The Franchise Memorandum

Taco Bell Corp. has won an important ruling in a California federal district court against class action claims involving unauthorized text messages. In Thomas v. Taco Bell Corp., 2012 U.S. Dist. LEXIS 107097 (C.D. Cal. June 25, 2012), the court granted summary judgment dismissing the claims against the franchisor, despite its role in the franchisee advertising association that had approved the text messaging component of the promotion. The texting was alleged to violate a federal statute prohibiting certain unauthorized communications.

In granting summary judgment, the district court found that Taco Bell’s Marketing Fund Policy, which was alleged to give it “unfettered control,” did not mean the franchisor indeed controlled the ad campaign for vicarious liability purposes. Even if the franchisor may have “held the purse strings” for the local advertising group, that fact alone would not give the franchisor power to stop the franchisees’ conduct. The court also ruled that even administrative approval of funding was not sufficient evidence of “control over the manner and means by which the campaign was designed and executed.” This ruling was made despite the additional facts that Taco Bell had a corporate representative on the local advertising group which conducted the campaign, the franchisor representative had a vote, and the representative allegedly knew about the texting plan before it occurred. In short, the court ruled that knowledge, approval, and fund administration did not equate to franchisor control.