To-Am Equipment Co., Inc. v. Mitsubishi Caterpillar Forklift America, Inc. 152 F.3d 658 (7th Cir. 1998) ToAm entered into a dealership agreement for forklifts with Mitsubishi Caterpillar Forklift American, Inc. (MCFA). ToAm had been doing business in south Chicago since 1973, servicing, renting, and repairing forklifts. Over the years it also sold a number of different brands of forklifts, including those made by Clark, Yale, and Hyster, though prior to its contract with MCFA it sold only used forklifts. Before allowing ToAm to become a Mitsubishi dealer MCFA required ToAm to relocate to a larger showroom. ToAm complied and moved to Frankfort, Illinois. During the years it served as a Mitsubishi dealer ToAm continued to handle used forklifts manufactured by Mitsubishis competitorsin other words, the dealership did not require exclusivity on ToAms part. On the other hand, the agreement conferred on ToAm an exclusive Area of Primary Responsibility (APR), consisting of four Illinois counties and one county in Indiana, in which MCFA did not have and agreed not to create a competing dealership. ToAm was required to participate in Mitsubishis warranty program. This meant, among other things, that ToAm had to maintain trained personnel and provide prompt warranty and non-warranty service on all Mitsubishi products within its APR. To comply with these requirements, ToAm participated in all of MCFAs training programs, apparently for the most part at its own expense. ToAm was also required to maintain an adequate supply of current [MCFA] sales and service publications. ToAm did so by keeping a master set of manuals in its parts department, a second set in its service department, and additional manuals in its mobile service vehicles. MCFA provided one set of these manuals in 1985 when ToAm became a distributor, but thereafter ToAm had to order additional manuals for the other locations where it kept manuals, for updating, and when manuals wore out. MCFA invoiced ToAm for these additional manuals, and over the years ToAm paid over $1,600 for them. In February 1994, MCFA notified ToAm that it was terminating the dealership agreement effective April 2, 1994, in accordance with Article XI para. 1 of the agreement, which permitted either party to terminate upon 60 days written notice. This step was a blow to ToAms business, even though after MCFAs action ToAm continued to service, repair, lease, and rent Mitsubishi forklift trucks, and continued to service and repair other brands of forklift trucks. The reason was simple: Mitsubishi forklifts were the only new vehicles that ToAm had been selling. The loss of ToAms line of new trucks had ripple effects on its business going far beyond the immediate lost sales. ToAm therefore brought this suit against MCFA. ToAm alleged violations of the Illinois Franchise Disclosure Act for the wrongful termination of its franchise without good cause, and breach of contract by MCFA for its failure to repurchase ToAms inventory following termination. Before trial, MCFA moved for summary judgment on the question whether To Am had paid any franchise fees within the meaning of the Illinois Act, which the district court granted in part and denied in part. It rejected ToAms contention that several types of payments to MCFA were in fact indirect franchise fees, including ToAms argument that payments to MCFA for ToAm employees attending MCFA service schools amounted to franchise fees. On the other hand, the court concluded that ToAms payments for service and parts manuals were required and therefore could satisfy the statutory definition of a franchise fee. The case went to trial on the two remaining criteria for whether ToAm was a franchisee: (1) did ToAm pay MCFA an indirect franchise fee of $500 or more, and (2) did the distributorship agreement give ToAm the right to conduct its business under a marketing plan prescribed or suggested in substantial part by MCFA. The jury found for ToAm on both questions, and awarded To-Am $1.525 million in damages. MCFA timely appealed. DIANE P. WOOD, CIRCUIT JUDGE. *** A. Franchise Fees The Franchise Disclosure Act defines a franchise fee as follows: [A]ny fee or charge that a franchisee is required to pay directly or indirectly for the right to enter into a business or sell, resell, or distribute goods, services or franchises under an agreement, including, but not limited to, any such payments for goods or services, provided that the Administrator may by rule define what constitutes an indirect franchise fee, and provided further that the following shall not be considered the payment of a franchise fee [setting forth six exceptions, none of which MCFA argues apply here]. As this section specifically contemplates, the Illinois Attorney General, as the Administrator of the statute, has issued a number of pertinent implementing regulations. First, he has elaborated on the definition of the term franchise fee: A franchise fee within the meaning of Section 3(14) of the Act may be present regardless of the designation given to or the form of the fee, whether payable in lump sum or installments, definite or indefinite in amount, or partly or wholly contingent on future sales, profits or purchases of the franchise business. In addition: (a) Any payment(s) in excess of $500 that is required to be paid by a franchisee to the franchisor or an affiliate of the franchisor constitutes a franchise fee unless specifically excluded by Section 3(14) of the Act. (c) A payment made to a franchisor or affiliate for equipment, materials, real estate services, or other items shall not constitute a franchise fee if the purchase of the items is not required by the franchisor or the franchisee is permitted to purchase the items from sources other than the franchisor or its affiliates and the item is available from such other sources. These definitions are obviously sweeping in their scope. The sum of $500, all that has to be paid over the entire life of a franchise, is less than small change for most businesses of any size. Furthermore, the regulations explicitly allow this small amount to be paid either in a lump sum or in installments, to be definite or indefinite in amount, and to be partly or wholly contingent on different, possibly quite unpredictable, variables. In short, the Illinois legislature and the designated Administrator, the Attorney General, could not have been more clear. They wanted to protect a wide class of dealers, distributors, and other franchisees from specified acts, such as terminations of their distributorships (franchises) for anything less than good cause. MCFA begins with the factual assertion that ToAm was not required to pay it anything under the terms of the agreement, and certainly no form of franchise fee. It is true that the agreement has no article entitled Periodic Franchise Payments, but the Illinois statute and administrative regulations we have just quoted make it clear that no such precision is required. Article III para. 14 says that the dealer was required to [m]aintain an adequate supply of current [MCFA] sales and service publications. The jury was entitled to view this as an indirect fee or charge for the right to enter into the business of distributing MCFA lift trucks, which was payable over time, and which exceeded the statutory floor of $500 by a factor of more than three. Like many manufacturers, MCFA simply did not appreciate how vigorously Illinois law protects franchisees. This does not mean that terminations are impossible, but it does mean that they usually must be the subject of negotiation unless the manufacturer is able to show good cause. MCFA has conceded that it cannot meet that standard, and it did not litigate the case under that theory. We have considered its remaining arguments and find nothing that requires reversal. While we understand MCFAs concern that dealerships in Illinois are too easily categorized as statutory franchisees, that is a concern appropriately raised to either the Illinois legislature or Illinois Attorney General, not to this court. We therefore AFFIRM the judgment of the district court. Miller v. McDonalds Corp. 945 P.2d 1107 (Or. App. 1997) Plaintiff seeks damages from defendant McDonalds Corporation for injuries that she suffered when she bit into a heart-shaped sapphire stone while eating a Big Mac sandwich that she had purchased at a McDonalds restaurant in Tigard. 3K owned and operated the restaurant under a License Agreement (the Agreement) with defendant that required it to operate in a manner consistent with the McDonalds System. The Agreement described that system as including proprietary rights in trade names, service marks and trade marks, as well as designs and color schemes for restaurant buildings, signs, equipment layouts, formulas and specifications for certain food products, methods of inventory and operation control, bookkeeping and accounting, and manuals covering business practices and policies. The manuals contain detailed information relating to operation of the Restaurant, including food formulas and specifications, methods of inventory control, bookkeeping procedures, business practices, and other management, advertising, and personnel policies. 3K, as the licensee, agreed to adopt and exclusively use the formulas, methods, and policies contained in the manuals, including any subsequent modifications, and to use only advertising and promotional materials that defendant either provided or approved in advance in writing. The Agreement described the way in which 3K was to operate the restaurant in considerable detail. It expressly required 3K to operate in compliance with defendants prescribed standards, policies, practices, and procedures, including serving only food and beverage products that defendant designated. 3K had to follow defendants specifications and blueprints for the equipment and layout of the restaurant, including adopting subsequent reasonable changes that defendant made, and to maintain the restaurant building in compliance with defendants standards. 3K could not make any changes in the basic design of the building without defendants approval. The Agreement required 3K to keep the restaurant open during the hours that defendant prescribed, including maintaining adequate supplies and employing adequate personnel to operate at maximum capacity and efficiency during those hours. 3K also had to keep the restaurant similar in appearance to all other McDonalds restaurants. 3Ks employees had to wear McDonalds uniforms, to have a neat and clean appearance, and to provide competent and courteous service. 3K could use only containers and other packaging that bore McDonalds trademarks. The ingredients for the foods and beverages had to meet defendants standards, and 3K had to use only those methods of food handling and preparation that [defendant] may designate from time to time. In order to obtain the franchise, 3K had to represent that the franchisee had worked at a McDonalds restaurant; the Agreement did not distinguish in this respect between a company-run or a franchised restaurant. The manuals gave further details that expanded on many of these requirements. In order to ensure conformity with the standards described in the Agreement, defendant periodically sent field consultants to the restaurant to inspect its operations. 3K trained its employees in accordance with defendants materials and recommendations and sent some of them to training programs that defendant administered. Failure to comply with the agreed standards could result in loss of the franchise. Despite these detailed instructions, the Agreement provided that 3K was not an agent of defendant for any purpose. Rather, it was an independent contractor and was responsible for all obligations and liabilities, including claims based on injury, illness, or death, directly or indirectly resulting from the operation of the restaurant. Plaintiff went to the restaurant under the assumption that defendant owned, controlled, and managed it. So far as she could tell, the restaurants appearance was similar to that of other McDonalds restaurants that she had patronized. Nothing disclosed to her that any entity other than defendant was involved in its operation. The only signs that were visible and obvious to the public had the name McDonalds, the employees wore uniforms with McDonalds insignia, and the menu was the same that plaintiff had seen in other McDonalds restaurants. The general appearance of the restaurant and the food products that it sold were similar to the restaurants and products that plaintiff had seen in national print and television advertising that defendant had run. To the best of plaintiffs knowledge, only McDonalds sells Big Mac hamburgers. In short, plaintiff testified, she went to the Tigard McDonalds because she relied on defendants reputation and because she wanted to obtain the same quality of service, standard of care in food preparation, and general attention to detail that she had previously enjoyed at other McDonalds restaurants. WARREN, PRESIDING JUDGE. Under these facts, 3K would be directly liable for any injuries that plaintiff suffered as a result of the restaurants negligence. The issue on summary judgment is whether there is evidence that would permit a jury to find defendant vicariously liable for those injuries because of its relationship with 3K. Plaintiff asserts two theories of vicarious liability, actual agency and apparent agency. We hold that there is sufficient evidence to raise a jury issue under both theories. We first discuss actual agency. The kind of actual agency relationship that would make defendant vicariously liable for 3Ks negligence requires that defendant have the right to control the method by which 3K performed its obligations under the Agreement. As the various cases show, it may be difficult to determine when a franchisor has retained a right not only to set standards but also to control the daily operations of the franchisee. We believe that a jury could find that defendant retained sufficient control over 3Ks daily operations that an actual agency relationship existed. The Agreement did not simply set standards that 3K had to meet. Rather, it required 3K to use the precise methods that defendant established, both in the Agreement and in the detailed manuals that the Agreement incorporated. Those methods included the ways in which 3K was to handle and prepare food. Defendant enforced the use of those methods by regularly sending inspectors and by its retained power to cancel the Agreement. That evidence would support a finding that defendant had the right to control the way in which 3K performed at least food handling and preparation. In her complaint, plaintiff alleges that 3Ks deficiencies in those functions resulted in the sapphire being in the Big Mac and thereby caused her injuries. Plaintiff next asserts that defendant is vicariously liable for 3Ks alleged negligence because 3K was defendants apparent agent. The centrally imposed uniformity is the fundamental basis for the courts conclusion that there was an issue of fact whether the franchisors held the franchisees out as the franchisors agents. Everything about the appearance and operation of the Tigard McDonalds identified it with defendant and with the common image for all McDonalds restaurants that defendant has worked to create through national advertising, common signs and uniforms, common menus, common appearance, and common standards. The possible existence of a sign identifying 3K as the operator does not alter the conclusion that there is an issue of apparent agency for the jury. There are issues of fact of whether that sign was sufficiently visible to the public, in light of plaintiffs apparent failure to see it, and of whether one sign by itself is sufficient to remove the impression that defendant created through all of the other indicia of its control that it, and 3K under the requirements that defendant imposed, presented to the public. Defendant does not seriously dispute that a jury could find that it held 3K out as its agent. Rather, it argues that there is insufficient evidence that plaintiff justifiably relied on that holding out. It argues that it is not sufficient for her to prove that she went to the Tigard McDonalds because it was a McDonalds restaurant. Rather, she also had to prove that she went to it because she believed that McDonalds Corporation operated both it and the other McDonalds restaurants that she had previously patronized. It states: All [that] the Plaintiffs affidavit proves is that she went to the Tigard McDonalds based in reliance on her past experiences at other McDonalds. But her affidavit does nothing to link her experiences with ownership of those restaurants by McDonalds Corporation. Defendants argument both demands a higher level of sophistication about the nature of franchising than the general public can be expected to have and ignores the effect of its own efforts to lead the public to believe that McDonalds restaurants are part of a uniform national system of restaurants with common products and common standards of quality. A jury could find from plaintiffs affidavit that she believed that all McDonalds restaurants were the same because she believed that one entity owned and operated all of them or, at the least, exercised sufficient control that the standards that she experienced at one would be the same as she experienced at others. Plaintiff testified in her affidavit that her reliance on defendant for the quality of service and food at the Tigard McDonalds came in part from her experience at other McDonalds restaurants. Defendants argument that she must show that it, rather than a franchisee, operated those restaurants is, at best, disingenuous. A jury could find that it was defendants very insistence on uniformity of appearance and standards, designed to cause the public to think of every McDonalds, franchised or unfranchised, as part of the same system, that makes it difficult or impossible for plaintiff to tell whether her previous experiences were at restaurants that defendant owned or franchised. Especially in light of defendants efforts to create a public perception of a common McDonalds system at all McDonalds restaurants, whoever operated them, a jury could find that plaintiffs reliance was objectively reasonable. The trial court erred in granting summary judgment on the apparent agency theory. Reversed and remanded. Problems 1. Defendant manufactures an upscale line of sodas marketed under the name Stewarts. Plaintiffs distributed the sodas in Minnesota. Previously plaintiffs were beer distributors, and therefore already owned the facilities and equipment and employed the personnel necessary for the distribution of the sodas. After several years, Defendant decided to distribute the sodas directly and terminated the distribution agreements. Plaintiffs argued that they were franchisees under the business opportunity provision of the Minnesota Franchise Act and that Defendant could not terminate them without good cause. Minnesota law defined a business opportunity as the sale or lease of any products for the purpose of enabling the purchaser to start a business [and] guarantees that the purchaser will derive income from the business which exceeds the price paid to the seller. WAS THIS ARRANGEMENT A BUSINESS OPPORTUNITY? WHY OR WHY NOT? 2. In 1993, Airborne Freight Corp., a package delivery service, and East Wind Express, Inc. entered into a contract under which East Wind would provide pickup, transport and delivery services for Airborne in northern Oregon. Customers would call Airborne and ask to have a package delivered. Airborne would then radio an East Wind driver who would then pick up the customers package. East Wind used Airbornes trademarks on its trucks and uniforms. Airborne billed the customers directly and assumed all liability for the package from the time of pickup to the time of delivery. Airborne paid East Wind based on the average number of packages carried per day. The agreement further stated that East Winds use of Airbornes trademarks on its uniforms and trucks was an advertising service and was compensated for according to advertising fees. Airborne specified the standards that applied to the use of its trademarks by East Wind. Eventually Airborne terminated the contract. Airborne argued that East Wind was an independent contractor who could be terminated at will; East Wind claimed that it was a franchisee who could not be terminated without cause. WAS EAST WIND A FRANCHISEE OR AN INDEPENDENT CONTRACTOR? WHY? 3. Dana Hoffnagle was an employee at a McDonalds restaurant owned by a franchisee, Rapid-Mac, Inc. One evening, two men entered the restaurant, grabbed Hoffnagle and attempted to force her into their car. A manager of the restaurant helped her escape and return to the restaurant, but did not lock the doors or call the police. Later one of the men returned to the restaurant and again tried to force Hoffnagle outside. The manager again intervened and the men left. This time the manager phoned the police. Hoffnagle filed for workers compensation benefits, which she received. She then sued McDonalds arguing that McDonalds had the ability to control the operations of the restaurant and was liable for negligence for failing to exercise such control. The agreement between McDonalds and Rapid-Mac required Rapid-Mac to adhere to McDonalds standards and policies for providing for the uniform operation of all McDonalds restaurants and included use of prescribed building layout and design. Rapid-Mac was also required to use business manuals for training managerial employees. Rapid-Mac had the power to control day-today operations of its restaurants, including hiring, firming, supervising, and disciplining employees. Hoffnagle argued that McDonalds had the right to control the property upon which she was assaulted and that McDonalds had failed to provide adequate security and that the manager was not appropriately trained because she failed to lock the doors or call the police after the first assault. IS MCDONALDS VICARIOUSLY LIABLE FOR HOFFNAGLES INJURIES? WHY OR WHY NOT?
To-Am Equipment Co., Inc. v. Mitsubishi Caterpillar Forklift America, Inc
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