Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—Ind. App.: Vending machine franchisees fail to show reliance on franchisor’s representations, (Dec 22, 2014)

By Linda O’Brien, J.D., LL.M.

Vending machine franchisees did not establish that they reasonably relied on representations included in a franchise disclosure document and franchise agreement, the Indiana Court of Appeals in Indianapolis has decided. Thus, the trial court judgment in favor of the defendants was affirmed (Berghs v. Plant Antares, Inc., December 18, May, M.).

Planet Antares was in the business of selling vending machine franchises. Purco Corporation, a distributor, purchased vending machines on behalf of Plant Antares franchisees. In 2009, Roger and Karen Bergh and Rex Harris attended a Planet Antares marketing seminar at which they purchased a “Refreshment Deli” vending machine franchise. As part of the seminar, the Berghs and Harris were provided with a Financial Disclosure Document (FDD) that indicated Plant Antares had no pending litigation, when in fact a lawsuit had been settled shortly before the seminar and a second suit had been filed a month before alleging fraudulent misrepresentation. The FDD also stated that the franchisor made no representations regarding a franchisee’s future financial performance and that company employees were not authorized to make any such representations. The Berghs and Harris also signed a Franchise Agreement that expressly provided that they were not relying on any representations made by franchisor which were not specifically included in the FDD or the franchise agreement.

After the Berghs and Harris experienced mechanical issues with the vending machines, they sued Planet Antares, Purco, and Dana Bashor, the companies’ president and sole shareholder, alleging in part violations of the Indiana Franchise Act (IFA). The trial court found for the defendants and the plaintiffs appealed.

The appellate court determined that the trial court did not abuse its discretion in determining that the plaintiffs did not reasonably rely on any representations they allege violated the IFA. The Act makes it unlawful for any person in connection with the sale or purchase of a franchise to make a false statement or omit a material fact that would be fraudulent or deceitful in light of the circumstances when harm was caused by reliance on the statement or omission, the court explained.

The trial court noted that the plaintiffs testified at trial that they did not read the FDD and therefore they could not have reasonably relied on the representations in the document. Moreover, the plaintiffs signed a disclaimer in the franchise agreement, acknowledging that they were relying on any statements or representations made by the franchisor that were not specifically included in the FDD or franchise agreement. Since the plaintiffs expressly acknowledged that no verbal or written sales, income, or earnings claims were made or implied by the seller, the trial court did not err in determining there was no IFA violation, the appellate court concluded.

The case is No. 02A04-1312-PL-642.

Attorneys: Phillip J. Troyer for Roger Berghs, Karen Berghs, and Rex Berghs. Jeremy S. Rogers and Anthony M. Zelli (Dinsmore & Shohl LLP) for Planet Antares and Purco Corporation.

Companies: Plant Antares, Inc.; Purco Corporation

Cases: FranchisingDistribution IndianaNews