Federal District Court in Chicago Rejects Franchisor’s Motion to Dismiss Franchisee’s Fraud Claim

by | May 17, 2017 | disclosure violations, Franchisees, Fraud Claims

In a case of interest to franchisors, franchisees, dealers and their attorneys, Carl A. Dissette, et al v. Pie Five Pizza Company, Inc., Randall E. Gier, Mark H. Ramage, and Rave Restaurant Group, Inc., 16 C 11389 (N.D. Ill.), federal judge Thomas R. Durkin of the United States District Court for the Northern District of Illinois has denied the franchisor defendants’ motion to dismiss the complaint for fraud filed by Carmen D. Caruso Law Firm on behalf of the franchisee plaintiffs.

In an oral ruling announced from the bench of May 11, 2017, Judge Durkin agreed with our arguments that the franchisee’s claims for fraud in the franchise sales process were not “incontrovertibly contradicted” by language cited by the franchisor from its Franchise Disclosure Document (FDD) and franchise agreements. The franchisor claims its FDD disclosures are literally true, but the Court agreed that the franchisee may proceed on its allegations that Pie Five’s FDD is materially misleading regardless of the claimed literal truth of its disclosures in Items 6, 8, and 19. Likewise, the Court rejected the franchisor’s contention that disclaimers in the franchise agreement defeat the complaint at the pleading stage.

Please feel free to review the transcript of Judge Durkin’s ruling.

This ruling affirms arguments Caruso has presented to the American Bar Association Forum on Franchising, including his contention that courts must scrutinize franchisor attempts to immunize themselves from fraud claims through disclaimers that do nothing more than create “licenses to lie;” and that omitting material facts from an FDD is often more dangerous than making an outright lie.

The case will now proceed through discovery.

For questions about this case or about claims for fraud in franchising please contact Carmen D. Caruso Law Firm.