Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—N.D. Fla.: Required minimum standards in franchise agreement did not create agency relationship, (Jan 15, 2014)

By Linda O’Brien, J.D., LL.M.

A consumer injured on the franchisee’s premises failed to show that the terms of a franchise agreement between a petroleum company and convenience store operator, which provided minimum standards for the store’s operations, demonstrated an agency relationship for purposes of establishing vicarious liability, the federal district court in Tallahassee ruled (Cain v. Shell Oil Co., January 10, 2014, Walker, M.). Thus, the franchisor was granted summary judgment on the claim.

Circle K Stores, Inc. operated a convenience store that purchased and sold fuels from Shell Oil Co., pursuant to a wholesale marketing agreement. Ralph Cain was injured by gunfire while purchasing gasoline at the Circle K store. Cain filed suit against Shell for his injuries based on an alleged agency relationship between Shell and Circle K. Shell moved for summary judgment.

A franchise relationship alone does not create an agency relationship between the franchisor and franchisee. However, franchisors may create an agency relationship with a franchisee if—by contract, action, or representation—the franchisor has directly or apparently participated in a substantial manner in directing or managing the acts of the franchisee, according to the court.

The court found that the mere use of franchise logos and related advertisements did not necessarily indicate that the franchisor had actual or apparent control over any substantial aspect of the franchisee’s business decisions. In rejecting Cain’s exclusive reliance on the terms of the agreement as the basis for creating an agency relationship between Shell and Circle K, the court stated that conditions in the agreement that set forth certain minimum standards and benchmarks for the operation of the store did not give Shell control over how the conditions were met. The only control provided by the agreement was to insure uniformity in products and services offered by the store; the daily operations and the means of satisfying the conditions were solely within the control and discretion of Circle K, the court observed.

Additionally, the conditions contained in the agreement were typical of franchise agreements to establish uniformity and reasonably protect the franchisor’s business interests. Finally, Shell’s right to terminate the franchise agreement did not establish a right to control the store operations, the court concluded.

The case is No. 4:13-cv-77-MW/CAS.

Attorneys: Fred Herbert Flowers (Flowers Law LLC) for Ralph Reginald Cain. Catherine Marie Verona (Williams Schifino Mangione ETC) for Shell Oil Co.

Companies: Shell Oil Co.; Circle K Stores, Inc.

Cases: FranchisingDistribution FloridaNews