Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—N.D. Ill.: Disclaimer in franchise documents barred misrepresentation claim against franchisor, (Jan 19, 2016)

By Michael Menzhuber, J.D., LL.M.

A franchisee’s counterclaim, that the franchisor misrepresented the period of time it would take for the franchisee to become profitable, was barred by a disclaimer in the franchise documents signed by the parties, according to the federal district court in Chicago (Fantastic Sams Salons Corp. v. PSTEVO, LLC, January 15, 2016, Ellis, S.).

PSTEVO, LLC and Jeremy Baker (collectively, “PSTEVO”) entered into a franchise agreement with Fantastic Sams Salons Corp. After Sams initiated a lawsuit against PSTEVO in connection with the franchise agreement, PSTEVO filed several counterclaims including a counterclaim for fraudulent misrepresentation.

In support of its claim, PSTEVO alleged that: (1) several financial disclosure documents, Sams’ website, and a Sams’ agent all stated that PSTEVO could expect to be profitable after three months; (2) Sams and its agent knew that these statements were false; and (3) PSTEVO relied on these statements in deciding whether to enter into a franchise agreement. Sams moved to dismiss PSTEVO’s fraudulent misrepresentation claim on the grounds that it was barred by two disclaimers contained in the written agreement of the parties.

Although Baker wrote the word “none” after the first disclaimer, “No oral, written or visual claim or representation which contradicted the disclosure document was made to me, except,” PSTEVO argued that the disclaimer did not bar its claim because the disclosure documents contained the same misrepresentations as those made by Sams’ agent and contained on Sams’ website. Because those representations were consistent with, rather than contradicted by, the disclosure agreements, the court agreed that this disclaimer did not bar PSTEVO’s claim.

Baker also wrote the word “none” after the second disclaimer, “No oral, written or visual claim or representation which stated or suggested any sales, income, or profit levels was made to me, except”. However, PSTEVO argued that this disclaimer did not bar its claim because its claim was premised on “minimum viability” rather than guaranteed income.

The court noted, however, that in making this argument, PSTEVO: (1) did not cite to its counterclaim, which did not contain the words “minimum viability” and (2) did not cite to any portion of the disclosure documents or Sams’ website that allegedly discussed “minimum viability.” Consequently, the court concluded that PSTEVO’s fraudulent misrepresentation counterclaim was clearly premised on the assertion that Sams’ misrepresented projected profit levels. Because it was undisputed that Baker affirmed that no such representations were made, the court determined that the disclaimer barred PSTEVO’s claim.

The case is No. 15 C 3008.

Attorneys: Aaron Michael H. Sapp (Cheng Cohen LLC) for Fantastic Sams Salons Corp. Katina S. Haloulos (Katina Haloulos Baker) for PSTEVO, LLC.

Companies: Fantastic Sams Salons Corp.; PSTEVO, LLC

Cases: FranchisingDistribution IllinoisNews