The Franchise Memorandum

The Texas Court of Appeals recently overturned a jury verdict that had found the Domino's franchisor vicariously liable for a death and serious injuries resulting from an accident caused by the defective vehicle of a delivery driver. Domino's Pizza, LLC v. Reddy, 2015 Tex. App. LEXIS 2578 (Tex. Ct. App. Mar. 19, 2015). The court observed that whether a franchisor may be held vicariously liable for the acts of its franchisees depends on whether the franchisor had the right to the control the injury causing conduct. Reddy, a representative of the victims, argued that Domino's controls virtually all aspects of its franchisees' conduct, including pizza delivery. In support of that argument, Reddy noted that Domino's prescribes and controls the specifications, standards and operating procedures of its franchises—requiring, for instance, the periodic inspection of delivery driver vehicles—and retains the right to terminate franchisees for failing to meet system requirements.

The Texas Court of Appeals rejected Reddy's arguments, concluding that insufficient evidence existed for a jury to conclude that Domino's controlled the aspects of the franchisee's conduct giving rise to the accident. Specifically, the court held that the establishment of system procedures and rules and the reservation of the right to monitor compliance with those rules and to terminate in the event of noncompliance, does not by itself evidence a right to control. Rather, the court noted, Domino's procedures and rules represented minimum standards for which the franchisee was free to implement its own "means, methods, and details" to satisfy. Thus, requiring franchisees to comply with general safety practices did not evidence sufficient control where the franchisee was left to implement the means with which those practices were complied. The court also placed significant weight on the franchise agreement's designation of the franchisee as an independent contractor.

Clarification

The Northern District of Georgia case, Massey, Inc. v. Moe's Southwest Grill, LLC, reported in Issue 191, was brought against the founder and prior owner of the Moe's Southwest Grill brand and related parties. All references to "Moe's" and "Moe's CEO" in the article actually refer to the prior owner and prior CEO. The Moe's Southwest Grill brand was purchased in 2007 and has been operated by a new franchisor entity since that time. The current franchisor entity was not a party to the dispute.