Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—W.D. Okla.: Apparent agency claim against real estate auction franchisor survives summary judgment, (Mar 17, 2015)

By Linda O’Brien, J.D., LL.M.

A real estate auction franchisor might be vicariously liable for the allegedly improper conduct of its franchisee auctioneers in an action brought by an investor, seeking the return of earnest money paid for mineral properties purchased at auction, the federal district court in Oklahoma City has held. The investor’s apparent agency claim against the franchisor withstood a motion for summary judgment. However, the investor’s negligence claim did not (ZHN, LLC v. Randy Miller, LLC, March 13, 2015, LaGrange, V.).

United Country is a franchisor of real estate and auction offices with offices in the United States, Mexico, and Costa Rica. Troy Lippard signed a member broker franchise agreement with United Country, in which he agreed to operate a broker office under the trade name, “United Country Lippard Auctioneers.”

In May 2012, Lippard Auctioneers conducted an auction, as agent for Randy Miller, LLC, to sell surface and mineral acres owned by Miller. ZHN, LLC participated as a bidder in the auction. Prior to the auction, Miller instructed Lippard to bid on certain properties on behalf of T. Turner Investments, although bidders were not advised that Miller was a partial member of T. Turner Investments. Turner successfully bid on several properties; however, it failed to close on those properties. ZHN executed real estate contracts on the properties it had successfully bid upon and paid the required earnest money.

When proof of title was not delivered for the purchased properties, ZHN requested the return of its earnest money. Lippard initially refused to return the earnest money and advised ZHN that Miller would close on the properties. After ZHN filed suit against Miller, Lippard, and United County for deceptive trade practices and fraud, Miller executed a release and the earnest money was returned to ZHN. Subsequently, United County moved for summary judgment on ZHN’s negligence claim and that United Country was vicariously liable for the improper actions of its franchisee, Lippard Auctioneers.

Agency. The court determined that ZHN presented sufficient evidence to create a genuine issue of material fact as to whether an apparent agency relationship existed between United Country and its franchisee, Lippard Auctioneers. ZHN contended that it relied on United Country’s online marketing materials in believing that Lippard Auctioneers was United Country’s agent. The marketing material made statements such as (1) United Country auctioneers were “carefully selected partners,” (2) United Country has a “proprietary auctioneer training” program, (3) United Country had operating goals to maintain “the highest ethical and cultural standards,” and (4) participants in the auctions are “our buyers.”

ZHN also alleged that Lippard’s advertising brochure prominently featured United Country’s logo and did not indicate that the auctioneer was independently owned and operated. Based on the evidence presented by ZHN, a jury could find that it was not unreasonable for ZHN to believe that Lippard Auctioneers was the agent for United Country, according to the court.

Negligence. In granting the United Country’s motion for summary judgment on the negligence claim, the court found that United Country owed no duty to ZHN as a matter of law. In the context of the franchisor-franchisee relationship, the degree of control that the franchisor maintained over the franchisee was determinative as to whether the franchisor owed a duty to the plaintiff. In this case, ZHN did not identify any portion of the member broker franchise agreement that established a duty between United Country and buyers at the auction. Further, other than a mere assertion that United Country was negligent by not training its auctioneers and an advertising brochure with the name “United Country Lippard Auctioneers”, ZHN provided no evidence to show that United Country was involved or controlled the auction that was the subject of the case, the court concluded.

The case is No.CIV-12-1289-M.

Attorneys: Murray E. Abowitz (Abowitz Timberlake & Dahnke PC) for ZHN LLC. Clint A. Claypole (Field Trojan Long & Sedbrook) for Lippard Auctioneers Inc., and Randy Miller LLC.

Companies: ZHN LLC; Lippard Auctioneers Inc.; Randy Miller LLC

Cases: FranchisingDistribution OklahomaNews