Court Watch

In a recent “Not for Publication” opinion, the Michigan Court of Appeals overturned a judgment notwithstanding the verdict (JNOV) for the defendant franchisor following a jury verdict for the plaintiff franchisees based on a claim of “silent fraud” ' also known as misrepresentation by omission or fraudulent concealment. While the opinion cannot be cited, it shows the way, and offers arguments, that franchisee lawyers may use to avoid the impact of merger/integration and disclaimer clauses.

In Abbo v. Wireless Toyz Franchise L.L.C., Bus. Fran. Guide (CCH) '15,226 (Mich. Ct. of Appeals, Feb. 4, 2014), the plaintiffs had first purchased a single store and then a development agreement for the defendant's wireless telephone store franchise. During the franchisor's Discovery Day, the plaintiffs' principals asked about “hits” ' telephone purchase price discounts given to consumers to induce a purchase ' and “chargebacks” ' reductions in a store's commissions when a service contract is canceled by a consumer before its term expires. In response to the plaintiffs' questions the franchisor's representatives understated the effect of both hits and chargebacks, and exaggerated various other aspects of the business, such as the franchisor's relationships with the various cellular carriers, the benefits of the franchisor's bulk purchasing of telephones and its “formidable” training program. The salesperson said selling 75 telephones a month would allow a store to break even but if a store sold 200 or more it was highly profitable.