Franchise law is a very important subject for both franchisors and franchisees. It is always essential for both sides to understand their rights and the FDD plays a critical role in creating an understanding between both parties. A top law blog has written an article of note about a court case in Colorado that examines the power of the FDD.
Here’s the nuts and bolts of the case: 10 franchisees of Peaberry Coffee Inc brought the franchisor to court for what they claimed were contract breaches. As the International Law Office bloggers report: "The franchisees' claims rested, in large part, on two distinct non-disclosure theories: (i) the defendants' failure to disclose net losses of the parent's stores; and (ii) the defendants' failure to disclose the parent company's losses.
Now, there’s a lot of legalese involved in this case. It's central point pertains to this: how much financial information should prospective franchisees be allowed to access before investing in a business? I can understand why someone about to invest in a business is right to think they should to see every last spreadsheet with financial figures. Still, most states require FDDs, which capture the financial state of a franchise pretty well. These franchisees didn’t feel that it was enough, obviously.
Interestingly, the court and an appeal court ruled on the side of the franchisor, and felt that they had provided accurate information. Those interested in how the case was resolved should read the entire article. The ILO bloggers leave franchisees with the following bit of analysis:
Finally, franchisors should note that the basic exculpatory clauses included in their franchise disclosure documents and franchise agreements may be insufficient. The trial court and Colorado Court of Appeals opinions both spent a considerable amount of time discussing these exculpatory clauses in Peaberry's franchise disclosure document, franchise agreement and franchisee questionnaire.