Franchisor did not provide Operating Manual. Can I sue my franchisor for my business loss?
Fairfax, VA |
I have signed up a national franchise and running it for 2 years. I have several times asked for Operating Manual but they either ignored or never responded to my request. I am stuck. What should I do? Sue my franchisor for my financial loss?
It's not clear you have any grounds to sue, depends largely on the franchise agreement you signed. Likely there are provisions regarding how disputes must be handled.
NOT LEGAL ADVICE. FOR EDUCATION AND INFORMATION ONLY. Mr. Rafter is licensed to practice before the state and federal courts in Virginia. There is no implied or actual attorney-client relationship arising from this education exchange. You should speak with an attorney licensed in your state, to whom you have provided all the facts before you take steps that may impact your legal rights. Mr. Rafter is under no obligation to answer subsequent emails or phone calls related to this matter.
First, you need to determine the franchisor's obligation to provide an operating manual.You will find this in Item 11 of the FDD the franchisor gave you before you signed the franchise agreement and in the franchise agreement itself.
Then you will need to determine if the failure to provide the manual, if one was to be provided, gives you a basis for legal action.
This can best be analyzed by an experienced franchise lawyer. You should find one in your area and make an appointment.
Kenneth F. Darrow
8440 S. Dixie Highway # 901
Miami, FL 33143
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Did the FDD provide a table oc contents to an Operations Manual? If so, one should have been provided. If the franchisor was obligated to provide one to you, as stated in the FDD, you may have an action against the franchisor. You would also have to show damages that have resulted from this failure. You should consult an experienced franchise attorney. Since you are in VA, you may want to contact the VA franchise regulators and see if they can assist you.
This response does not create an attorney-client relationship and is not intended to provide legal advice for your specific situation.
I agree with my colleagues who tell you that it is necessary to check your contract and the FDD to determine for certain the franchisor's obligation to provide you with an operating manual and, assuming an obligation and failure to fulfill it, what dispute resolution course you must follow. However, fact is, most franchise agreements do contain such an obligation to provide a manual.
So assuming yours is no different, I would need to know the nature of your repeated requests for the manual. For example, how many demands have you made? Have you put any of these in writing? Depending upon your answers to these and similar questions, I would recommend a formal demand and ultimatum, probably sent by an attorney familiar with your situation and experienced in franchise matters, asking for the manual one last time, and stating that a lawsuit will follow if there is no compliance with the demand.
There is one last consideration that would influence your course of action. You say you would like to sue for your "financial loss." As a general rule, the law requires that there be proof of "causation" in any lawsuit. In other words, you need to be prepared to show through tangible evidence that the real, direct cause of your financial loss has been the absence of the promised manual. If other reasons caused your loss, or you cannot show the connection between the loss and the lack of manual, you may have less leverage in your formal demand to the extent that you have less money to recover in any lawsuit you threaten.
In any case, you most definitely need to meet with experience franchise counsel.
You may be able to sue the franchisor for misrepresentation or breach of contract. A review of the franchise disclosure document (FDD) and franchise agreement would have to be competed to determine what the franchisor promised you and what the franchisor is obligated to provide you. Almost uniformly, the franchisor represents in the disclosure document that an operating manual will be provided. And, typically the franchise agreement says the franchisor is obligated to give you a copy of the operating manual. But, it is important to check the documents. You don’t want to just assume.
Secondly, you need to show cause and effect between not getting the operating manual and losing money. This is the hard part. You cannot just say it, you have to provide it.
Dear Fairfax VA, you are in a Franchise registration state which REQUIRES registration of your Franchise Disclosure Document (FDD), which you should have received at least 14 days prior to signing it......and the FDD requirements MANDATE that either the table of contents of the Operations Manual be included in the FDD, OR that you be given an opportunity BEFORE you purchased to view the Operations Manual. There is no option.....contrary to my distinguished colleagues answers, to have an obligation to provide you with one of these choices. If your franchisor did neither, it is in violation of state franchise disclosure and registration laws, which in certain cases, can result in your being able to rescind the franchise purchase and get your money back, and can certainly trigger a state investigation of the franchisor, which is worse than an IRS audit....so they WILL respond to someone who knows the laws.
You don't necessarily need a VA attorney to determine your rights and options in this regard, any franchise attorney that has experience in multi-state registrations can advise you whether they are properly registered, and whether the FDD they gave you is compliant.
I am guessing the Franchisor is relatively new and doesn't have an ops manual (yet), and just made up a table of contents for the FDD registration, which would not satisfy the state laws if this was intentionally made up without an actual manual certainly by the time they sold a franchise..I am guessing you one of the first franchisees?
Aside from the state law violations, you would clearly have a basis to rescind or a fraud situation if your purchase of the franchise was made with reliance that you would be receiving some kind of comprehensive operations Manual, and you have suffered as a result....So, whether to sue or arbitrate, and WHERE, should be outlined in your franchise agreement....it may not be in VA if the franchisor is in another state.
Again, any experienced franchise attorney in any state can give you this review/recommendations on options for private legal action based on your franchise agreement (as well as potentially reporting this to the state and having the state initiate the action).
I would be glad to help you, I have 25 years of Multi-state Franchise and disclosure/registration experience. firstname.lastname@example.org
The foregoing is for informational purposes only and may not be relied on as attorney-client advice.