Miller v. McDonald's Corp.

• Jurisdiction: Oregon
• Parties: , Prod.Liab.Rep. (CCH) P 15,092 Joni MILLER, Appellant, v. McDONALD'S CORPORATION, a foreign corporation, Respondent. 9507-05008; CA A91993.
• Citation: Miller v. McDonald's Corp., 945 P.2d 1107, 150 Or.App. 274 (Or. App. 1997)
• Court: Oregon Court of Appeals
• Decision Date: 01 October 1997

Page 1107

945 P.2d 1107

150 Or.App. 274, Prod.Liab.Rep. (CCH) P 15,092

Joni MILLER, Appellant, v.McDONALD'S CORPORATION, a foreign corporation, Respondent.

9507-05008; CA A91993.

Court of Appeals of Oregon.

Argued and Submitted April 22, 1997.

Decided Oct. 1, 1997.

Anthony A. Allen, Salem, argued the cause and filed the briefs for appellant.

R. Daniel Lindahl, Portland, argued the cause for respondent.With him on the brief were David A. Ernst and Bullivant, Houser, Bailey, Pendergrass & Hoffman.

Before WARREN, P.J., and EDMONDS and ARMSTRONG, JJ.

WARREN, Presiding Judge.

Plaintiff seeks damages from defendantMcDonald's Corporation for injuries that she suffered when she bit into a heart-shaped sapphire stone while eating a Big Mac sandwich that she had purchased at a McDonald's restaurant in Tigard.The trial court granted summary judgment to defendant on the ground that it did not own or operate the restaurant; rather, the owner and operator was a non-party, 3K Restaurants (3K), that held a franchise from defendant.Plaintiff appeals, and we reverse.

Most of the relevant facts are not in dispute.To the degree that there are disputes, we read the record most favorably to plaintiff, the non-moving party, and review the evidence to determine whether an objectively reasonable juror could return a verdict in her favor on the subject of the motion.ORCP 47 C;seeJones v. General Motors Corp., 325 Or. 404, 939 P.2d 608(1997).¹3K owned and operated the restaurant under a License Agreement (the Agreement) with defendant that required it to operate in a manner consistent with the "McDonald's System."The Agreement described that system as including proprietary rights in trade names, service marks and trade marks, as well as "designs and color schemes for restaurant buildings, signs, equipment layouts, formulas and specifications for certain food products, methods of inventory and operation control, bookkeeping and accounting, and manuals covering business practices and policies."

The manuals contain "detailed information relating to operation of the Restaurant," including food formulas and specifications, methods of inventory control, bookkeeping procedures, business practices, and other management, advertising, and personnel policies.3K, as the licensee, agreed to adopt and exclusively use the formulas, methods, and policies contained in the manuals, including any subsequent modifications, and to use only advertising and promotional materials that defendant either provided or approved in advance in writing.

The Agreement described the way in which 3K was to operate the restaurant in considerable detail.It expressly required 3K to operate in compliance with defendant's prescribed standards, policies, practices, and procedures, including serving only food and beverage products that defendant designated.3K had to follow defendant's specifications and blueprints for the equipment and layout of the restaurant, including adopting subsequent reasonable changes that defendant made, and to maintain the restaurant building in compliance with defendant's standards.3K could not make any changes in the basic design of the building without defendant's approval.

The Agreement required 3K to keep the restaurant open during the hours that defendant prescribed, including maintaining adequate supplies and employing adequate personnel to operate at maximum capacity and efficiency during those hours.3K also had to keep the restaurant similar in appearance to all other McDonald's restaurants.3K's employees had to wear McDonald's uniforms, to have a neat and clean appearance, and to provide competent and courteous service.3K could use only containers and other packaging that bore McDonald's trademarks.The ingredients for the foods and beverages had to meet defendant's standards, and 3K had to use "only those methods of food handling and preparation that [defendant] may designate from time to time."In order to obtain the franchise, 3K had to represent that the franchisee had worked at a McDonald's restaurant; the Agreement did not distinguish in this respect between a company-run or a franchised restaurant.The manuals gave further details that expanded on many of these requirements.

In order to ensure conformity with the standards described in the Agreement, defendant periodically sent field consultants to the restaurant to inspect its operations.3K trained its employees in accordance with defendant's materials and recommendations and sent some of them to training programs that defendant administered.Failure to comply with the agreed standards could result in loss of the franchise.

Despite these detailed instructions, the Agreement provided that 3K was not an agent of defendant for any purpose.Rather, it was an independent contractor and was responsible for all obligations and liabilities, including claims based on injury, illness, or death, directly or indirectly resulting from the operation of the restaurant.

Plaintiff went to the restaurant under the assumption that defendant owned, controlled, and managed it.So far as she could tell, the restaurant's appearance was similar to that of other McDonald's restaurants that she had patronized.Nothing disclosed to her that any entity other than defendant was involved in its operation.The only signs that were visible and obvious to the public had the name "McDonald's,"² the employees wore uniforms with McDonald's insignia, and the menu was the same that plaintiff had seen in other McDonald's restaurants.The general appearance of the restaurant and the food products that it sold were similar to the restaurants and products that plaintiff had seen in national print and television advertising that defendant had run.To the best of plaintiff's knowledge, only McDonald's sells Big Mac hamburgers.

In short, plaintiff testified, she went to the Tigard McDonald's because she relied on defendant's reputation and because she wanted to obtain the same quality of service, standard of care in food preparation, and general attention to detail that she had previously enjoyed at other McDonald's restaurants.

Under these facts, 3K would be directly liable for any injuries that plaintiff suffered as a result of the restaurant's negligence.The issue on summary judgment is whether there is evidence that would permit a jury to find defendant vicariously liable for those injuries because of its relationship with 3K.Plaintiff asserts two theories of vicarious liability, actual agency and apparent agency.We hold that there is sufficient evidence to raise a jury issue under both theories.We first discuss actual agency.

The kind of actual agency relationship that would make defendant vicariously liable for 3K's negligence requires that defendant have the right to control the method by which 3K performed its obligations under the Agreement.The common context for that test is a normal master-servant (or employer-employee) relationship.See, e.g., Jenkins v. AAA Heating, 245 Or. 382, 386, 421 P.2d 971(1966);Chard v. Beauty-N-Beast Salon, 148 Or.App. 623, 628, 941 P.2d 611(1997).The relationship between two business entities is not precisely an employment relationship, but the Oregon Supreme Court, in common with most if not all other courts that have considered the issue, has applied the right to control test for vicarious liability in that context as well.SeePeeples v. Kawasaki Heavy Indust., Ltd., 288 Or. 143, 603 P.2d 765(1979).We therefore apply that test to this case.³

In Peeples, the issue was whether a motorcycle distributor was liable for a dealer's allegedly negligent warranty service.The agreement between the distributor and the dealer gave the distributor the right to set standards governing the dealer's method of operation, service, and warranty repair, including to some extent the physical conduct of the dealer's employees in the performance of warranty work.The distributor could terminate the relation for a breach of those standards.The Supreme Court held that the record as a whole supported a finding that the distributor had the right to control the dealer's conduct in providing warranty service and, therefore, that the trial court properly submitted the issue of the distributor's vicarious liability to the jury.288 Or. at 149-50, 603 P.2d 765.

A number of other courts have applied the right to control test to a franchise relationship.The Delaware Supreme Court, in Billops v. Magness Const. Co., 391 A.2d 196(Del.1978), stated the test as it applies to that context:

"If, in practical effect, the franchise agreement goes beyond the stage of setting standards, and allocates to the franchisor the right to exercise control over the daily operations of the franchise, an agency relationship exists."391 A.2d at 197-98.

This statement expresses the general direction that courts have taken and is consistent with the Supreme Court's discussion in Peeples.We therefore adopt it for the purposes of this case.

As the various cases show, it may be difficult to determine when a franchisor has retained a right not only to set standards but also to control the daily operations of the franchisee.Two examples show the different conclusions that the courts have reached and provide some guidance for this case.In Wood v. Shell Oil Co., 495 So.2d 1034(Ala.1986), the franchise agreement required a Shell gasoline dealer to maintain the station premises, including the appearance, design, color, style, and layout, in accordance with Shell's specifications or recommendations, to promote the sale of the products that the dealer purchased, to require all employees to wear Shell uniforms, and to let Shell inspect its books.The dealer had to maintain a competent staff of employees and to perform all mechanical work in a workmanlike manner, using only first class parts.Shell might offer supplemental training for the employees.The Alabama court held that the...