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The Franchise Memorandum

Court Refuses to Dismiss FACTA Claim

A recent federal court decision illustrates the judiciary’s occasional reluctance to take judicial notice of the nature of the franchise relationship.  In Patterson v. Denny’s Corp., 2008 WL 250552 (W.D. Pa. Jan. 30, 2008), the plaintiff filed a complaint against Denny’s and its franchisee alleging a violation of the Fair and Accurate Credit Transactions Act (“FACTA”). Specifically, the plaintiff alleged that a franchised Denny’s location provided him with a credit card receipt that showed the last four digits and the expiration date of his Visa card, an alleged violation of FACTA. The plaintiff sued both the franchisee and the franchisor, arguing that the franchisor exercised sufficient control over the franchisee to be held liable for its actions.

Denny’s moved to dismiss the complaint, arguing that as franchisor it did not print the receipt at issue or provide it to plaintiff.  In support of its motion, Denny’s submitted an affidavit attaching the franchise agreement at issue, which showed that Denny’s lacks control over the day-to-day operation of its franchisee. The court refused to consider that evidence, however, finding that such consideration would be improper on a motion to dismiss. Instead, the court looked solely to the complaint, which alleged that Denny’s did exercise actual control over the franchised business. Finding that allegation alone to be sufficient, the court denied Denny’s motion.

This decision shows the difficulties franchisors sometimes face when confronted with a vicarious liability claim. While courts will often grant a franchisor’s motion for summary judgment, some courts have proved reluctant to grant a motion to dismiss in the early stages of the action.

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The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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