Cislaw v. Southland Corp., G010240

Citation4 Cal.App.4th 1284,6 Cal.Rptr.2d 386
Decision Date25 March 1992
Docket NumberNo. G010240,G010240
CourtCalifornia Court of Appeals
PartiesRonald CISLAW et al., Plaintiffs and Appellants, v. SOUTHLAND CORPORATION et al., Defendant and Respondent.
OPINION

SONENSHINE, Associate Justice.

Ronald and Carole Cislaw appeal from a summary judgment entered in favor of The Southland Corporation in this action arising out of the alleged wrongful death of their son, Timothy. The Cislaws contend the court erred in deciding Southland was not vicariously liable for the sale of clove cigarettes from a franchised 7-Eleven store. They argue the evidence gave rise to conflicting inferences, requiring a jury determination of employment, agency, partnership and joint venture issues.

I

Timothy Cislaw, 17 years old, died of respiratory failure on May 10, 1984. His parents filed a wrongful death action alleging Timothy's death resulted from his consumption of Djarum Specials clove cigarettes sold at a Costa Mesa 7-Eleven store. Southland owns the 7-Eleven trademark and is the franchisor of California 7-Eleven stores. The Costa Mesa 7-Eleven was franchised to Charles Trujillo and Patricia Colwell-Trujillo. The complaint, seeking compensatory and punitive damages, stated causes of action for negligence, breach of implied and express warranty, product liability and infliction of emotional distress.

After answering the complaint, Southland moved for summary judgment asserting (1) it had no direct liability for Timothy's death, and (2) it had no vicarious liability based on the Trujillos' conduct because, as franchisees of the 7-Eleven store, the Trujillos were independent contractors as a matter of law. In support of its motion, Southland presented the declarations of Colwell-Trujillo and a Southland management employee, Arthur Salcido, both of whom attested to facts indicating the franchisees were independent contractors. Southland further relied upon the franchise agreement itself to negate any issue of agency.

The Cislaws neither interposed evidentiary objections to Southland's declarations nor presented controverting evidence. Rather, they relied solely on the franchise agreement, asserting it could be interpreted to demonstrate an employment or agency relationship. The trial court, asked to make a legal determination on uncontradicted facts, decided as a matter of law the Trujillos were independent contractors and granted Southland's motion for summary judgment.

We must decide whether the franchise agreement and uncontroverted declarations establish that the Trujillos acted as independent contractors when they sold the clove cigarettes. Before turning to the evidence presented to the trial court, we briefly review the law of agency in the context of franchises.

II

Franchising is a heavily regulated form of business in California, 1 but there are relatively few decisions on the nature of the relationship between franchisor and franchisee as it affects third persons. The general rule is where a franchise agreement gives the franchisor the right of complete or substantial control over the franchisee, an agency relationship exists. (2 Witkin, Summary of Cal. Law (9th ed. 1987) "Agency and Employment," § 6, pp. 24-25.) "[I]t is the right to control the means and manner in which the result is achieved that is significant in determining whether a principal-agency relationship exists." (Wickham v. Southland Corp. (1985) 168 Cal.App.3d 49, 59, 213 Cal.Rptr. 825, italics added.) "In the field of franchise agreements, the question of whether the franchisee is an independent contractor or an agent is ordinarily one of fact, depending on whether the franchisor exercises complete or substantial control over the franchisee. [Citations.]" (Kuchta v. Allied Builders Corp. (1971) 21 Cal.App.3d 541, 547, 98 Cal.Rptr. 588.) "Only when the essential facts are not in conflict will an agency determination be made as a matter of law." (Wickham v. Southland Corp., supra, 168 Cal.App.3d at p. 55, 213 Cal.Rptr. 825.)

In the 1960's, the appellate courts decided three Arthur Murray Dance Studio franchise agreement cases. 2 The first, Beck v. Arthur Murray, Inc. (1966) 245 Cal.App.2d 976, 54 Cal.Rptr. 328, involved an issue of ostensible agency. No such issue is raised here; therefore, we simply note Beck's general statement of law that "mere licensing of trade names does not create agency relationships either ostensible or actual." (Id. at p. 981, 54 Cal.Rptr. 328.)

In the second case, Nichols v. Arthur Murray, Inc. (1967) 248 Cal.App.2d 610, 56 Cal.Rptr. 728, the reviewing court affirmed a judgment against the franchisor on an actual agency basis. The franchisor had retained controls " 'extend[ing] beyond those necessary to protect and maintain its trade mark, trade name and good will, and cover[ing] day to day details of the San Diego studio's operation.' " (Id. at pp. 613-614, 56 Cal.Rptr. 728.) The franchise agreement gave the franchisor virtually absolute control of the enterprise. It allowed the franchisor: (1) to handle every aspect of employment; (2) to determine rates to be charged for lessons and whether or not to refund money to pupils; (3) to choose the lenders with whom pupil contracts would be financed; (4) to control all advertising, which the franchisee was required to submit for prior approval; (5) to compel the franchisee to honor unused dance lessons purchased at a different studio, without compensation; and (6) to cancel the franchise agreement immediately upon its determination that the franchisee was not conducting the studio in accordance with " 'the general policies of the [franchisor] as established from time to time.' " (Nichols v. Arthur Murray, Inc., supra, 248 Cal.App.2d at p. 615, 56 Cal.Rptr. 728.) The above recitation is representative, but not all-inclusive.

The Nichols court observed: "Many of the controls conferred were not related anywise to the protection of defendant's trade name, including its dancing and teaching methods, good will and business image. Other controls, although related to the protection of the trade name, because the exercise thereof was not limited to effecting such purpose, enabled defendant to impose its will upon the franchise holder in areas wholly unrelated to that purpose." (Nichols v. Arthur Murray, Inc., supra, 248 Cal.App.2d at pp. 615-616, 56 Cal.Rptr. 728, fn. omitted.) The court also noted: "[T]here are many provisions in the agreement vesting in [the franchisor] the right to control a substantial part of the obligations incurred in the operation of the business through its right to require and assert the nature, extent and amount of most of the contemplated expenses incident to the operation." (Id. at p. 617, 56 Cal.Rptr. 728.) The evidence was sufficient to support the trial court's conclusion that the franchisee acted as the franchisor's agent in dealings with third persons.

In the third case, Porter v. Arthur Murray, Inc. (1967) 249 Cal.App.2d 410, 57 Cal.Rptr. 554, the court reviewed the provisions of two franchise agreements. It noted "[e]ach [contract] contained provisions wholly consistent with the non-existence of an agency relationship," including the requirement that each franchisee pay all the expenses of the operation and maintain liability insurance for Murray and himself. (Id. at p. 415, 57 Cal.Rptr. 554.) But it pointed out a multitude of other provisions regarding Murray's right to control nearly all day-to-day management decisions and to cancel the contract immediately in the event the franchisor did not meet Murray's prescribed standards. (Id. at [4 Cal.App.4th 1290] p. 416, 57 Cal.Rptr. 554.) Concluding its exhaustive itemization of specific contract provisions, the court found the evidence established an agency relationship. (Id. at p. 421, 57 Cal.Rptr. 554.) 3

After the Arthur Murray decisions came Kuchta v. Allied Builders Corp., supra, 21 Cal.App.3d 541, 98 Cal.Rptr. 588. Affirming judgment on a jury verdict, the appellate court found evidence in the franchise agreement sufficient to support an implied agency theory. 4 But more importantly there was "formidable evidence" establishing ostensible agency: Allied's vice-president referred to the franchise as a "branch office" and Allied's office as the "main office"; at both locations, phones were answered, "Allied Builders"; both the franchisor and the franchisee were doing business under the same name; plaintiff's contract listed "Allied Builders" as the contractor; the franchisor and franchisee employed common advertising; customer checks were endorsed and deposited to the account of "Allied Builders System." (Id. at pp. 547-548, 98 Cal.Rptr. 588.) In light of that evidence, the declarations of the franchise agreement regarding an independent contractor relationship were not controlling. (Ibid.)

Wickham v. Southland Corp., supra, 168 Cal.App.3d 49, 213 Cal.Rptr. 825 followed. There, plaintiffs claimed the franchisor, Southland, was liable for their decedent's death, allegedly caused by a 7-Eleven store's sale of alcoholic beverages to an intoxicated minor. The jury found by special verdict there was no agency relationship on which to predicate the franchisor's liability. On appeal, plaintiffs contended the jury should have been instructed that an agency relationship exists as a matter of law if a franchisor can exercise substantial control over the business operations of the franchisee.

The reviewing court rejected that argument, stating a principal-agency relationship exists as a...

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