Miller v. McDonald's Corp.

Court of Appeals of Oregon
945 P.2d 1107, 150 Or. App. 274 (1997)

ELI5:

Rule of Law:

A franchisor may be held vicariously liable for the negligence of its franchisee if the franchisor retains the right to control the method of the franchisee's daily operations (actual agency) or if the franchisor's branding and imposed uniformity create a reasonable public perception that it operates the franchise, on which the plaintiff relied (apparent agency).

Facts:

McDonald’s Corporation (defendant) entered into a License Agreement with 3K Restaurants (3K) to operate a franchise restaurant.
The agreement required 3K to operate in strict conformity with the 'McDonald's System,' which dictated precise methods for food handling and preparation, inventory control, building design, and employee appearance.
Defendant provided detailed operational manuals and periodically sent field consultants to inspect the restaurant to ensure compliance with its prescribed methods.
The agreement included a clause stating that 3K was an independent contractor and not an agent of the defendant.
The restaurant's appearance, including signs, employee uniforms, and menu, was indistinguishable from other McDonald's restaurants, and nothing obvious indicated it was operated by a separate entity.
Plaintiff purchased a Big Mac sandwich at the Tigard McDonald's restaurant operated by 3K.
While eating the sandwich, Plaintiff bit into a heart-shaped sapphire stone, causing her injuries.
Plaintiff testified that she patronized the restaurant because she relied on the national reputation of McDonald's for quality and standards, based on her experiences at other McDonald's locations.

Procedural Posture:

Plaintiff filed a lawsuit against McDonald's Corporation in a state trial court to recover damages for personal injuries.
Defendant McDonald's Corporation moved for summary judgment, arguing it did not own or operate the restaurant in question.
The trial court granted summary judgment in favor of the defendant.
Plaintiff, as appellant, appealed the trial court's decision to the intermediate appellate court.

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Issue:

Does a franchise agreement that gives a franchisor detailed control over a franchisee's daily operations, particularly food handling and preparation, and requires such uniformity in appearance and standards that the public is led to believe it is dealing with the franchisor, create a triable issue of fact for vicarious liability under theories of actual and apparent agency?

Opinions:

Majority - Warren, P. J.

Yes. A jury could find the defendant franchisor vicariously liable for its franchisee's negligence under theories of both actual and apparent agency. The court reversed the grant of summary judgment. For actual agency, the court applied the 'right to control' test, focusing on whether the franchisor has the right to control the 'method' of the franchisee's performance, not just set standards. The agreement and manuals gave defendant control over the precise methods of 3K's daily operations, including the specific food handling and preparation procedures that allegedly led to plaintiff's injury. This detailed control, enforced by regular inspections and the threat of termination, goes beyond setting mere standards and is sufficient for a jury to find an actual agency relationship existed. For apparent agency, the court applied the test from the Restatement (Second) of Agency § 267, which requires 1) a representation (holding out) by the principal and 2) justifiable reliance by the third party. Defendant held 3K out as its agent by requiring absolute uniformity in branding, operations, and appearance, creating the impression of a single, unified system. Plaintiff's reliance was justifiable because she patronized the restaurant based on the national McDonald's brand and its reputation for quality, which defendant cultivated through its advertising and strict standards. The court rejected defendant's argument that plaintiff had to specifically rely on the belief that McDonald's Corporation itself owned the restaurant, noting that defendant's own marketing makes it nearly impossible for a consumer to distinguish between corporate-owned and franchised locations.

Analysis:

This decision is significant for franchise law as it demonstrates that a franchisor cannot completely insulate itself from tort liability simply by including an 'independent contractor' clause in its agreement. The court's analysis shows that extensive operational control, imposed to protect brand uniformity, can simultaneously create grounds for vicarious liability. The ruling makes it more difficult for major franchisors to obtain summary judgment in negligence cases, forcing them to face a jury if they exercise detailed control over the daily operations that lead to a plaintiff's injury or cultivate a public image of a single, seamless enterprise. This precedent pressures franchisors to carefully balance the need for brand consistency against the risk of being held liable for the actions of their franchisees.

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