978-1285770178 Case Printout Case CPC-01-04 Part 2

Campbell Latiolais & Ruebel PC, Casey A. Quillen, Denver, Colorado, for Amicus Curiae Colorado Civil Justice

and Dealers.

Campbell Latiolais & Ruebel, P.C., Casey A. Quillen, Denver, Colorado, for Amicus Curiae Colorado Defense

Lawyers Association.

jury demands and bifurcating the trial. They also appeal the judgment entered following a bench trial dismissing all

of their claims against defendants, Peaberry Coffee, Inc. (the parent company); its wholly owned subsidiary, Peaber-

ry Coffee Franchise, Inc. (PCFI); William I. Tointon, the sole shareholder of the parent company and its chief oper-

ating officer; James T. Orr, the parent company’s vice president of franchising; and Perkins Coie, LLP, franchising

counsel to the parent company.FN1 The judgment also awarded PCFI damages on counterclaims against seven plain-

claims and the judgment dismissing the fraudulent nondisclosure and aiding and abetting fraudulent nondisclosure

claims against Perkins Coie. However, inconsistencies in the court’s findings and conclusions require that we re-

mand for further findings on the viability of the fraudulent nondisclosure claims. The judgment is otherwise af-

firmed, as are the pretrial orders.

parent company from 2002 to 2005 but was not named as a defendant, to direct the program. The parent company

retained Perkins Coie to form PCFI as franchisor and draft various documents, including the Uniform Franchise

Offering Circular (UFOC), the contents of which are regulated by the Federal Trade Commission (FTC), and the

franchise agreement. In 2003, Orr joined the parent company.

should be disclosed. All of these elements must be satisfied. Plaintiffs‘ repeated acknowledgements and state–

ments of non–reliance cannot be ignored.

The Court concludes that Peaberry actively concealed material financial facts from the Plaintiffs. The Court also

concludes that the UFOC cannot be used to shield Peaberry from liability for its fraudulent omissions and con-

cealment….

The Court concludes the concealed facts in this case were material, and Plaintiffs had no knowledge of the true

facts about Peaberry’s financial history and the performance of its stores. The concealed facts were also withheld

with the intent that the Plaintiffs purchase their franchises ignorant of the true facts.

However, Peaberry’s UFOC was explicit that it did not disclose any information regarding the profitability of

PCI or its corporate–owned stores, and the Plaintiffs uniformly acknowledged that they understood Peaberry did

Agreement, or that any such information, communicated in any form, would be binding. See Tr. Ex. 68.0142-43;

68.0080; 68.0082.

Again “[I]t is simply unreasonable to continue to rely on representations after stating in writing that you are

not so relying.”

[1] Fraudulent nondisclosure requires proof of reasonable reliance on “the assumption that the concealed fact does

not exist,” Nielson v. Scott, 53 P.3d 777, 780 (Colo.App.2002), or “was different from what it actually was.” See

Premier Farm Credit, PCA v. W-Cattle, LLC, 155 P.3d 504, 525 (Colo.App.2006) (Carparelli, J., specially concur-

ring); CJI-Civ. 19:2. See also Ackmann v. Merchants Mortgage & Trust Corp., 645 P.2d 7, 13-15 & n. 3 (Co-

fact and is binding on appeal if supported by the evidence.” M.D.C./Wood, Inc. v. Mortimer, 866 P.2d 1380, 1382

(Colo.1994); see also City of Black Hawk v. Ficke, 215 P.3d 1129, 1132 (Colo.App.2008) (reasonable reliance giv-

ing rise to equitable estoppel is a question of fact for the trial court).

[3] However, “[t]he determination of the sufficiency and validity of an exculpatory agreement is a question of law

ARE MADE TO FRANCHISEES BY US.

Indeed, Exhibit J explained why plaintiffs should not draw any inference that company store performance was

predictive of franchise performance.

Nevertheless, plaintiffs urge us to hold that where intentional fraud by nondisclosure has been alleged, public policy

precludes considering exculpatory clauses in the calculus of reasonable reliance. See Rhino Fund, 215 P.3d at 1191

(“Most courts will not enforce exculpatory and limiting provisions … if they purport to relieve parties from their own

willful, wanton, reckless, or intentional conduct.”).

Rhino Fund did not involve language of the specificity in Exhibit J. FN6 Moreover, in Keller v. A.O. Smith Har–

vestore Products, Inc., 819 P.2d 69, 73-74 (Colo.1991), the court held that “a general integration clause does not

truthfulness, then that interest applies with more force, not less, to contractual representations of fact”). See also

Hardee‘s of Maumelle, Arkansas, Inc. v. Hardee‘s Food Systems, Inc., 31 F.3d 573, 576 (7th Cir.1994) (“[I]t is simp-

ly unreasonable to continue to rely on representations after stating in writing that you are not so relying.”); Konold v.

Baskin Robbins, Inc., 87 F.3d 1327, 1996 WL 346607 (10th Cir.1996) (unpublished table decision) (following

Hardee‘s ).

2. The Exculpatory Clauses Do Not Preclude Reasonable Reliance on Nondisclosure of the Parent Company’s Loss-

es

[5] We reject the trial court’s holding that the exculpatory clauses precluded plaintiffs from reasonably relying on

The decision does not identify the specific clauses on which the trial court based its conclusion. Likewise, defend-

ants do not address any specific clauses in their briefs. Instead, they argue that the court’s conclusions about the

clauses were evidentiary findings entitled to deference unless lacking any record support.

[6] As discussed above concerning subsection H(1)(b), we read the trial court’s conclusion that plaintiffs failed to

Plaintiffs have submitted as Appendix B to the opening brief, which defendants have not supplemented, a list of all

exculpatory clauses in the closing acknowledgment and the franchise agreement, and some exculpatory clauses in

(Provision in closing acknowledgement.)

• Exculpatory Clause 2:

This Agreement … contains the entire agreement between the parties and supersedes any and all prior agree–

ments concerning the subject matter hereof. The Franchisee agrees and understands that the Franchisor shall not

(Provision in franchise agreement.)

• Exculpatory Clause 3:

NO STATEMENT, REPRESENTATION OR OTHER ACT, EVENT OR COMMUNICATION, EXCEPT AS

SET FORTH IN THIS DOCUMENT, AND IN ANY OFFERING CIRCULAR SUPPLIED TO THE FRAN-

CHISEE IS BINDING ON THE FRANCHISOR IN CONNECTION WITH THE SUBJECT MATTER OF

tions extrinsic to the transactional documents about the potential profitability of franchises.

The trial court rejected plaintiffs’ theory that they reasonably relied on defendants’ nondisclosure of the parent com-

pany’s losses because:

All Plaintiffs were told that this information was not being disclosed.... Plaintiffs expressly disclaimed reliance

v. Security Pacific Info. Systems, Inc., 795 P.2d 1380, 1384 (Colo.App.1990) (fraudulent concealment properly sub-

mitted to jury where defendant made “statements indicating that SPIS was financially secure” which “would create a

false impression without disclosure of the known, serious financial problems of SPIS”). The trial court made no

finding concerning this testimony. And unlike the specific warnings about company store performance in Exhibit J,

Fed.Reg. at 15448.

The rule requires disclosure of some financial statements of franchisors. 16 C.F.R. § 436.1 (2003). It permits disclo-

sure of a parent company’s financial statements only if the parent company serves as a guarantor of the franchising

subsidiary:

Provided, however, That where a franchisor is a subsidiary of another corporation which is permitted under gener-

ally accepted accounting principles to prepare financial statements on a consolidated or combined statements ba-

sis, the above information may be submitted for the parent if (A) the corresponding unaudited financial statements

of the franchisor are also provided, and (B) the parent absolutely and irrevocably has agreed to all obligations of

the subsidiary.

No appellate court has interpreted subsections 436.1(a)(20) or (21). The FTC addressed these sections in its com-

mentary to the amended rule:

We note that nothing in the Rule prohibits a franchisor from furnishing prospective franchisees with non–

deceptive and non-contradictory information outside of its disclosure document….

nancial statements.” Thus, its plain language would not preclude a general comment especially if provided “in sepa-

rate literature,” such as, “The franchisor is the wholly owned subsidiary of _______, which has not shown a profit

during its __ years of operation.”

Nevertheless, because the rule did not require PCFI to include in the UFOC any parent company financial infor-

on disclosing parent company financial statements to circumstances where the parent is a guarantor of its subsidiary

franchisor prevents prospective franchisees from assuming that a parent may be a deep pocket available in the event

of a dispute with the subsidiary franchisor. Id. at 15447. But merely disclosing a parent company’s financial difficul-

ties would not mislead a potential franchisee in this way. Nor would such a limited disclosure be “contrary to the

information in the disclosure statement.”

extent of any inconsistency with part 436. A law is not inconsistent with this Rule if it affords prospective fran-

chisees equal or greater protection, such as registration of disclosure documents or more extensive disclosures.

16 C.F.R. § 436, note 2.FN12 Because of the reference to “franchise practices laws,” there may be no preemption of

common law claims.

Accordingly, we conclude that allegedly fraudulent nondisclosure of the parent company’s losses is not protected by

the FTC regulations.

D. Remand is Necessary

Sections F, G, and H of the decision deal with aspects of the fraudulent nondisclosure claim. Section H is divided

into the following subsections:

1. No Duty of Disclosure

a. Customary Disclosure in the Trade

b. False Impression of the Facts

on duty to disclose, if any. In the event the court does not find facts giving rise to a duty, further findings concerning

fraudulent nondisclosure are not required.

If the court finds facts giving rise to a duty to disclose, it should address the following inconsistencies related to in-

tent:

• In subsection H(1)(b), the court added:

The Court concludes that Peaberry actively concealed material financial facts from the Plaintiffs…. The con-

cealed facts were also withheld with the intent that the Plaintiffs purchase their franchises ignorant of the true