The Franchise Memorandum

A federal district court in Illinois granted a franchisor's motion to dismiss a franchisee's fraudulent misrepresentation counterclaim in Fantastic Sams Salon Corp. v. PSTEVO, LLC, No. 15--cv-3008 (N.D. Ill. Jan. 15, 2016). Baker, the franchisee, alleged that prior to entering into the parties' franchise agreement, Fantastic Sams presented him with financial disclosure documents falsely stating that he would only need three months of working capital to open a franchise, and that he could expect the franchise to be profitable thereafter. Baker asserted that these disclosure documents were consistent with oral representations made by Fantastic Sams' agents and with statements published on its website. 

Fantastic Sams argued that two disclaimers in the franchise agreement precluded Baker from claiming that he relied on Fantastic Sams' or its agents' representations regarding projected profitability. The disclaimers stated: (1) "No oral, written or visual claim or representation which contradicted the disclosure document was made to me, except," and (2) "No oral, written or visual claim or representation which states or suggested any sales, income, or profit levels was made to me, except." After each disclaimer, Baker wrote the word "none" and initiated his response. The court found that the first disclaimer was not effective to bar Baker's claims because the alleged misrepresentation made by Fantastic Sams' agents and contained on its website was consistent with, rather than contradicted by, the disclosure documents. However, Fantastic Sams successfully argued that the second disclaimer expressly disclaimed the representation on which Baker had allegedly relied, and the court dismissed the claim with prejudice.