Question

The Southland Corporation (Southland) owns the 7-Eleven trademark and licenses franchisees to operate convenience stores using this trademark. Each franchise is independently owned and operated. The franchise agreement stipulates that the franchisee is an independent contractor who is authorized to make all inventory, employment, and operational decisions for the franchise.Timothy Cislaw, 17 years old, died of respiratory failure. His parents filed a wrongful death action against the franchisee, a Costa Mesa, California, 7-Eleven franchise store, and Southland, alleging that Timothy’s death resulted from his consumption of Djarum Specials (clove cigarettes) sold at the Costa Mesa, California, 7-Eleven franchise store. The Costa Mesa 7-Eleven was franchised to Charles Trujillo and Patricia Colwell-Tru-jillo. Southland defended, arguing that it was not liable for the alleged tortious conduct of its franchisee because the franchisee was an independent contractor. The plaintiffs alleged that the franchisee was Southland’s agent and therefore Southland was liable for its agent’s alleged negligence of selling the clove cigarettes to their son. Is the Costa Mesa franchisee an agent of Southland, thus making Southland liable for the alleged tortious conduct of its franchisee? Does the doctrine of apparent agency apply in this case? Who wins?

Answer 1

Answer:

This is a true court case that took place in 1992:

Cislaw v. Southland Corporation, 4 Cal. App. 4th 1284, 6 Cal. Rptr. 2d 386, 1992 Cal. App. Lexis 375 (Court of Appeal of California)

The court ruled in favor of Southland Corporation based on the following:

1. "The general rule is where a franchise agreement gives the franchisor the right of complete or substantial control over the franchisee, an agency relationship exists."
2. "In the field of franchise agreements, the question of whether the franchisee is an independent contractor or an agent is ordinarily one of fact, depending on whether the franchisor exercises complete or substantial control over the franchisee."
3. "mere licensing of trade names does not create agency relationships either ostensible or actual."
4. "The Cislaws claim, however, that the Trujillos' rights to run the operation are illusory and that, in reality, the franchise agreement allows Southland to control the Financial, Executive and Operational aspects of the franchised store." The court stated: "We disagree."

The court rejected the apparent agency doctrine since a principal-agency relationship exists when the franchisor can exercise complete control over the franchisee. The Trujillos exercised full control of their franchise and Southland couldn't tell them who to hire, what to buy and who they should sell to. Including the decision to sell clover cigarettes. All franchised 7-Eleven stores are independently owned and operated businesses, Southland only charged a monthly fee.