Campbell v. Southland Corp.

Decision Date23 March 1994
Docket NumberNos. 9003-01809,s. 9003-01809
Citation871 P.2d 487,127 Or.App. 93
PartiesDarren CAMPBELL and Elizabeth Campbell, Appellants, v. SOUTHLAND CORPORATION, a Texas corporation, Respondent, and Larry Reed, Defendant. ; CA A75708. *
CourtOregon Court of Appeals

[127 Or.App. 94-A] Roger Tilbury, Portland, argued the cause, for appellants. With him on the briefs were Roch Steinbach, Portland, and William D. Brandt and Ferder, Ogdahl, Brandt & Casebeer, Salem.

Rex Armstrong, Portland, argued the cause, for respondent. With him on the brief were Richard A. Hayden and Bogle & Gates.

EDMONDS, Judge.

Plaintiffs appeal from a summary judgment entered in favor of defendant. 1 ORCP 47C. They make multiple assignments of error. We conclude that the trial court erred in granting summary judgment, in part.

When there is a genuine issue of material fact, summary judgment is precluded. Defendant has the burden to show that no genuine issue of fact exists, even as to issues on which plaintiffs would have the burden of proof if the case were tried. Picker v. Rollins Leasing Corp., 97 Or.App. 164, 776 P.2d 1 (1989). In considering whether to grant a motion for summary judgment, the court must draw all inferences of fact from the depositions and affidavits against the moving party and in favor of the nonmoving party. Uihlein v. Albertson's, Inc., 282 Or. 631, 634, 580 P.2d 1014 (1978).

According to the summary judgment evidentiary record, 2 plaintiffs applied for a franchise with defendant to operate a 7-Eleven store. As part of the application process, defendant required plaintiffs to develop a business plan which detailed what income they expected to earn and what expenses they anticipated they would incur in operating the store. The plan presented by plaintiffs to defendant indicated that plaintiffs would need a monthly net income of $3,400 in order to meet their business and personal expenses. In preparing their business plan, plaintiffs obtained from defendant records concerning the store's net income under prior management. According to plaintiffs, defendant gave them a financial summary for the period of July, 1987, through March, 1988, which showed a total net income of $10,445.35, and a circular that indicated that the net income for stores in Central Oregon for 1986 ranged from approximately $1,400 to $3,100. Also, there is evidence that plaintiffs were told that the store's net income for April, 1988, was $3,882. Defendant did not disclose to plaintiffs information which showed that the store's average monthly net income for the period of January, 1984, through May, 1988, was $1,340.

After plaintiffs presented their proposed business plan to defendant, the parties met to discuss the feasibility of their proposed budget. Plaintiff Darren Campbell testified in his deposition about his understanding of the financial information that they were given, and the significance of the proposed budget:

"A. Well, my understanding was that these were somebody else's numbers, and that in putting together my business plan, I wasn't going to rely heavily on that except for categories that I knew could be fixed or were very stable * * *. Those types of things I felt would probably be pretty consistent or have a good average.

" * * * * *

"And it was expressed to us many times by [defendant] that--and this is not just in preparing the business plan--that these numbers are other people's, and you can't--you can't take any stock in them. Because it's in your control, you have control of your store. If you want payroll to be low, it's up to you to do it.

"The sales--the sales could be higher if we worked the store and made them higher. Gross profit was one you really can't rely on, because if they were running a low gross profit and we could run a higher one, then the numbers are going to be completely different. So your net income would be considerably different from what this might say versus, you know, what it does say. It--you can't rely on it.

"Q. Just so that we're clear, you understood that that net income figure was the net income that the [previous franchisees] obtained from their operation of the store during the period reported by this document; is that right?

"A. I did not understand it to be that. To be honest with you, I paid no attention to that figure. And it was not just--because it was--it was told to us that we shouldn't--we get--no. I didn't rely on that. And it says "income," it doesn't say "net." I don't--.

" * * * * *

"Q. Mr. Campbell, did anyone at Southland tell you that the budget that you submitted as part of the business plan was feasible?

"A. Yeah.

"Q. Who told you that?

"A. I recall Eilene Terry telling me that.

"Q. Can you recall what she told you, what words she used?

"A. That if we stuck to it and worked hard that it was a feasible--she saw that--she felt that we would do it, that we could do it.

"Q. When did she tell you that?

"A. I believe it was at the time that she approved it or we were at the meeting that she was going over it."

" * * * * *

"A. I was relying on [defendant] in approving my business plan, that it was obtainable. I mean, I had very little information to do it and no experience, and I was hoping that by them saying that it's a good business plan, it's feasible * * *." (Emphasis supplied.)

Elizabeth Campbell testified:

"I listened to Eilene Terry. I knew that * * * she was the one that was going to say yea or nay to the business plan. I was very impressed with her. I trusted her very much. I still think a lot of her, and I listened to what she had to say."

Relying on the representations, plaintiffs entered into a franchise agreement with defendant. Under the terms of the agreement, defendant reserved the right to retake possession of the store if plaintiffs allowed their net worth to drop below specified levels. During most of the following 19 months when plaintiffs operated the store, they were unable to maintain the required levels of net worth. Defendant repeatedly granted "net worth exceptions" which set lower net worth goals to be met within specified periods of time. The parties understood that, if plaintiffs were unable to meet the new net worth goals, defendant would be entitled to terminate the franchise on proper notice.

When plaintiffs failed to meet the new goals, defendant gave them the required notice and terminated their franchise. Plaintiffs then filed this action, alleging separate claims for common law misrepresentation, violation of the Oregon Franchise Law, ORS 650.020(1), breach of contract and wrongful termination. Defendant moved for summary judgment on all four claims, and the trial court granted the motion. Plaintiffs argue that the trial court erred in granting the motion as to each of the four claims.

First, we address the trial court's decision with respect to the misrepresentation claim. To prevail, defendant must show that there are no genuine issues of material fact on all of the elements of the claim and that it is entitled to judgment as a matter of law. The elements of a misrepresentation claim are:

"(1) a representation; (2) its falsity; (3) its materiality; (4) the speaker's knowledge of its falsity or ignorance of its truth; (5) his intent that it should be acted on by the person and in the manner reasonably contemplated; (6) the hearer's ignorance of its falsity; (7) his reliance on its truth; (8) his right to rely thereon; and (9) his consequent and proximate injury." Webb v. Clark, 274 Or. 387, 391, 546 P.2d 1078 (1976). (Citations omitted.)

The crux of plaintiffs' claim is that defendant represented to them that their budgeted monthly income of $3,400 was attainable through the operation of the business, when it knew that it was not. The feasibility of the proposed budget was material to the acquisition of the franchise because it would service the debt load that plaintiffs would incur when they purchased the franchise, and would provide for their living expenses while operating the store. Defendant argues that the undisputed facts are insufficient to establish that it made any misrepresentation of fact or actively concealed any material fact. According to defendant, the alleged misrepresentation on which plaintiffs rely--that the $3,400 net monthly figure was feasible--is as a matter of law only a nonactionable opinion, not a statement of fact. Defendant further argues that there can be no claim for active concealment of records indicating a prior average net monthly income of $1,340, because it disclosed records that showed an average net monthly income of even less than that amount.

Whether an expression of opinion can also constitute an actionable misrepresentation depends not only on the words used, but also on the object and design of the words. For example, in Patterson v. Western L. & B. Co., 155 Or. 140, 62 P.2d 946 (1936), the defendant told the plaintiff that the stock of an insolvent corporation was a "good investment." The court held that statement to be a representation of fact, because it was made to a person known by the defendant to be ignorant of the facts, and to a person who believed it to be true and relied on it as the basis of his decision to purchase the stock. In that context, the statement that the purchase was a "good investment" was more than an expression of an opinion. However, in a different context, the same words could be nonactionable mere expressions of opinion.

Here, the evidence is susceptible of a finding that plaintiffs were on unequal footing with defendant. The summary judgment record shows that Darren Campbell is a high school dropout and had been employed as a sheetmetal worker before he entered into negotiations with defendant. He had no prior retail experience. Elizabeth Campbell's only related experience was as a clerk and assistant manager in a 7-Eleven store in west Portland for a few...

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