The Franchise Memorandum

The California Court of Appeals, Second Appellate District, has reversed a trial court’s grant of summary judgment in favor of a franchisor regarding its former franchisees’ claims for negligent misrepresentation and violation of the California Franchise Investment Law and the California Corporations Code. D.T. Woodard, Inc. v. Mail Boxes Etc., Inc., et al., 2012 Cal. App. Unpub. LEXIS 242 (Cal. Jan. 12, 2012). Mail Boxes Etc., Inc. (MBE), a franchisor of packaging and shipping businesses, was acquired by United Parcel Service, which changed the franchise name to “The UPS Store” and altered the franchise system. The plaintiff, an MBE franchisee, converted its existing franchises into The UPS Store franchises. Subsequently, the plaintiff brought suit against MBE, alleging that MBE had misled it into converting its stores, thus committing negligent misrepresentation and breaching the California Franchise Investment Law and the California Corporations Code. The trial court granted MBE’s motion for summary judgment, finding that the plaintiff failed to show any false statements of material fact or justifiable reliance and failed to produce evidence of damages cause by the misrepresentation. The plaintiff appealed this decision.

In reversing the summary judgment, the court of appeals found that the plaintiff raised triable issues as to whether MBE made false or misleading representations about the past performance of The UPS Store model in market tests. The court also found that MBE failed to show that the plaintiff did not rely on misrepresentations MBE made in documents presenting market test summaries. Finally, the court found that the disclaimers MBE put in the market test summaries provided to the plaintiff were not effective to preclude plaintiff’s reliance on misrepresentations and omissions of fact in the reporting of test results and of the testing procedures that produced those results.