The Franchise Memorandum

In Joseph McSweeney Enterprises, LLC v. Mr. Softee Sales and Manufacturing, LLC, 2013 U.S. Dist. LEXIS 122279 (D.N.J. Aug. 17, 2013), the United States District Court for the District of New Jersey granted Mr. Softee and its affiliates’ motion to dismiss a franchisee’s claims for fraud, breach of the New Jersey Consumer Fraud Act (CFA), breach of warranty, and breach of contract based on an integration clause in the franchise agreements. The franchisee claimed that the ice cream trucks it purchased from Mr. Softee’s affiliate pursuant to its franchise agreements did not function correctly in warmer climates, despite Mr. Softee’s presale representations that the trucks had the ability to operate properly for the franchisee’s business. Mr. Softee and its affiliate contended that the franchisee failed to state a claim for fraud, breach of the CFA, and breach of warranty because neither the franchise agreements nor the vehicle sales agreement contained any representations or promises regarding the functionality of ice cream trucks, and those contracts contained integration clauses. The franchise agreements merely required the franchisee to purchase a truck meeting Mr. Softee’s standards and specifications, and the vehicle sales agreement stated that, with the exception of manufacturer’s warranties, the seller made no warranties, express or implied, as to the merchantability of the equipment or its fitness for a particular purpose.

The court held that the integration clauses in the franchise agreements and vehicle sales agreements barred the franchisee from introducing extraneous evidence outside of the contracts. In addition, the “fraud exception” to the parole evidence rule did not apply because the franchisee was not attempting to clarify existing provisions in the parties’ contracts, but rather sought to alter the parties’ obligations with respect to matters wholly extraneous to the agreements. With regard to the breach of contract claim, the court held that the franchisee failed to plead the required elements necessary to sustain the claim because it failed to identify any obligation under the contract that Mr. Softee failed to perform. Accordingly, the court granted Mr. Softee’s motion to dismiss the complaint in its entirety.