Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—WisCtApp: Franchise Agreement Provisions Did Not Waive Liability for Alleged Misrepresentations by Franchisor’s Agent, (May 10, 2013)

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

Exculpatory provisions in a franchise agreement between True Value Co. and a hardware store franchisee did not waive True Value’s liability for alleged tortious misrepresentations by a True Value representative, a Wisconsin Court of Appeals has ruled (C&M Hardware, LLC v. True Value Co., May 9, 2013, Sherman, G.). The court reversed the circuit court’s grant of summary judgment as to the franchisee’s claims for misrepresentation, but affirmed it as to a claim for negligence.

C&M Hardware, LLC entered into a retail member agreement with True Value under which C&M purchased a hardware store franchise from True Value. C&M operated the store from July 2004 until December 2005, when the store was closed for financial reasons.

C&M filed suit against True Value, asserting claims for strict responsibility misrepresentation, negligent misrepresentation, and negligence. C&M claimed that a True Value agent had made misrepresentations that induced C&M to become a True Value franchisee.

The circuit court granted True Value’s motion for summary judgment, concluding that two exculpatory provisions in the retail member agreement had put C&M on notice that statements "about how the business would perform could not create representations or warranties about how the business would perform" and that C&M had not provided any evidence that would support its claim that True Value had an independent duty to perform under the contract. C&M appealed.

Misrepresentation. The court began its review of the circuit court’s disposition of the misrepresentation claims by observing that "[e]xculpatory contract provisions are not favored by the law, but they are not automatically void and unenforceable." The court cited the Wisconsin Supreme Court’s 1996 decision in Yauger v. Skiing Enters., Inc., 206 Wis. 2d 76, in which an exculpatory contract provision was held void. The provision did not "specify the specific tort the provision sought to disclaim," thus failing to "clearly, unambiguously, and unmistakably inform" the signer of the rights being waived, and the contract as a whole "failed to alert the signer to the nature and significance of the document being signed."

Here, one exculpatory provision stated that True Value did not represent that C&M would receive any minimum, guaranteed, or certain’ income; that success would depend in part on C&M’s efforts; that True Value disclaimed any "guarantee of performance"; and that True Value made no express or implied warranties or representations regarding the performance of C&M’s business. The court observed that the language was "vague and ambiguous" and concerned "warranty, a contract matter, and not tort liability at all." Therefore, it did not waive True Value’s responsibility for the alleged misrepresentations.

Similarly, a second exculpatory provision also failed to operate as a waiver of tort liability. The provision stated (1) that there were "no prior agreements, representations, promises or commitments" not contained in the agreement, and (2) that the agreement would "govern all past and present relations, actions or claims arising between" the parties. The court determined that the first sentence of the provision was "a typical integration clause" that made "no mention of disclaiming liability let alone specifying any specific tort." Likewise, the second sentence "not only fail[ed] to specify any specific tort or torts being disclaimed, it also fail[ed] to make clear that it disclaim[ed] tort claims at all."

Moreover, the court found that the exculpatory provisions were "not sufficiently conspicuous" to waive liability. The provisions were part of a six-page document with 35 provisions, most of them related to the establishment of a franchise relationship, and the title of the contract did not indicate it contained a waiver of liability. Further, the provisions were not placed together or in a conspicuous location and were not emphasized or highlighted in any way. The court concluded the provisions were "simply two provisions among thirty-five paragraphs of often opaque legalese," with "nothing about the placement or presentation" that "would draw attention to them." The provisions were therefore void as against public policy, and the court reversed the circuit court’s decision as to the misrepresentation claims.

Negligence. However, the court upheld the trial court’s decision as to C&M’s negligence claim. The trial court had determined that C&M had not established that True Value had a duty independent of the retail member agreement that it had violated. On appeal, C&M contended that "True Value had a duty not to provide misinformation," and that True Value’s agent violated that duty by making false representations "in order to induce C&M to purchase the True Value franchise."

The court observed that C&M’s complaint only alleged that the negligence claim involved "the provision of goods, services, and advice regarding inventory, competition, marketing, store operations, and advertising, among others." The allegations "clearly concern[ed] operations during the period that the contract was in effect and not representations made prior to entering into the contract intended to induce C&M to enter into the contract." As the record did not contain an amended complaint, "the only allegations and reasonable inferences before the circuit court at the time of summary judgment did not include the argument now advanced on appeal." Therefore, the court affirmed the circuit court’s dismissal of the negligence claim.

The case is No. 2011AP1047.

Attorneys: R. George Burnett (Law Firm of Conway, Olejniczak & Jerry, S.C.) for C&M Hardware, LLC. Michael A. Stiegel (Michael Best & Friedrich LLP) for True Value Company.

Companies: C&M Hardware, LLC; True Value Co.

Cases: FranchisingDistribution WisconsinNews