Wednesday, October 7, 2015

Caution Franchisors: Hoisted by One's Own Petard?

Franchisors: Watch out what you ask for!

A recent Ohio case, Buffalo Wings & Rings LLC v. M3 Restaurant Group, LLC, 2015-Ohio-3843, offers a lesson in being "hoisted by one's own petard." (If you struggle with literary idioms click here or converted to modern American translation: screwing yourself.)

The franchise agreement in this case, as many do now, contained a Limitations of Claims clause that said all claims would be barred unless an action is started "within one year from the date of Franchisee or Franchisor knew or should have known of the facts giving rise to such claims." The crafty franchisor did enter exceptions (all in its favor), including claims for injunctive relief - you can read the decision to get the full list (see pp. 4-5).

In 2011, the franchisee outlined a number of complaints and proposed termination of the relationship. No response came from the franchisor. About 18 months later the franchisor filed suit "alleging claims for breach of contract, breach of guaranty, quantum meruit, and money owed on an account."

Without getting too bogged down in the nuances of the Limitation of Claims provision and its exceptions, the trial and appellate courts held that the franchisor did not start the action within the one year period and none of the exceptions applied. The decision is based on what amounts to poor draftsmanship and, to some degree, over-reaching by the franchisor.

So while many franchisors may seek every advantage in their agreements, they are advised to be cautious about going too far, or if they do, to make certain the language is clear. Which leads to another idiom: Live by the sword, die by the sword! (a biblical one at that!)

Be careful out there.