Most experienced franchisors know better than to make claims about profits franchisees can expect when those claims do not match the information in the franchisor's Franchise Disclosure Document. However, if a franchisor or its representative does make a profit claim, can you rely on it?

In Fantastic Sams Salons Corp. v. PSTEVO, LLC, a franchisee claimed that, before he signed a Fantastic Sams Franchise Agreement, he was given promising financial documents in a private meeting with a company vice president and regional director. According to the franchisee, the documents showed that the salon would be profitable after just three months of operation. When the salon was not, in fact, profitable after three months, the franchisee sued Fantastic Sams for fraudulent misrepresentation.

However, as many franchisors do, Fantastic Sams required the franchisee to sign a disclaimer as a pre-condition to signing the franchise agreement. In that disclaimer was a statement that "NO ORAL, WRITTEN OR VISUAL CLAIM OR REPRESENTATION WHICH STATED OR SUGGESTED ANY SALES, INCOME, OR PROFIT LEVELS WAS MADE TO ME, EXCEPT:" Though several blank lines followed the statement, the franchisee wrote the word "None". The court found this disclaimer defeated the franchisee's claim of fraudulent misrepresentation, and dismissed his claim. Another court recently dismissed a franchisee's fraud claim when the disclaimer was just a provision in the franchise agreement itself. Moxie Venture LLC et al v. UPS Store, Inc.

Had the Fantastic Sams franchisee described representations on the blank lines of the disclaimer, the franchisor may not have moved forward to sign a franchise agreement. For some franchisors, one purpose of the disclaimer is to screen out franchisees having potential to make the kinds of allegations described above. So what should a franchisee do if a franchisor makes profit claims, yet requires signing a disclaimer, or a franchise agreement with a disclaimer? In some systems, the answer is to choose between walking away from a deal that may involve misrepresentations, or going forward based on projections that are not supported, and without being able to rely on the representations provided.

Click to read: Fantastic Sams Salons Corp., v. Pstevo, LLC and Jeremy Baker or, Moxie Venture LLC v. The UPS Store, Inc.