The Florida Franchise Misrepresentation Act
The Florida Franchise Misrepresentation Act was enacted in 1971 as a criminal statute, and addressed some longstanding issues in the area of business law. Since then, the act has been amended to create a private right of action when someone selling or establishing a franchise makes certain misrepresentations to the franchisee. Thus, the act does not affect the substantive franchise relationship or the terms of a contract, but only prohibits certain actions by a franchisor, providing a significant amount of protection to those looking to invest.
What is a Franchise?
Franchises and distributorships are defined much more broadly by Florida’s Franchise Misrepresentation Act than by the Federal Trade Commission. Under Florida’s statute, a franchise or distributorship is a contract or agreement that can be either express or implied, and either oral or written, made between two or more persons where:
- A commercial relationship exists, with a definite duration or continuing indefinite duration;
- The franchisee is granted the right to offer, sell, and distribute goods or services manufactured, processed, distributed, or organized and directed by a franchisor;
- The franchisee as an independent business is a part of the franchisor’s distribution system; and
- The operation of the franchisee’s business is substantially reliant on the franchisor for the basic supply of goods.
This broad understanding of a franchise encompasses many types of business relationships, including product distribution agreements between two or more parties.
The Elements of Franchise Misrepresentation
A private right to sue is created under the act when a person selling or establishing a franchise:
- Misrepresents the prospects or chances of success of a proposed or existing franchise or distributorship;
- Fails to disclose or otherwise misrepresents the known required total investment for such franchise or distributorship; or
- Makes efforts to sell or establish more franchises or distributorships than is reasonable to expect the market to sustain.
For purposes of the statute, a “person” can mean:
- An individual;
- A partnership;
- A corporation;
- An association; or
- Any entity doing business in Florida.
The Franchise Misrepresentation Act may not govern franchisors headquartered in Florida if the claims relate to a franchisee that is located outside of the state. However, franchisors with headquarters outside of Florida are required to comply with the act when doing business with a franchisee based in Florida. In one case, the court stated that as long as the franchisor was “doing business” in Florida, the act applied.
A person convicted of franchise misrepresentation commits a second degree misdemeanor. Second degree misdemeanors are punishable by no more than 60 days in prison and the payment of a fine of up to $500.
A party injured by these types of misrepresentations has the right to a return of all capital invested in the franchise, as well as the recovery of reasonable attorney’s fees and the costs incurred from bringing the action.
If you are considering investing in a franchise or have already done so and believe that the franchisor has seriously misrepresented important factors, it is essential to retain an attorney to help you protect your investment. Please contact the Law Offices of Larry E. Bray in Boca Raton for a consultation.