Lobdell v. Sugar 'N Spice, Inc., 9537-4-I
| Decision Date | 07 February 1983 |
| Docket Number | No. 9537-4-I,9537-4-I |
| Citation | 33 Wn.App. 881,658 P.2d 1267 |
| Parties | Kyung Wha LOBDELL and Leroy C. Lobdell; and Barbara J. Caires and Robert Caires, her husband, Appellants, v. SUGAR 'N SPICE, INC., a California corporation, d/b/a Penney Arcade Independent Distributors; Robert Christopher and Jane Doe Christopher, his wife; Laurie Hackbarth and John Doe Hackbarth, her husband, Joan R. Wilcox and George M. Wilcox, her husband; Martin Bellman and Jane Doe (Mary) Bellman, his wife, Respondents. |
| Court | Washington Court of Appeals |
T. Dennis George, Karen Tall, Seattle, for appellants.
Nelvin Bettis, Dwight Guy, Seattle, for respondents.
The plaintiffs, Kyung Wha Lobdell and Barbara J. Caires, brought this action against the now defunct Sugar 'N Spice, Inc., its president and then sole stockholder, Robert Christopher, and its agents, Joan Wilcox and Martin Bellman, alleging violations of both the Franchise Investment Protection Act (FIPA or Act), RCW 19.100, and the Consumer Protection Act (CPA), RCW 19.86. Finding no statutory violations, the trial court dismissed the action and awarded attorney's fees to the defendants. We reverse.
Sugar 'N Spice (the company) was a California corporation engaged in the business of selling candy distributorships. According to its introductory brochure, the company offered a "distributorship program" for the sale of quality "impulse" confections at retail locations where display racks could be placed. For a certain price, the distributor received a package consisting of candies, gumballs, sugar, jars, display racks and signs, labels printed with the logotype "Sugar 'N Spice," and packaging tools. The company would train new distributors in marketing the confections, in making "sugar art," in servicing their accounts, and in bookkeeping, and obtain for them several retail locations for the display racks.
The company literature further explains its marketing system. The brochure describes the company's "computerized system" for determining what kinds of confections sell best in what types of retail stores and geographical areas, and its success in obtaining for its distributors display rack locations throughout entire retail "chains." Under its "distributorship program," the brochure states, distributors are granted "exclusive locations" for the sale of an "instantly recognized product" which is "in demand by the buying public" and yields a "very high margin of profit." Company newsletters describe its products as having been "pretested for sales appeal" and its goals as providing distributors with high quality products, attractive Sugar 'N Spice labels, signs, other marketing aids, and general business assistance.
Lobdell and Caires became acquainted with Sugar 'N Spice through their mutual friend, Bellman, who introduced them to Wilcox, a company distributor and distributor recruiter. After being told that Wilcox had grossed over $35,000 in 9 months as a distributor, Lobdell and Caires each purchased a 20 rack distributorship and paid $7,670.68 in cash. Lobdell was granted a distributorship for King and Pierce Counties; Caires for Kitsap County. They each signed a standard form agreement, which provided in part:
Sugar 'n Spice (hereinafter called the Company) hereby agrees that for a period of one year beginning this ____ day of ____ 19____, (renewable in writing, by the Wholesale Distributor only, ten days before expiration of this agreement), it will sell products that it manufactures and distributes, non-exclusively, to ________ (hereinafter called the Wholesale Distributor.) for the territory described in paragraph 1 hereof, subject to the following terms and conditions. It is understood that the territory restriction on the part of the Company applies only to the brand name SUGAR 'N SPICE and does not affect other brands or products manufactured or Distributed by the Company and/or its affiliates.
Company agrees as follows:
B. INDEPENDENT CONTRACTOR. That he is an Independent Contractor and not an employee of the Company and shall not use the Company name for the procurement of Credit and shall in no way conduct his business in such a manner that may prove detrimental to the good name of the Company.
F. TOTAL AMOUNT OF ORDER $______ Make Checks Payable to Sugar 'N Spice.
G. TERMS: (A) Payment in full accompanies orders. This agreement shall be valid and binding upon both Company and Wholesale Distributor for a period of one year, after which it may be renewed or extended at the Distributor's request and the Company's consent on a year-to-year basis, providing the Wholesale Distributor has complied with Paragraph D.
Lobdell and Caires soon received their shipments of candies, sugar, and packaging materials, accompanied by a "question and answer manual" and followed by monthly newsletters. The newsletters introduced new products, labels and display materials, touted the financial successes of individual distributors, exhorted distributors to aggressively promote and purchase additional company products, and described changes in ordering and reporting procedures. Both the newsletters and the manual warn distributors who fail to submit monthly reports that they are in violation of their contracts and may have their sales territories reassigned. 1
The display materials and labels included in the distributorship package carried the distinctive Sugar 'N Spice logotype. The company had registered the logotype with the California Secretary of State and had applied for a federal patent on it. Distributors were not contractually obligated, however, to use the name "Sugar 'N Spice" but could sell the products under other brand names.
At trial Christopher testified that included in the sum distributors paid for their distributorships were charges for the cost of securing retail locations for the racks and for the cost of advertising. In his deposition Christopher stated that the initial sum distributors paid included training costs.
On appeal Lobdell and Caires challenge the trial court's conclusions that they had failed to prove a violation of the CPA and had failed to prove that "the sale in question was a sale of a franchise to them." Under the FIPA, "a business which distributes products of another has a franchise if two requirements are met: (1) the agreement between the parties includes a license to the franchisee to use a trademark or 'related characteristic' of the franchisor, and (2) the franchisee pays a 'franchise fee.' " American Oil Co. v. Columbia Oil Co., 88 Wash.2d 835, 840, 567 P.2d 637 (1977). The statute also requires a "community interest in the business of offering, selling, distributing goods or services at wholesale or retail, leasing, or otherwise." RCW 19.100.010(4).
Whether a statute applies to a factual situation is a question of law and fully reviewable upon appeal. Keyes v. Bollinger, 31 Wash.App. 286, 640 P.2d 1077 (1982). We are bound by findings of fact which are supported by substantial evidence. Beeson v. ARCO, 88 Wash.2d 499, 563 P.2d 822 (1977). No finding as to a material fact constitutes a negative finding, McCutcheon v. Brownfield, 2 Wash.App. 348, 467 P.2d 868 (1970), unless there is undisputed evidence which an appellate court can hold compels a contrary finding. LaHue v. Keystone Investment Co., 6 Wash.App. 765, 496 P.2d 343 (1972). An appellate court may also independently review evidence consisting of written documents. Wilson v. Howard, 5 Wash.App. 169, 486 P.2d 1172 (1971). With these standards in mind, we turn to the question of whether the Sugar 'N Spice "distributorships" were franchises under the FIPA.
Distinguishing franchises in a precise manner from other marketing systems is a difficult task. Franchisees occupy an undefined middle ground, possessing some of the autonomy of retail or wholesale dealers, yet some of the dependence of employees or agents. Selling brand name merchandise does not make an independent dealer a franchisee. Chisum, State Regulation of Franchising; The Washington Experience, 48 Wash.L.Rev. 291, 294 n. 6, 343 (1973). Greater interdependence between dealer and supplier is required. The character and extent of that interdependence is the issue on appeal.
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