The Florida Franchise Act: protection for the in-state franchisor or out-of-state franchisee?

The Florida Franchise Act ("the act"), F.S. [sections] 817.416, provides a private right of act to a civil litigant(1) when a person, as defined by the act, in selling or establishing a franchise or distributorship misrepresents:

(1) the prospects or chances of success of a proposed or existing franchise or distributorship;

(2) the known required total investment for such franchise or distributorship; or

(3) efforts to sell or establish more franchises or distributorships than is reasonable to expect the market or market area for the particular franchise or distributorship to sustain.

F.S. [sections] 817.416(2)(a)(1-3).

The remedy for such misrepresentations includes the return of all moneys invested in the franchise or distributorship and reasonable attorneys' fees.

The act defines the term person as "an individual, partnership, corporation, association, or other entity doing business in Florida" (Emphasis supplied). F.S. [sections] 817.416(1)(a). Inasmuch as the private right of action afforded under subsection (3) of the act is expressly limited to "any person," the aggrieved purchaser must be "doing business in Florida."

No appellate court has squarely discussed the issue of whether the act applies to govern a dispute between an in-state franchisor and an out-of-state franchisee. However, four federal district courts in Florida have dealt with this issue, albeit with inconsistent results.

The first such case, Burger King Corporation v. Austin, 805 F. Supp. 1007 (S.D. Fla. 1992), involved, in part, the motion of Burger King to dismiss the amended counterclaim of the Austins, who were non-Florida franchisees of two Burger King restaurants. Among their various claims, the Austins alleged that Burger King had violated the act by intentionally misrepresenting material facts that were intended to induce them to enter into a franchise agreement. Id. at 1022. Burger King, however, countered that the Austins did not have standing under the act because it applied only to "persons" that were "doing business in Florida." Id. Judge Hoeveler wrote that he "was unable to find any case interpreting the Florida Statute as [Burger King] has suggested." Id. Nonetheless, Judge Hoeveler initially accepted the position posited by Burger King and noted, id., that:

The Florida Franchise Act does not reveal a similar, clear intention by the Florida legislature to limit its application to Florida residents or domiciliaries. The Act defines "person" as "an individual, partnership, corporation, association, or other entity doing business in Florida."

Substituting the definition of "person" into the other relevant portions of the Florida Franchise Act, demonstrates that the Act is only applicable to franchisees and franchisers "doing business in Florida."

Notwithstanding his comment that the act should not apply to non-Florida franchisees, Judge Hoeveler determined that Burger King was still subject to the dictates of the act because the franchise agreement provided for Florida law to govern the agreement. Id.(2) Thus, he denied Burger King's motion to dismiss the Austins' claim under the act.

Four months after Austin, Judge Nesbitt entered an order on Burger King's motion to dismiss a counterclaim in Burger King Corporation v. Holder, 844 F. Supp. 1528 (S.D. Fla. 1993). In Holder, Judge Nesbitt accepted that "[t]he parties agree that there are no cases which address whether [sections] 817.416 applies to the sale of franchises located in other jurisdictions." Id. at 1530.(3) Burger King had filed a motion to dismiss the counterclaim of Mr. Holder, specifically including his claim under the act, because he operated his multiple franchises in Kansas. Judge Nesbitt denied Burger King's motion, concluding, id. at 1530-1531, that:

Section 817.416(1)(a), however, defines "person" as an "individual, partnership, corporation, association, or other entity doing business in Florida" and prohibits that "person" from misrepresenting information relating to a franchise sale.

Thus, the statute applies to persons doing business in Florida who misrepresent information related to the sale or establishing of a franchise. Holder alleges that Burger King does business in Florida and that portions of the this transaction were conducted in Florida.

Judge Nesbitt did not specifically discuss, however, the implication of the act's explicit definition of the term "person" when read in pari materia with F.S. [sections] 817.416(3) which, as noted above, provides such "person"--who does business in Florida--with a right of action against the seller of the franchise or distributorship.

Three years later, though, Judge Ungaro-Benages, in Barnes v. Burger King Corporation, 932 F. Supp. 1441 (S.D. Fla. 1996), reached a different result from judges Hoeveler and Nesbitt and granted the motion of Burger King to dismiss Mr. Barnes' claim under the act. Judge Ungaro-Benages wrote, id. at 1443, that:

The plain language of the Act indicates that the Act only applies to "persons" that are "doing business in Florida." [sections] 817.416(1)(a). Plaintiff was not, and does not contend that he was, doing business in Florida. Accordingly, Plaintiff lacks standing under the Act?(4)

Judge Ungaro-Benages did not discuss or cite Judge Nesbitt's holding in Holder, but specifically declined to follow Judge Hoeveler's earlier decision in Austin, and wrote that "this Court does not agree that an injustice will result if the Plaintiff in this case, who was able to pursue other remedies against the Defendant, is unable to seek relief pursuant to the Act." Id. at 1443. "Further, assuming application of the Act to bar Plaintiff's claim can be labelled `unjust,' this Court does not agree, on the facts of this case, that the resulting unfairness is legally sufficient to override the parties' clearly stated intent and the plain language of the Act." Id.

The most recent decision dealing with this issue is found in Dickinson v. Executive Business Group, Inc., 983 F. Supp. 1395 (M.D. Fla. 1997), in which Judge Kovachevich specifically acknowledged both the Austin and Barnes decisions, id. at 1397, but not the Holder decision. In Dickinson, Judge Kovachevich properly ruled that the choice of Florida law provision found in the parties' franchise agreement rendered the out-of-state franchisee's home state (i.e., Texas) franchise act inapplicable to the dispute. Id at 1397. But Judge Kovachevich found "that plaintiff may have a valid claim under the Florida Franchise Act, and that leave to amend should be freely given when, as in the case at bar, justice so requires." Id. (emphasis supplied.) Thus, it appeared that Judge Kovachevich, in granting leave to Mr. Dickinson, a Texas franchisee, to assert a claim under the act, equivocally granted the judicial imprimatur of standing under the act to a "person" undeniably not doing business in Florida.

Holding that the act does not apply to protect an out-of-state franchisee would seemingly be consistent with recent cases under Florida's "Little FTC Act," commonly known as the Deceptive and Unfair Trade Practices Act, F.S. [subsections] 501.201-.2137 For example, in Coastal Physicians Services of Broward County, Inc. v. Ortiz, 1999 WL 30699 (Fla. 4th DCA, Jan. 27, 1999), the Fourth District Court of Appeal held that Florida's Little FTC Act is for the protection of only in-state consumers. Id.(6) Similarly, in Delgado v. J.W. Courtesy Pontiac GMC-Truck, Inc., 693 So. 2d 602 (Fla. 2d DCA 1997), the Second District Court of Appeal held that Florida's Little FTC Act "bestows additional substantive remedies on the citizens of this state to recover economic damages related solely to a product or service purchased in a consumer transaction infected with unfair or deceptive practices or acts." Id. at 606 (emphasis supplied). Compare Burger King Corporation v. Weaver, 169 F.3d 1310 (11th Cir.) (dismissal by Judge Marcus of Montana franchisee's Montana Unfair Trade Practices Act affirmed where laws of Florida applied and no claim under Florida's act timely raised), rehearing en banc denied, 182 F.3d 938 (11th Cir. 1999).

In view of 1) the increasing multistate activity by Florida-based franchisors, 2) the absence of decisions from the Florida appellate courts, and 3) the irreconcilable decisions from the federal district courts, there is a present need for the legislature to clarify its intent with regard to the scope of the act as it relates to the domicile of the franchisees for whom it was obviously designed to protect. In such clarifying legislation, the legislature should be particularly mindful of the frequent circumstance in which the parties contractually agree to the application of Florida law to govern their disputes.

(1) FLA. STAT. 817.416(3) (Civil Provisions).

(2) Judge Hoeveler stated that "Such intent to have the Agreement be subject to the laws of the State of Florida demonstrates that both [Burger King] and [the] Austins intended that they be regarded as doing business in Florida." Id. at 1023. Judge Hoeveler also indicated that had the Florida Legislature included a phrase that specifically limited the act to only Florida residents or domiciliaries, he would not have determined that the act was applicable to the franchise agreement between Burger King and the Austins because a choice of law provision in a contract cannot be used to override the legislature's intention.

(3) Apparently, counsel for the parties did not cite to Judge Nesbitt the earlier decision of Judge Hoeveler in Austin. Burger King's lawyers in Austin were not the same lawyers engaged in the Holder case.

(4) The franchisee, Mr. Barnes, operated a Burger King franchise in California. Presumably, Mr. Barnes would potentially have other claims which arise from the same facts underpinning the claim under the act; viz--breach of the franchise agreement and fraud in the inducement (if not barred by Florida's economic loss rule).

(5) In determining whether particular conduct violates Florida's Little FTC Act, courts generally consider whether the Federal Trade Commission Act, 15 U.S.C. [subsections] 45 et seq., and federal courts deem such conduct to be unfair methods of competition. Mack v. Bristol-Myers Squibb Co., 673 So. 2d 100 (Fla. 1st D.C.A. 1996). However, neither the Federal Trade Commission Act, nor the corresponding Federal Franchise Rule, 16 C.F.R. [sections] 436.1, provides a private right of action to a civil litigant to enforce such provisions. See, e.g., Banek Inc. v. Yogurt Ventures U.S.A., Inc., 6 F.3d 357 (6th Cir. 1993) (noting that the district court dismissed Plaintiff's claim under the Federal Trade Commission franchise rules, holding that there is no private right of action under those rules); Child World, Inc. v. South Towne Centre, Ltd., 634 F. Supp. 1121 (S.D. Ohio 1986) (same); Baum v. Great Western Cities, Inc., 703 F.2d 1197 (10th Cir. 1983) (same); Dreisbach v. Murphy, 658 F.2d 720 (9th Cir. 1981) (same). The Franchise Rule requires a franchisor to provide prospective franchisees with a complete and accurate disclosure--a Uniform Franchise Offering Circular--containing 20 categories of information about the history of the franchisor and the terms and conditions under which the franchise operates. 16 C.F.R. [sections] 436.1(a)(1)-(a)(20); see also Federal Trade Commission v. Jordan Ashley, Inc., 1994 WL 200775 (S.D. Fla. 1994); and Federal Trade Commission v. Wolf, 1996 WL 812940 (S.D. Fla. 1996).

(6) In Ortiz, the Fourth District Court of Appeal, on rehearing, commented upon the inapplicability of not only Florida's Little FTC Act to an out-of-state consumer, but also the inapplicability of Florida's Consumer Collection Practices Act, FLA. STAT.[subsections] 559.55--.785. The court stated that "other states can protect their own residents, as Florida itself does."

Glenn J. Waldman is a shareholder of Waldman Feluren & Trigoboff, P.A., Ft. Lauderdale. He is a civil trial lawyer and a state and federal court mediator. Mr. Waldman's practice includes complex commercial litigation, franchise law, health care and insurance law, entertainment and sports law, and domestic relations. He received his bachelor's degree (economics), magna cum laude, and his law degree, cum laude, from the University of Florida.