would cause additional irreparable harm.

Patel argued that Baskin-Robbins had already determined that his current location was not an attractive one for a Baskin-Robbins' franchisee and, therefore, Baskin-Robbins was not likely to open another franchise at the same shopping center or on Patel's premises. Patel also argued that the balancing of the hardships weighed in his favor because an injunction would effectively put him out of business because moving to another spot would be too costly.

While the court appeared to agree with Baskin-Robbins that the covenant not to compete was enforceable, particularly because it was limited in scope and duration and that Baskin-Robbins would suffer irreparable harm if the injunction were not issued, it held that an evidentiary hearing was required before the court would enter the relief sought. The court noted that all of the cases cited by Baskin-Robbins generally referred to decision after trial. According to the court, as far as it knew, Baskin-Robbins had no interest in developing a franchise in Patel's neighborhood, even if Patel shut down. Or there might be evidence that Patel could sell the assets of his business, which would undercut his contention that he would be grievously harmed if the injunction was entered. Also, there was evidence that Baskin-Robbins may have permitted other former franchisees to operate Kaleidoscoop franchises in their former Baskin-Robbins locations, which would undermine Baskin-Robbins' contention that it needed the relief in order to send a message to potential breakaway franchisees. The court therefore concluded that it needed more information though an evidentiary hearing before it could comfortably assess the relative and irreparable nature of the harm.

New Jersey Consumer Fraud Act Does Not Apply to Acquisition of Franchise

The U.S. District Court for the District of New Jersey has held that the New Jersey Consumer Fraud Act (the 'Act') does not apply to the acquisition of a franchise because it constitutes the purchase of a business rather than the purchase of a consumer good or service. Christy v. We The People Forms and Service Centers, USA, Inc. and Distenfield, ' F.R.D. '2003 WL 751018 (D.N.J. 2003).

We The People Forms and Service Centers, USA, Inc. ('WTP') is a California-based franchisor of paralegal document preparation services. In September 1999, Christy became a WTP franchisee pursuant to a franchise agreement to operate a WTP business in Camden County, NJ. Christy began to operate his first WTP franchise in February 2000. On September 12, 2001, Christy filed a four-count complaint against WTP, alleging, in part, that WTP failed to provide adequate disclosure to him during his acquisition of the franchise in violation of the Federal Trade Commission's (FTC) franchise disclosure rules. According to Christy, WTP's violation of the FTC Rule resulted in a violation of the Act, which prohibits the use by any person of any unconscionable commercial practice, deception, fraud, misrepresentation, or the knowing concealment or omission of any material fact in connection with the sale or advertisement of any merchandise or services. 

Specifically, according to Christy, WTP failed to provide him with a Uniform Franchise Offering Circular ('UFOC') 10 business days before accepting his payment for a WTP franchise. In fact, Christy claimed that he did not receive a UFOC until after he signed the franchise agreement and paid the franchise fee. Christy also claimed that the UFOC that he did receive contained a financial statement only for the fiscal year ended 1997 in further violation of the FTC disclosure rule.

WTP filed a motion for judgment on the pleadings as to Count 1 of plaintiff's complaint, which alleged a violation of the Act. It claimed that the Act did not apply to the sale or acquisition of a franchise because a 'person' who purchases a franchise is not a 'consumer' for the purposes of the Act, and where franchises are available to the general public, their purchase is excluded from the Act because the item for sale is a business, and not consumer goods and services. Christy argued that the Act was applicable because the application of the Act is to be decided on a case-by-case basis, and this particular franchise relationship was consumer oriented.

As a threshold matter, the court first decided that despite the franchise agreement's choice of California law, New Jersey law applied to the franchisee's claim for violation of the Act. After determining that New Jersey law applied, the court then turned to the substantive issue. It agreed with WTP and granted its motion for judgment on the pleadings with respect to Christy's claims under the Act. According to the court, the Act clearly did not apply to Christy's purchase of the WTP franchise because a franchise purchaser is not the ordinary consumer of merchandise in the marketplace, and where franchises are available to the general public, their purchase remains excluded from the Act because the item for sale is a business, and not consumer goods and services. As a result, the court granted WTP's motion for judgment on the pleadings.

Franchisor Not Liable for Franchisee's Sexual Harassment

The Supreme Court of Alabama has affirmed an order from the lower court granting summary judgment in favor of a restaurant franchisor against former employees of one of its franchises alleging that the franchisor was vicariously liable for its franchisee's sexual harassment in a workplace. Kennedy v. The Western Sizzlin' Corporation, ' So.2d ', 2003 WL 857010 (Ala. 2003).

In January 1998, The Western Sizzlin' Corporation (WSC), a restaurant franchisor, entered into a franchise agreement with Lambert Restaurant Company, Inc. (LRC), a corporation owned by Bryan Kogut and Robert Lambert. Kogut served as the president of LRC, and Lambert served as the vice-president, managing the deli operations of the restaurant. According to the court, the evidence showed that Lambert had a history of sexual misconduct and sharassment in the workplace, including even a criminal conviction for attempted sexual abuse. In fact, Lambert had previously worked as a district manager for the Waffle House chain in Florida, and he was terminated from that position following an investigation of a sexual harassment claim.

Within 3 months of the opening of LRC's franchise, several former employees of the Western Sizzlin' restaurant began to complain about sexual harassment by Lambert. Lambert's partner, Kogut, called the director of franchise operations for WSC to inform him of the sexual harassment allegations the employees had made against Lambert. But WSC concluded that it could not legally terminate Lambert's interest in the franchise unless and until Lambert was arrested or criminally charged. Kogut then spoke to Lambert about the allegations and instructed him that he should not return to the restaurant in any capacity. But Lambert did return to the restaurant in late November 1998. In April 2000, several former LRC employees filed suit against WSC asserting claims of negligent hiring, training, and supervision; assault, battery, invasion of privacy, intentional infliction of emotional distress, breach of contract, and fraud.WSC moved for summary judgment claiming that it could not be liable for the actions of one of its franchisees because no agency relationship existed between Lambert and WSC, or, alternatively, it never authorized or ratified Lambert's conduct, and that the alleged acts were outside the scope of Lambert's employment.

The plaintiffs argued, on the other hand, that an agency relationship was created between WSC, on the one hand, and LRC and Lambert, on the other hand, because WSC retained a right to control the operations as LRC's Western Sizzlin' restaurant. Specifically, the plaintiffs argued that WSC had required its franchisees to operate their businesses in strict compliance with standard procedures, policies, and rules established in WSC's operations manual; WSC had the right to modify the operations manual at any time; WSC had a right from time to time to inspect LRC's restaurant without notice; and, WSC employees trained Lambert.

The Supreme Court of Alabama agreed with WSC and the trial court and it affirmed the award of summary judgment in favor of WSC. The court observed that a franchise agreement, without more, does not make the franchisee an agent of the franchisor. The court further observed that when a plaintiff is alleging liability based on the principle of respondeat superior (a doctrine providing for liability of an employer for the wrongful acts of its agent), the test for determining whether an agency relationship exists is whether the alleged principal reserved a right of control over the matter of the alleged agent's performance. However, according to the court, retaining the right to supervise the alleged agent to determine if that person conforms to the performance required by a contract with the asserted principal does not, itself, establish control under the law.

According to the court, the plaintiff failed to present substantial evidence of the existence of an agency relationship between WSC on the one hand, and LRC and Lambert, on the other. The court observed that the plaintiffs presented no evidence indicating that WSC controlled the day-to-day operations of LRC's Western Sizzlin' restaurant. To the contrary, according to the court, WSC's control was limited to ensuring that LRC complied with the franchise agreement and the operations manual. The court further observed that LRC, through its shareholders, Kogut and Lambert, retained sole control over employment decisions at the restaurant; WSC had no authority to interfere with LRC's employment decisions. Thus, according to the court, there was no actual agency relationship.

Plaintiffs further argued, in the alternative, that even if there was no actual agency relationship, WSC was liable under the principles of respondeat superior because Lambert acted with the apparent authority of WSC. However, the court noted that although one of the plaintiffs testified that she thought that WSC and LRC were the same entity, the plaintiffs offered no evidence indicating that WSC did anything to create an appearance of authority in Lambert. Also, there was also no evidence indicating that WSC permitted Lambert to hold himself out as its agent. In fact, according to the court, the franchise agreement specifically prohibited him from doing so. Therefore, the court concluded that there was no agency relationship between WSC, on the one hand, and LRC and Lambert, on the other hand, under theory of apparent authority. The court therefore affirmed the lower court's order granting summary judgment in favor of the franchisor.

This month's Court Watch was written by Susan H. Morton, a partner, and David W. Oppenheim, an associate, with New York's Kaufmann, Feiner, Yamin, Gildin & Robbins LLP.