Court Watch

The court of appeals opinion also upheld the jury verdict based on a Georgia statute that borrowed from the FTC Rule, like many state Little FTC acts. The supreme court decision in Legacy Academy reversed because it could not be determined if the jury's verdict was based on that claim or not. It is thus possible on retrial and proper instructions that a RICO and Little FTC claim could still be made, even if no “fraud” claim could be made. Interestingly, the franchisor used the FTC claim as a basis for removal but the case was remanded after the court found there was no substantial federal issue indicating a serious federal interest. Mamilove, LLC v. Legacy Academy, Inc., 2011 WL 203381 (N.D. Ga. 2011)

The other interesting thing about the case that appears in the intermediate appellate court opinion is why there was no determination that the statute of limitations barred the claim. It is clear that the earnings claims were made in 2001 and suit was not filed until 2010. It appears from the intermediate opinion that the statute of limitations defense was abandoned because it allowed the franchisor to avoid having some arbitration decisions entered into evidence. Otherwise, the case looks like a paradigm for a statute of limitations bar.

If the court took the case to clarify its ruling in City Dodge, it could have spent more time on that rather than allocating the discussion to a footnote. Otherwise, the court appears to be in line with most jurisdictions about the impact of integration clauses and disclaimers, making it difficult for franchisees to prevail when something like earnings claims are made.

CT McDonald's Franchise Hit with LGBT Suit

An employee of a Hamden, CT, McDonald's, owned by franchisee Golden Hawk LLC, claims she was subjected to a hostile work environment because she is gay. Latoya Lewis' state lawsuit recently was given a green light to proceed by a state judge.

Lewis, who was hired in June 2010, alleged that working at the restaurant became increasingly difficult after her supervisors found out she was gay. She was fired a year later, she said, after complaining to the Connecticut Commission on Human Rights and Opportunities about the work environment. The CHRO found “probable merit” in Lewis' complaint and allowed her to pursue it in state court.

Shelton, CT-based Golden Hawk owned 16 McDonald's across Connecticut as recently as 2009, according to one published report. In May, it moved to strike Lewis' complaints and her allegations of retaliation, stating that she failed to provide specific examples of how her managers created a hostile work environment.

But New Haven, CT, Superior Court Judge John Nazzaro rejected the franchisee's motion on May 20, allowing Lewis to proceed with claims that Golden Hawk had violated the Connecticut Fair Employment Practices Act and had retaliated against her for the CHRO complaint by firing her.

In court documents, Lewis alleged that two supervisors made comments about her in Spanish and also said she was not allowed to work near another female employee, despite her claims that it was necessary for the two to work together. She also argued that she was under more pressure and closer supervision from her managers.

“A reasonable person could find this work environment to be hostile and the plaintiff alleges she subjectively found it to be so,” Nazzaro wrote.

According to the complaint, Golden Hawk staff members at the corporate level knew about Lewis' complaints, but did nothing about it. “Not only did the defendant do nothing about the problem, the plaintiff in fact was subjected to discriminatory disciplinary treatment because of her internal complaints about these matters,” the complaint alleges.

Connecticut was among the first states to extend hostile workplace claims to the area of sexual orientation. The state Supreme Court in May 2012 in Patino v. Birken Manufacturing upheld a jury's award of $94,500 against the Bloomfield firm where a gay employee worked. The court rejected the defendant's arguments that state law does not provide for hostile work environment claims, and that even if such claims could be brought under state law, the plaintiff presented insufficient evidence to support the jury's finding of a hostile work environment.

Update on Twin Peaks

When unrest between rival motorcycle gangs exploded in a hail of deadly gunfire at a Twin Peaks restaurant in Waco, TX, recently, many were surprised and disturbed to hear reports that the restaurant's managers previously refused to cooperate with police in the latter's efforts to protect the public by addressing the escalating incidents of violence at the same location.

In all, nine people were killed and 18 were wounded in one of the single deadliest shooting incidents in Texas history. Corporate leadership at Twin Peaks took the wise (though perhaps belated) step of revoking the Waco location's franchise. Regardless, if local law enforcement's offer to help curb the problem was ignored, then the owner may face substantial legal liability.

The owner of the Twin Peaks is denying any previous lack of cooperation with law enforcement, but Waco police officials say the restaurant's managers pretty much made it clear that, unlike motorcycle gangs, police officers were not welcome at the establishment.

The fact that the Waco location was a hot spot for gang violence was apparently no secret in and around Waco. Twin Peaks' “Bike Night” promotion had consistently drawn large crowds of bikers who were involved in a growing series of confrontations requiring police intervention. There were 18 uniformed SWAT officers and four state agents sitting in marked cars outside the restaurant before the shooting began, but news reports say the restaurant's managers refused to let the police enter, even as the situation was escalating. Witnesses reported that a fight erupted inside the restaurant before spilling into the parking lot, with gang members firing their weapons and assaulting each other with knives, clubs, fists and chains.

What Is the Liability?

Generally, the owner of a business is not liable for the acts of third-party criminals in Texas. Since the Texas Supreme Court's Timberwalk decision in 1998, Texas courts have imposed a heightened (and difficult) duty standard, requiring detailed evidence of “specific crimes on or near the premises” that are stringently similar, recent, and well-known such that the defendant knew or had reason to know of an unreasonable and foreseeable risk of harm. In the 2000s, many cases involving premises liability for criminal acts of a third party in Texas were disposed of by judges, both prior to and during trial, based on the legal issues of foreseeability and duty.

In its 2010 decision in Del Lago Partners, the Texas Supreme Court looked at whether a premises owner may be held responsible for criminal acts in the absence of specific evidence of prior crimes, holding that “the nature and character of the premises can be a factor” supporting foreseeability, and that “criminal conduct is sometimes foreseeable because of immediately preceding conduct.” In other words, the type of business being run, the customer being catered to, and the situation on the premises in the period immediately preceding the criminal act are important to the analysis.

Twin Peaks may be asked to answer questions about the economics of “Bike Night,” the restaurant's role in attracting and permitting the dangerous and volatile situation; and why local managers wouldn't allow police inside while the restaurant was packed with rival motorcycle gangs. The parent company also may be asked about its knowledge of the prior problems at this or other locations, and whether reasonable corporate safeguards might have prevented the local franchisee and the biker situation from getting so far out of control.

While the civil and criminal conclusions to this deadly incident are potentially years away, the explosion of mass violence that unfolded in Waco should serve as a word of caution to both corporations and local companies that may knowingly attract and permit crowds of dangerous clientele. Texas courts and the public will carefully scrutinize this matter, particularly if the evidence shows that security measures were ignored or police were denied access to avoid hurting sales.

Charles G. Miller, a member of this newsletter's Board of Editors, is shareholder and director of Bartko, Zankel, Bunzel & Miller in San Francisco. Darryl A. Hart is an attorney with the firm. Megan Spicer is a reporter for The Connecticut Law Journal, an ALM sibling publication of this newsletter. Chris Hamilton is a trial lawyer and name partner in Standly Hamilton in Dallas.

GA Supreme Court Upholds Integration and Disclaimer Clauses to Prevent Fraud Claims

The Georgia Supreme Court recently reversed a jury verdict that an intermediate appellate court had affirmed against a franchisor, in Legacy Academy, Inc. v. Mamilove, LLC, 771 S.E.2d 868 (2015). (The appellate case ' Legacy Academy, Inc. v. Mamilove, LLC, 328 Ga.App. 775 (2014) ' was discussed in the February 2015 Court Watch.) The Georgia Supreme Court simply affirmed two principles common to many franchise disputes: 1) The presence of an integration clause makes it impossible to sue on promissory fraud that is made outside the four corners of the agreement; and 2) the presence of “disclaimer” clauses (i.e., no representations have been made as to earnings) make it impossible for a franchisee to reasonably rely on something like earnings claims. Another holding of the court was that proof that the franchisor forced the franchisee to sign the agreement on the day presented without the ability to read it was insufficient to excuse the franchisee from reading the agreement unless there was proof that the franchisor committed fraud that prevented the franchisee from reading the contract.

What is interesting about the decision is what was not discussed, given the intermediate appellate court's opinion. The court of appeals held that the merger and integration clauses could not operate to bar the claims if the contract was rescinded, citing the Georgia Supreme Court decision in City Dodge v. Gardner, 208 S.E.2d 794, 798 (1974) (“If the contract is invalid because of the antecedent fraud, then the ' disclaimer provision therein is ineffectual since, in legal contemplation, there is no contract between the parties.”). The Georgia Supreme Court in Legacy Academy attempted to distinguish City Dodge in footnote 7 of its opinion by claiming that there was no evidence from which a jury could have determined that plaintiffs were entitled to rescind. However, it appears that the basis for the determination was the absence of the merger and disclaimer clauses themselves. There was evidence that the plaintiffs had been given earnings claims, which might be actionable in the absence of such clauses.

The court of appeals opinion also upheld the jury verdict based on a Georgia statute that borrowed from the FTC Rule, like many state Little FTC acts. The supreme court decision in Legacy Academy reversed because it could not be determined if the jury's verdict was based on that claim or not. It is thus possible on retrial and proper instructions that a RICO and Little FTC claim could still be made, even if no “fraud” claim could be made. Interestingly, the franchisor used the FTC claim as a basis for removal but the case was remanded after the court found there was no substantial federal issue indicating a serious federal interest. Mamilove, LLC v. Legacy Academy, Inc., 2011 WL 203381 (N.D. Ga. 2011)

The other interesting thing about the case that appears in the intermediate appellate court opinion is why there was no determination that the statute of limitations barred the claim. It is clear that the earnings claims were made in 2001 and suit was not filed until 2010. It appears from the intermediate opinion that the statute of limitations defense was abandoned because it allowed the franchisor to avoid having some arbitration decisions entered into evidence. Otherwise, the case looks like a paradigm for a statute of limitations bar.

If the court took the case to clarify its ruling in City Dodge, it could have spent more time on that rather than allocating the discussion to a footnote. Otherwise, the court appears to be in line with most jurisdictions about the impact of integration clauses and disclaimers, making it difficult for franchisees to prevail when something like earnings claims are made.

CT McDonald's Franchise Hit with LGBT Suit

An employee of a Hamden, CT, McDonald's, owned by franchisee Golden Hawk LLC, claims she was subjected to a hostile work environment because she is gay. Latoya Lewis' state lawsuit recently was given a green light to proceed by a state judge.

Lewis, who was hired in June 2010, alleged that working at the restaurant became increasingly difficult after her supervisors found out she was gay. She was fired a year later, she said, after complaining to the Connecticut Commission on Human Rights and Opportunities about the work environment. The CHRO found “probable merit” in Lewis' complaint and allowed her to pursue it in state court.

Shelton, CT-based Golden Hawk owned 16 McDonald's across Connecticut as recently as 2009, according to one published report. In May, it moved to strike Lewis' complaints and her allegations of retaliation, stating that she failed to provide specific examples of how her managers created a hostile work environment.

But New Haven, CT, Superior Court Judge John Nazzaro rejected the franchisee's motion on May 20, allowing Lewis to proceed with claims that Golden Hawk had violated the Connecticut Fair Employment Practices Act and had retaliated against her for the CHRO complaint by firing her.

In court documents, Lewis alleged that two supervisors made comments about her in Spanish and also said she was not allowed to work near another female employee, despite her claims that it was necessary for the two to work together. She also argued that she was under more pressure and closer supervision from her managers.

“A reasonable person could find this work environment to be hostile and the plaintiff alleges she subjectively found it to be so,” Nazzaro wrote.

According to the complaint, Golden Hawk staff members at the corporate level knew about Lewis' complaints, but did nothing about it. “Not only did the defendant do nothing about the problem, the plaintiff in fact was subjected to discriminatory disciplinary treatment because of her internal complaints about these matters,” the complaint alleges.

Connecticut was among the first states to extend hostile workplace claims to the area of sexual orientation. The state Supreme Court in May 2012 in Patino v. Birken Manufacturing upheld a jury's award of $94,500 against the Bloomfield firm where a gay employee worked. The court rejected the defendant's arguments that state law does not provide for hostile work environment claims, and that even if such claims could be brought under state law, the plaintiff presented insufficient evidence to support the jury's finding of a hostile work environment.

Update on Twin Peaks

When unrest between rival motorcycle gangs exploded in a hail of deadly gunfire at a Twin Peaks restaurant in Waco, TX, recently, many were surprised and disturbed to hear reports that the restaurant's managers previously refused to cooperate with police in the latter's efforts to protect the public by addressing the escalating incidents of violence at the same location.

In all, nine people were killed and 18 were wounded in one of the single deadliest shooting incidents in Texas history. Corporate leadership at Twin Peaks took the wise (though perhaps belated) step of revoking the Waco location's franchise. Regardless, if local law enforcement's offer to help curb the problem was ignored, then the owner may face substantial legal liability.

The owner of the Twin Peaks is denying any previous lack of cooperation with law enforcement, but Waco police officials say the restaurant's managers pretty much made it clear that, unlike motorcycle gangs, police officers were not welcome at the establishment.

The fact that the Waco location was a hot spot for gang violence was apparently no secret in and around Waco. Twin Peaks' “Bike Night” promotion had consistently drawn large crowds of bikers who were involved in a growing series of confrontations requiring police intervention. There were 18 uniformed SWAT officers and four state agents sitting in marked cars outside the restaurant before the shooting began, but news reports say the restaurant's managers refused to let the police enter, even as the situation was escalating. Witnesses reported that a fight erupted inside the restaurant before spilling into the parking lot, with gang members firing their weapons and assaulting each other with knives, clubs, fists and chains.

What Is the Liability?

Generally, the owner of a business is not liable for the acts of third-party criminals in Texas. Since the Texas Supreme Court's Timberwalk decision in 1998, Texas courts have imposed a heightened (and difficult) duty standard, requiring detailed evidence of “specific crimes on or near the premises” that are stringently similar, recent, and well-known such that the defendant knew or had reason to know of an unreasonable and foreseeable risk of harm. In the 2000s, many cases involving premises liability for criminal acts of a third party in Texas were disposed of by judges, both prior to and during trial, based on the legal issues of foreseeability and duty.

In its 2010 decision in Del Lago Partners, the Texas Supreme Court looked at whether a premises owner may be held responsible for criminal acts in the absence of specific evidence of prior crimes, holding that “the nature and character of the premises can be a factor” supporting foreseeability, and that “criminal conduct is sometimes foreseeable because of immediately preceding conduct.” In other words, the type of business being run, the customer being catered to, and the situation on the premises in the period immediately preceding the criminal act are important to the analysis.

Twin Peaks may be asked to answer questions about the economics of “Bike Night,” the restaurant's role in attracting and permitting the dangerous and volatile situation; and why local managers wouldn't allow police inside while the restaurant was packed with rival motorcycle gangs. The parent company also may be asked about its knowledge of the prior problems at this or other locations, and whether reasonable corporate safeguards might have prevented the local franchisee and the biker situation from getting so far out of control.

While the civil and criminal conclusions to this deadly incident are potentially years away, the explosion of mass violence that unfolded in Waco should serve as a word of caution to both corporations and local companies that may knowingly attract and permit crowds of dangerous clientele. Texas courts and the public will carefully scrutinize this matter, particularly if the evidence shows that security measures were ignored or police were denied access to avoid hurting sales.

Charles G. Miller, a member of this newsletter's Board of Editors, is shareholder and director of Bartko, Zankel, Bunzel & Miller in San Francisco. Darryl A. Hart is an attorney with the firm. Megan Spicer is a reporter for The Connecticut Law Journal, an ALM sibling publication of this newsletter. Chris Hamilton is a trial lawyer and name partner in Standly Hamilton in Dallas.