Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. Md.: Reconsideration of exclusion of earnings misrepresentation claim granted, but claim failed, (Aug 29, 2013)

By Tobias J. Gillett, J.D., LL.M.

The federal district court in Baltimore has granted reconsideration of its order excluding a claim that a franchisor misrepresented potential earnings from a franchise from the franchisee’s claim under the Maryland Franchise Registration and Disclosure Law (“Maryland Franchise Act” or MFA), but has also granted summary judgment to the defendants on that claim (WW, LLC v. The Coffee Beanery, Ltd., August 28, 2013, Nickerson, W.).

Deborah Williams and Richard Welshans formed WW, LLC in 2003, after Welshans entered a franchise agreement with The Coffee Beanery, Ltd. That year, they opened a Coffee Beanery café in Annapolis, which they operated through November 2007, “incurring substantial losses along the way,” the court observed. In December 2005, they filed an action against Coffee Beanery and numerous officers of the franchisor.

In August 2012, the district court dismissed the claims for detrimental reliance and conspiracy against all defendants, as well as claims for intentional misrepresentation and negligent misrepresentation against two individual defendants. The remaining claims were for violation of the Maryland Franchise Act, intentional misrepresentation, negligent misrepresentation, and violation of the federal RICO Act. On July 17, 2013, the court granted summary judgment to the franchisor on the RICO and common law misrepresentation claims, but denied the franchisor’s motion for summary judgment as to the MFA claim.

The court also limited the MFA claim in several ways, including holding that the claim did not include a claim that the defendants misrepresented the earnings that the plaintiffs could expect from operating their store. The court found that, although the plaintiffs had included that allegation in their misrepresentation claims, the MFA claim was “narrowly tailored to address only the alleged misrepresentations in the [Uniform Franchise Offering Circular] and the Franchise Agreement . . . and [did] not include any allegation that those documents included any misrepresentation regarding earnings.” The plaintiffs filed a motion for reconsideration of that determination.

Even though the court “doubt[ed] that it erred” in excluding the earnings claim, “[i]n the interest of having a complete record going forward” the court granted the motion, electing to “exercise its discretion to consider the parties’ prior submissions related to the alleged earnings claim.”

However, the court granted summary judgment to the defendants on the claim. Although the plaintiffs had alleged that a defendant had claimed they “would net $125,000 per year when operating the Coffee Beanery Café,” and that the defendants had provided a pro forma that misstated the average revenues of Coffee Beanery Cafes, the court found that the earnings claim failed “because there is no evidence that [Welshans] relied on the alleged misrepresentations.”

The court found “[t]he record [was] undisputed that plaintiff did not rely on defendants’ alleged misrepresentations.” Welshans testified that he believed the $125,000 earnings claim to be “puffing,” and that there was “no way, shape or form we were thinking that there’s going to be 125 that we’re going to make.” He testified that he believed the defendant to be “exaggerating,” that the comment was a “throwaway line,” and that he did not think at the time about what the figures meant. Moreover, Welshans disclaimed in the Franchise Agreement and a Compliance Certification that he received or relied on any statements or promises regarding potential revenues or profits. Therefore, the court granted summary judgment to the defendants on the MFA count “to the extent that it includes an earnings claim.”

The case is No. WMN-05-3360.

Attorneys: Harry M. Rifkin (Law Offices of Harry M. Rifkin LLC) for WW, LLC. Stephan Y Brennan (Iliff Meredith Wildberger and Brennan PC) for The Coffee Beanery, Ltd.

Companies: WW, LLC; The Coffee Beanery, Ltd.

Cases: FranchisingDistribution MarylandNews