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Franchisor Not Responsible for Rogue Salesman

Franchisor Not Responsible for Rogue Salesman

franchise lawyer in new jerseyPlaintiffs, Franchisee of Retrofitness, having a gym facility in New Jersey, were persuaded by a salesman for the Franchisor to invest in an established Retrofitness franchise in Florida. The salesman first met the Plaintiffs when they inquired about a Retrofitness territory in New Jersey. The salesman was the owner of another New Jersey Retrofitness franchise, and was authorized by the Franchisor to meet with prospective franchisees, answer their questions about the franchise process, and take their applications.

Several weeks after the Plaintiffs paid the Retrofitness application fee for the New Jersey unit, the salesman solicited them to invest in the Florida unit. He represented only that the Franchisor was interested in expanding its East Coast presence in Florida. The Plaintiffs gave the salesman $240,000.00 (and another $50,000 at a later date to an associate) believing they were purchasing a 25% interest in the Florida franchise.

However, the salesman was not a Franchisee or even part owner of the Florida unit, and Plaintiffs later learned that they had no ownership interest in the gym. They filed suit in the Superior Court alleging that Retrofitness was liable for their losses due to an agency relationship with the salesman. Alternatively, they argued that the salesman had the apparent authority of Retrofitness to solicit the Plaintiffs. Finally, they asserted that the Franchisor was responsible for negligent hiring.

The evidence before the Court established that the Franchisor knew nothing about the salesman’s involvement in the Florida franchise, knew nothing about his efforts to ostensibly raise investment money for that franchise; moreover, the franchise agreement stated that each Franchisee was an independent contractor from Retrofitness. The Plaintiff admitted in deposition that she understood the salesman was acting on behalf of the Florida Franchisee, and not the Franchisor.

The trial court dismissed the complaint on Franchisor’s motion seeking summary judgment. The judge found that there was no evidence of an agency relationship between Franchisor and salesman, neither actual nor apparent authority, and that there was no evidence of negligent hiring.

The Appellate Division affirmed on all issues.

Citation: 2017 N.J. Super. Unpub. LEXIS 1117

BE ADVISED that these comments are not intended as legal opinions and are not to be relied upon as legal advice. If you need franchise-related legal advice, please contact us to discuss the specifics of your franchise business.
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