The Franchise Memorandum

A federal district court in Georgia recently rejected a franchisor’s attempt to introduce expert testimony regarding the proper grammatical interpretation of the sentence in its franchise agreement defining “Net Sales.” In Coyote Portable Storage, LLC v. PODS Enterprises, Inc., 2011 U.S. Dist. LEXIS 51899 (N.D. Ga. May 16, 2011), several franchisees sued for breach of contract, claiming that their franchisor had improperly calculated royalties, and had thus overcharged them. The franchise agreements at issue calculated royalties as a percentage of “Net Sales,” defined (in relevant part) as all revenues received by the franchised business, but excluding “revenue from the sale of Containers as part of a long distance program organized and managed [by the franchisor].” The plaintiffs claimed that they had been improperly charged royalties on monies received from sales of containers as part of the franchisor’s cross country move program. The franchisor initially asserted that the definition of “Net Sales” in the franchise agreement was patently ambiguous, and “the result of a scrivener’s error and mistake.” Later, however, the franchisor retreated from this position and sought to introduce the testimony of an “expert grammarian” to assist the court in resolving the meaning of the “Net Sales” definition, by addressing the “grammatical nuances” of the sentence at issue.

The court, noting the well-settled principle that interpretation of an unambiguous contract is for the court alone to decide, found that the proffered expert’s opinion regarding the grammatical effect of the sentence did not create an ambiguity in the contract and that the contract was not ambiguous on its face. Accordingly, the expert’s testimony was deemed improper and excluded from trial.