The Franchise Memorandum

In James D. Cohen v. Roll-A-Cover, LLC, 2011 Conn. App. LEXIS 473 (Conn. App. Sept. 20, 2011), defendants—manufacturers of a Roll-A-Cover residential pool cover system—appealed the trial court’s holding that they had violated Connecticut’s Business Opportunity Investment Act and Unfair Trade Practices Act (CUTPA) through the sale of New Jersey territories to a distributor. The plaintiff/distributor had signed a distribution agreement for the exclusive rights to distribute the pool cover product in New Jersey. During negotiations, Roll-A-Cover had made certain claims regarding the high demand for its product and failed to provide plaintiffs with a disclosure document. However, Paragraph 49.0 of the distribution agreement stated:  “Distributor…warrants represents and agrees that this agreement is not a franchise, under the laws of the State of Connecticut or any other jurisdiction….Distributor represents that the Products are one of several products or services sold by Distributor and these Products do not constitute the sole or substantial source of sales by the Distributor.”

Following a nine-day trial, the trial court issued its decision finding for plaintiff on all counts, including corporate and personal violations of Connecticut’s business opportunity law and CUTPA, and awarding $575,000 in damages and attorney’s fees. Roll-A-Cover appealed, claiming that (i) paragraph 49.0 clearly excludes the contract from the business opportunity law; (ii) plaintiff’s net worth also excludes Roll-A-Cover from the business opportunity law; (iii) plaintiff failed to prove ascertainable loss in Connecticut; (iv) Roll-A-Cover’s officer should not be personally liable; and (v) damages were inappropriate.  Applying the clearly erroneous standard, the Court did not find error in the trial court’s findings, holding that (i) one paragraph disclaiming the existence of a franchise relationship could not override 48 others in the distribution agreement that tended to establish such a relationship; (ii) the net worth exclusion did not exempt Roll-A-Cover from all provisions of the business opportunity law; (iii) Roll-A-Cover failed to show a conflict between Connecticut law and the law that Roll-A-Cover contended should apply (iv) the corporate officer knowingly made misleading statements to plaintiffs; and (v) in light of the analysis, the appeal on damages was moot.