Our firm recently met with a franchisee of a relatively new franchise system. The franchisor failed to make certain required disclosures in its Franchise Disclosure Document (FDD). The client purchased the franchise in reliance on the disclosures made in the FDD and on those that were absent (for example, the non-disclosure of litigation history with franchisees), and the franchise did not perform as represented.
As many in the franchise world know—particularly those who have been deceived by a franchisor—the FTC Act—the law that requires the disclosures made in the FDD—does not provide for a private cause of action for failure to comply with the Act’s disclosure requirements. In other words, the Act does not give you the right to sue. It is, in short, the ultimate toothless law—until now.
The lawyers of Ichter Davis made law in 2014 by way of a Georgia Court of Appeals decision holding that a franchisee who is the victim of a violation of the FTC Act’s disclosure requirements can assert a claim under Georgia tort law, specifically, OCGA § 51-1-6. Section 51-1-6 provides that if someone owes a duty to another which duty is breached and causes injury, a claim can be asserted under Georgia tort law. This creative and novel approach effectively incorporated the provisions of the FTC Act into Georgia law by way of the statute. So, if a franchisor fails to comply with the FTC Act and injures a Georgia franchisee as a consequence (or any franchisee whose relationship is governed by Georgia law), the franchisee can sue under Georgia tort law.
That novel idea came from the lawyers of Ichter Davis. Because that is what we do—we create solutions that no one has thought of. For more information about the lawyers at Ichter Davis and we can help you, reach out to Cary Ichter (cichter@ichterdavis.com) or Dan Davis (ddavis@ichterdavis.com) at 404-869-7600.
