The Franchise Memorandum

The Eighth Circuit Court of Appeals recently affirmed a district court’s dismissal of a contractor’s claims against FedEx Corporation. Neubauer v. FedEx Corp., 2017 WL 655434 (8th Cir. Feb. 17, 2017). From 2004 to 2011, Neubauer and his corporate entity were parties to a series of Standard Operating Agreements with FedEx under which Neubauer would pick up and deliver FedEx packages within specific geographic areas in return for weekly payments based on stops made. Neubauer was described as an independent contractor of FedEx. In early 2011, FedEx transitioned to a new business model and, upon renewal, Neubauer entered into an Independent Service Provider Agreement with FedEx. In 2014, FedEx terminated Neubauer’s contract for purported breaches and, in response, Neubauer brought suit claiming, among other things, that FedEx had sold him an unregistered franchise in violation of North Dakota’s Franchise Investment Law.

The district court dismissed Neubauer’s complaint for failure to state a claim upon which relief could be granted, and the appellate court affirmed. The appellate court explained that in order for Neubauer’s claim to succeed, he had to plead sufficient facts to plausibly allege that he was a franchisee, meaning (1) he was granted the right to offer, sell, or distribute services under a marketing plan prescribed by FedEx, (2) the operation of his business was substantially associated with FedEx’s trademarks, and (3) he was required to pay a franchise fee. The appellate court held that Neubauer failed to plead sufficient facts to satisfy the marketing plan element because he merely delivered FedEx packages, and did not have the right to offer, sell, or distribute services to individual customers. The court also found persuasive the fact that the agreements explicitly stated that Neubauer was an independent contractor, and that he received payments not through customers, but from FedEx through weekly settlement checks.