Fantastic Sams and Defendants PSTEVO, LLC and Jeremy Baker entered into a franchise agreement pursuant to which Fantastic Sams granted PSTEVO a franchise to operate a Fantastic Sams Salon. According to PSTEVO, prior to entering into the agreement, Baker met with two agents of Fantastic Sams. At the meeting, they presented Baker with various financial disclosure documents that allegedly stated that PSTEVO needed only three months of working capital to open the salon, and thereafter PSTEVO could expect the salon to be profitable. PSTEVO claimed that Fantastic Sams’ website contained the same misrepresentation and that one of the agents also told Baker that he only needed three months of working capital before he could expect the salon to be profitable. PSTEVO further alleges that the agents knew that these statements were false, that it would take longer than three months for the salon to become profitable, and that these misrepresentations were material in that PSTEVO relied on them in deciding whether to enter into the franchise agreement.
Fantastic Sams sued PSTEVO, seeking declaratory relief with regard to various terms of the franchise agreement. PSTEVO answered Fantastic Sams’
complaint and asserted several counterclaims, including one for fraudulent misrepresentation.
JUDGE SARA ELLIS …Fantastic Sams advances several arguments in support of its motion to dismiss PSTEVO’s fraudulent misrepresentation claim, one of which is that the claim is barred by two disclaimers contained in the agreements signed by the Parties. The relevant disclaimers state as follows: (1) “NO ORAL, WRITTEN OR VISUAL CLAIM OR REPRESENTATION WHICH CONTRADICTED THE DISCLOSURE DOCUMENT WAS MADE TO ME, EXCEPT:”
and (2) “NO ORAL, WRITTEN OR VISUAL CLAIM OR REPRESENTATION WHICH STATED OR SUGGESTED ANY SALES, INCOME, OR PROFIT LEVELS WAS MADE TO ME, EXCEPT:” … Each disclaimer provided several lines for written responses. After each disclaimer Baker wrote the word “none,”
and initialed his response. Fantastic Sams thus argues that PSTEVO is precluded from claiming that it relied on Fantastic Sams’ or its agents’ representations regarding projected profitability. Because reliance is a necessary element of fraudulent misrepresentation claim, Fantastic Sams argues that PSTEVO’s claim necessarily fails.
PESTEVO does not dispute that Baker indicated “none” after each disclaimer. Nor does PSTEVO dispute the general enforceability of the disclaimers.
Rather, PSTEVO argues that the disclaimers do not apply to the particular misrepresentations alleged. Specifically, PSTEVO argues that the first disclaimer does not bar its fraudulent misrepresentation claim because PSTEVO does not allege that the misrepresentations contradicted the disclosure documents. Rather, PSTEVO asserts that the disclosure documents contained the same alleged misrepresentation as those made by Boitz and contained on Fantastic Sams’ website.
In other words, the alleged misrepresentations made by Boitz and Fantastic Sams’ website were consistent with, rather than contradicted by, the disclosure documents. The Court agrees and finds that the first disclaimer does not bar PSTEVO’s fraudulent misrepresentation claim.
With regard to the second disclaimer, PSTEVO argues that it does not preclude its fraudulent misrepresentation claim because its claim is premised on “minimum viability,” not guaranteed income. In making this argument, PSTEVO does not cite to its counterclaim, which upon the Court’s review does not contain the words “minimum viability.” Nor does PSTEVO cite to any portion of the disclosure documents or website that allegedly discusses “minimum viability.” Either way, the Court finds that PSTEVO’s argument directly contradicts the allegations found in PSTEVO’s counterclaim. PSTEVO’s fraud counterclaim is clearly premised on the assertion that Fantastic Sams misrepresented projected profit levels, i.e., that PSTEVO could expect to be profitable three months after opening the salon. (PSTEVO “only needed 3 months of working capital, which is the average length of time for salons to break even on the costs of opening and operating”); (“[the] materials also presented 3 months of working capital as the average amount needed to become profitable.”); (“The statements by Boitz and Fantastic Sams that only three months of working capital would be needed, and thereafter Baker could expect to be profitable, were material.”). The second disclaimer expressly disclaims that any such representations regarding projected sales, income, or profit levels were made. It is undisputed that Baker affirmed in response to this disclaimer that no such representations were made to him. PSTEVO’s claim that Fantastic Sams represented that PSTEVO could expect to be profitable after three months of operating is thus barred.
Motion to Dismiss is granted.
CRITICAL THINKING:
According to the judge’s reasoning, it was PSTEVO’s own actions that led to the case being dismissed. What should PSTEVO have done differently?
ETHICAL DECISION MAKING:
What general values might the court be interested in protecting in this ruling? How are they similar to values upheld by other cases in this chapter? How are they different? What opposing values are less important in these rulings?