dolution

Miller v. McDonald’s Corporation

FACTS Joni Miller seeks damages from defendant McDonald’s Corporation for injuries that she suffered when she bit into a heart-shaped sapphire stone while eating a Big Mac sandwich that she had purchased at a McDonald’s restaurant in Tigard. McDonald’s claims it is not liable because the 3K Corporation owns the restaurant. 3K owned and operated the restaurant under a License Agreement with McDonald’s that required 3K to operate in a manner consistent with the “McDonald’s System.” This system includes proprietary rights in trademarks, “designs and color schemes” for restaurant buildings and signs, and specifications for certain food products as well as other business practices and policies. 3K, as the licensee, agreed to adopt and exclusively use the business practices of McDonald’s. Despite these detailed instructions, the Agreement provided that 3K was not an agent of McDonald’s for any purpose. Rather, it was an independent contractor and was responsible for all obligations and liabilities, including claims based on injury, illness, or death directly or indirectly resulting from the operation of the restaurant.
Miller was under the assumption that McDonald’s owned, controlled, and managed the restaurant because its appearance and menu were similar to that of other McDonald’s restaurants. In short, Miller testified, she went to the Tigard McDonald’s because she relied on defendant’s reputation and because she wanted to obtain the same quality of service, standard of care in food preparation, and general attention to detail that she had previously enjoyed at other McDonald’s restaurants.
The trial court granted summary judgment to McDonald’s on the ground that it did not own or operate the restaurant; rather, the owner and operator was a nonparty, 3K Restaurants, which held a franchise from McDonald’s. Miller appeals.

DECISION Reversed and remanded.

OPINION Under these facts, 3K would be directly liable for any injuries that Miller suffered as a result of the restaurant’s negligence. The issue on summary judgment is whether there is evidence to permit a jury to find McDonald’s vicariously liable for those injuries because of its relationship with 3K. Miller asserts two theories of vicarious liability: actual agency and apparent agency.
Under actual agency, in order for McDonald’s to be vicariously liable for 3K’s negligence, McDonald’s must have the right to control the method by which 3K performed its obligations under the Agreement. A number of courts have applied the right to control test to a franchise relationship. If, in practical effect, the franchise Agreement goes beyond the stage of setting standards and allocates to the franchisor the right to exercise control over the daily operations of the franchise, an agency relationship exists. We believe that a jury could find that McDonald’s retained sufficient control over 3K’s daily operations so that an actual agency relationship existed. The Agreement did not simply set standards that 3K had to meet. Rather, it required 3K to use the precise methods that McDonald’s established, including the ways in which 3K was to handle and prepare food. McDonald’s enforced the use of those methods by regularly sending inspectors and by its retained power to cancel the Agreement. That evidence would support a finding that McDonald’s had the right to control the way in which 3K performed at least food handling and preparation.
Miller next asserts that McDonald’s is vicariously liable for 3K’s alleged negligence because 3K was an apparent agent of McDonald’s. The crucial issues are whether the putative principal held the third party out as an agent and whether Miller relied on that holding out. McDonald’s does not seriously dispute that a jury could find that it held 3K out as its agent. Everything about the appearance and operation of the Tigard McDonald’s identified it with the common image for all McDonald’s restaurants. Rather, it argues that there is insufficient evidence that Miller justifiably relied on that holding out. In this case, Miller testified that she relied on the general reputation of McDonald’s in patronizing the Tigard restaurant and in her expectation of the quality of the food and service that she would receive. Especially in light of McDonald’s efforts to create a public perception of a common McDonald’s system at all McDonald’s restaurants, whoever operated them, a jury could find that Miller’s reliance was objectively reasonable. The trial court erred in granting summary judgment on the apparent agency theory.

INTERPRETATION If a franchisor exercises sufficient control over its franchisee’s operations, actual agency and/or apparent agency can exist and cause the franchisor to be held vicariously liable as a principal for the acts of the franchisee even if their written agreement provides that no agency relationship exists.

Do you agree that a franchise relationship should under certain circumstances be treated as an agency relationship? Explain.