Kerl v. Dennis Rasmussen, Inc.

• Decision Date: 29 June 2004
• Docket Number: No. 02-1273.,02-1273.
• Citation: 682 N.W.2d 328,273 Wis.2d 106,2004 WI 86
• Parties: Robert KERL, General Guardian of Robin Kerl, The Estate of David Jones, Benjamin Jones and Donna Roberts, Plaintiffs-Appellants-Cross-Respondents-Petitioners, ATTORNEY GENERAL, Wisconsin Department of Health and Family Services, and Wal-Mart Personal Choice, Involuntary-Plaintiffs, v. DENNIS RASMUSSEN, INC. and Continental Western Insurance, Unidentified Defendant ABC (Arby's Inc.'s Insurer), Defendants, ARBY'S INC. d/b/a Triarc Restaurant Group, Defendant-Respondent-Cross-Appellant.
• Court: Wisconsin Supreme Court

273 Wis.2d 106

2004 WI 86

682 N.W.2d 328

Robert KERL, General Guardian of Robin Kerl, The Estate of David Jones, Benjamin Jones and Donna Roberts, Plaintiffs-Appellants-Cross-Respondents-Petitioners, ATTORNEY GENERAL, Wisconsin Department of Health and Family Services, and Wal-Mart Personal Choice, Involuntary-Plaintiffs, v. DENNIS RASMUSSEN, INC. and Continental Western Insurance, Unidentified Defendant ABC (Arby's Inc.'s Insurer), Defendants, ARBY'S INC. d/b/a Triarc Restaurant Group, Defendant-Respondent-Cross-Appellant.

No. 02-1273.

Supreme Court of Wisconsin.

Oral argument April 6, 2004.

Decided June 29, 2004.

For the plaintiffs-appellants-cross-respondents-petitioners there were briefs by Daniel W. Hildebrand and DeWitt Ross & Stevens, S.C., Madison; Douglas B. Keberle and Keberle & Patrykus, LLP, West Bend; and Donald J. Murphy and Murphy Vaughan & Pressentin, LLC, Monona, and oral argument by Daniel W. Hildebrand.

For the defendant-respondent-cross-appellant, Arby's Inc., d/b/a Triarc Restaurant Group there was a brief by Emile H. Banks, Jr., Vicki L. Arrowood and Emile Banks & Associates, LLC, Milwaukee, and oral argument by Emile Banks.

¶ 1. DIANE S. SYKES, J.

This case involves a claim of franchisor vicarious liability under the doctrine of respondeat superior. At issue is whether and under what circumstances a franchisor may be vicariously liable for the negligence of its franchisee.

¶ 2. The issue arises in the context of a damages lawsuit stemming from a horrific crime. Harvey Pierce ambushed and shot Robin Kerl and her fiancé David Jones in the parking lot of a Madison Wal-Mart where Kerl and Jones worked. Kerl was seriously injured in the shooting, and Jones was killed. Pierce, who was Kerl's former boyfriend, then shot and killed himself. At the time of the shooting, Pierce was a work-release inmate at the Dane County jail who was employed at a nearby Arby's restaurant operated by Dennis Rasmussen, Inc. ("DRI"). Pierce had left work without permission at the time of the attempted murder and murder/suicide.

¶ 3. Kerl and Jones' estate sued DRI and Arby's, Inc. As is pertinent to this appeal, the plaintiffs alleged that Arby's is vicariously liable, as DRI's franchisor, for DRI's negligent supervision of Pierce. The circuit court granted summary judgment in favor of Arby's, concluding that there was no basis for vicarious liability. The court of appeals affirmed. ¶ 4. Vicarious liability under the doctrine of respondeat superior depends upon the existence of a master/servant agency relationship. Vicarious liability under respondeat superior is a form of liability without fault—the imposition of liability on an innocent party for the tortious conduct of another based upon the existence of a particularized agency relationship. As such, it is an exception to our fault-based liability system, and is imposed only where the principal has control or the right to control the physical conduct of the agent such that a master/servant relationship can be said to exist.

¶ 5. A franchise is a business format typically characterized by the franchisee's operation of an independent business pursuant to a license to use the franchisor's trademark or trade name. A franchise is ordinarily operated in accordance with a detailed franchise or license agreement designed to protect the integrity of the trademark by setting uniform quality, marketing, and operational standards applicable to the franchise.

¶ 6. The rationale for vicarious liability becomes somewhat attenuated when applied to the franchise relationship, and vicarious liability premised upon the existence of a master/servant relationship is conceptually difficult to adapt to the franchising context. If the operational standards included in the typical franchise agreement for the protection of the franchisor's trademark were broadly construed as capable of meeting the "control or right to control" test that is generally used to determine respondeat superior liability, then franchisors would almost always be exposed to vicarious liability for the torts of their franchisees. We see no justification for such a broad rule of franchisor vicarious liability. If vicarious liability is to be imposed against franchisors, a more precisely focused test is required.

¶ 7. We conclude that the marketing, quality, and operational standards commonly found in franchise agreements are insufficient to establish the close supervisory control or right of control necessary to demonstrate the existence of a master/servant relationship for all purposes or as a general matter. We hold, therefore, that a franchisor may be held vicariously liable for the tortious conduct of its franchisee only if the franchisor has control or a right of control over the daily operation of the specific aspect of the franchisee's business that is alleged to have caused the harm.

¶ 8. Here, although the license agreement between Arby's and DRI imposed many quality and operational standards on the franchise, Arby's did not have control or the right to control DRI's supervision of its employees. Summary judgment dismissing the plaintiffs' vicarious liability claims against Arby's was properly granted.

I. FACTS AND PROCEDURAL HISTORY

¶ 9. This is a review of a grant of summary judgment; the facts are taken from the pleadings and other documents on file in connection with the motion for summary judgment. Arby's is a national franchisor of fast-food restaurants. DRI operates an Arby's restaurant on the west side of Madison as an Arby's franchisee.

¶ 10. The relationship between Arby's and DRI is governed by a 1985 licensing agreement pursuant to which DRI is authorized to use Arby's trade name in the operation of a restaurant franchise. Article 1 of the licensing agreement grants DRI a license to use Arby's trademarks, service marks, and trade names in accordance with Arby's Operating Standards Manual. Subsequent provisions in the agreement contain specific requirements governing, among other things, building design, construction, and remodeling; purchasing; food service and packaging; signage and advertising. The agreement specifies an up-front license fee of $32,500 and monthly royalty payments of 3.5 percent of DRI's gross sales. The agreement requires DRI to comply with all applicable state and federal laws and regulations, and to carry at least $1 million of liability insurance naming Arby's as an additional insured.

¶ 11. Article 6 of the license agreement addresses the issue of personnel. As to management personnel, the agreement requires a designated officer or shareholder of the licensee to attend an Arby's management training seminar. As to personnel generally, the agreement provides: "LICENSEE shall hire, train, maintain and properly supervise sufficient, qualified and courteous personnel for the efficient operations of the Licensed Business."

¶ 12. In February 1999, DRI hired Harvey Pierce to work at its restaurant. At the time, Pierce was a work-release inmate at the Dane County Jail. In the mid-afternoon of June 11, 1999, Pierce walked off the job without permission. He then crossed the street to the Wal-Mart store parking lot, where he lay in wait for Robin Kerl, his former girlfriend, and David Jones, her fiancé, both Wal-Mart employees. When Kerl and Jones emerged from the building, Pierce shot them both in the head. He then shot himself. Jones and Pierce died of their injuries. Kerl survived but sustained serious injuries and is permanently disabled. ¶ 13. Kerl and Jones' estate sued Arby's and DRI, among others. The complaint alleged several causes of action against DRI: (1) negligent supervision; (2) negligent hiring; (3) negligent retention; (4) nuisance; and (5) breach of third-party beneficiary contract. The plaintiffs alleged that Arby's was liable on the negligent supervision, hiring, and retention claims under theories of "actual or constructive agency," respondeat superior and/or "active negligence," which we interpret to mean direct negligence.

¶ 14. Arby's and DRI moved for summary judgment. The Circuit Court for Dane County, the Honorable Richard J. Callaway, granted summary judgment dismissing all claims against Arby's and dismissing the negligent hiring, nuisance, and breach of third-party beneficiary contract claims against DRI. After the plaintiffs filed a notice of appeal, the circuit court, at Arby's request, entered a further order denying that part of Arby's motion for summary judgment that sought dismissal on public policy grounds, enabling Arby's to cross-appeal on that issue.

¶ 15. The plaintiffs' appeal encompassed only the issue of Arby's vicarious liability, as franchisor, for DRI's alleged negligent supervision of Pierce.¹ The court of appeals affirmed the circuit court. Noting that the issue had not previously been addressed in this state, the court of appeals surveyed case law from other jurisdictions and concluded that the prevailing standard for franchisor vicarious liability focuses on whether the franchisor controls the "specific instrumentality" which allegedly caused the harm, or whether the franchisor has a right of control over the alleged negligent activity. Kerl v. Rasmussen, 2003 WI App 226, ¶ 16, 267 Wis. 2d 827, 672 N.W.2d 71. Accordingly, the court held that "the standard for imposing vicarious liability on a franchisor for the negligent acts of a franchisee requires that the franchisor have a right of control or actual control over the alleged negligent activity." Id. at ¶ 30. Because neither the franchise agreement nor the franchise operating manual gave Arby's control or the right to control DRI's employees, the court of appeals affirmed the summary judgment in favor of Arby's. Id. at ¶¶ 26-29. This conclusion disposed of the appeal; the court of appeals therefore did not reach the public policy argument raised in Arby's cross-appeal.

II. STANDARD OF REVIEW

¶ 16. We review summary judgments de novo, applying the...