Quiznos Beats Class Action: Disclaimer Clauses Commonly Used By Most Franchisors Upheld as Fully Enforceable

Plaintiffs alleged that Quiznos failed to disclose substantial markups and kickbacks to captive suppliers that added to the cost of the food. The plaintiffs also alleged that they had been given certain earnings claims. The court relied quite heavily on disclaimers commonly found in most franchise agreements to support its dismissal of the earnings claims under FRCP 12(b)(6). Such disclaimers included: 1) that actual results will differ from those represented; 2) that the results provided should not be considered as results for the franchise under consideration; 3) that the franchisor had not authorized or would not be bound or liable for any oral representations or commitments unless in writing; 4) acknowledgements that no assurances had been given and that any representation not in the UFOC was not binding; and 5) separate acknowledgements that there was no reliance on any oral representations nor that any were given. The court emphatically stated that as a result of these 'clear and unambiguous disclaimers and non-reliance clauses, plaintiffs cannot plausibly claim that they reasonably relied on oral statements ' '

As to the non-disclosure claims, the court held that Quiznos' Item 8 disclosure sufficiently disclosed the alleged 'kickbacks' or 'markups.' It contained general language about receiving payments or discounts from suppliers, and Quiznos was not required, nor could be expected, to disclose exact costs, since those are constantly changing.

Plaintiffs attacked the franchise agreement on the grounds of unconscionability because it was given to them on a take-it or leave-it basis, contained class action waivers, a shortened statute of limitations, and exorbitant costs. The court summarily rejected this challenge, noting that the franchisees were experienced businesspersons who were given the opportunity to seek professional advice before purchasing the franchise. Further, even if certain provisions were unconscionable, the contract defenses (or disclaimers) were not against public policy and thus could be enforced.

Lastly, the plaintiffs asserted a tying claim, alleging that Quiznos held substantial market power in the quick-service toasted sandwich restaurant franchise market, which enabled it to unlawfully require franchisees to purchase essential goods from its affiliates or approved suppliers. The court rejected this market definition as much too narrow in that it failed to take into account that the relevant market for a franchise investor is essentially the thousands of franchise opportunities available.

Conclusion

This case illustrates the power of the various 'disclaimer' related clauses in most franchise agreements today. They offer a major hurdle for a franchisee to overcome in order to sue a franchisor for claims other than simple breach of contract.

Charles G. Miller and Darryl A. Hart are members of Bartko, Zankel, Tarrant & Miller in San Francisco. Miller can be reached by e-mail at [email protected], and Hart can be reached by e-mail at [email protected]. They can be reached by phone at 415-956-1900.

As discussed in the December 2007 issue of FBLA, sandwich sub shop franchisor Quiznos successfully beat back a class action challenging its supplier arrangements. (Westerfeld v. The Quiznos Franchise Company, CCH Bus. Franchise Guide '13,734 (E.D.WI Nov. 8, 2007))

One important aspect of this decision is that the Eastern District of Wisconsin court had no problem dismissing a class action challenge to Quiznos' supplier arrangements on the basis that various disclaimer clauses commonly used by most franchisors were fully enforceable and effective to bar the franchisees' fraud and RICO claims. This decision comes in the face of recent attacks on franchise agreements as one-sided and unconscionable.

The court also dismissed antitrust tying claims based on a broad definition of the relevant market.

Plaintiffs alleged that Quiznos failed to disclose substantial markups and kickbacks to captive suppliers that added to the cost of the food. The plaintiffs also alleged that they had been given certain earnings claims. The court relied quite heavily on disclaimers commonly found in most franchise agreements to support its dismissal of the earnings claims under FRCP 12(b)(6). Such disclaimers included: 1) that actual results will differ from those represented; 2) that the results provided should not be considered as results for the franchise under consideration; 3) that the franchisor had not authorized or would not be bound or liable for any oral representations or commitments unless in writing; 4) acknowledgements that no assurances had been given and that any representation not in the UFOC was not binding; and 5) separate acknowledgements that there was no reliance on any oral representations nor that any were given. The court emphatically stated that as a result of these 'clear and unambiguous disclaimers and non-reliance clauses, plaintiffs cannot plausibly claim that they reasonably relied on oral statements ' '

As to the non-disclosure claims, the court held that Quiznos' Item 8 disclosure sufficiently disclosed the alleged 'kickbacks' or 'markups.' It contained general language about receiving payments or discounts from suppliers, and Quiznos was not required, nor could be expected, to disclose exact costs, since those are constantly changing.

Plaintiffs attacked the franchise agreement on the grounds of unconscionability because it was given to them on a take-it or leave-it basis, contained class action waivers, a shortened statute of limitations, and exorbitant costs. The court summarily rejected this challenge, noting that the franchisees were experienced businesspersons who were given the opportunity to seek professional advice before purchasing the franchise. Further, even if certain provisions were unconscionable, the contract defenses (or disclaimers) were not against public policy and thus could be enforced.

Lastly, the plaintiffs asserted a tying claim, alleging that Quiznos held substantial market power in the quick-service toasted sandwich restaurant franchise market, which enabled it to unlawfully require franchisees to purchase essential goods from its affiliates or approved suppliers. The court rejected this market definition as much too narrow in that it failed to take into account that the relevant market for a franchise investor is essentially the thousands of franchise opportunities available.

Conclusion

This case illustrates the power of the various 'disclaimer' related clauses in most franchise agreements today. They offer a major hurdle for a franchisee to overcome in order to sue a franchisor for claims other than simple breach of contract.

Charles G. Miller and Darryl A. Hart are members of Bartko, Zankel, Tarrant & Miller in San Francisco. Miller can be reached by e-mail at [email protected], and Hart can be reached by e-mail at [email protected]. They can be reached by phone at 415-956-1900.