Remedies for Violations of Minnesota Franchise Act
Under the Minnesota Franchise Act (MFA) there is a private right of action for franchisees, and anyone who violates the MFA is liable to the franchisee. There are a number of different ways the franchisee can sue for violations through the MFA, including damages, recision, or other relief. The franchisee also has an opportunity under the MFA to recover its costs and attorney fees. Most actions brought by franchisees against franchisors involve either fraud or violations of the MFA.
A franchisee may recover actual damages caused by a violation of the MFA. Under section 80C.17,
“a person who violates any provision of this chapter or any rule or order thereunder shall be liable for damages caused thereby.”
This provision infers that the franchisee must have some sort of reliance on a violation of the MFA to recover any damages. With regard to the degree of reliance that must be shown by a franchisee, Minnesota courts have reached opposite conclusions and it remains unclear under Minnesota law.
In interpreting the MFA, the Minnesota Supreme Court has held that a franchisee may be awarded damages for future lost profits if any recovery of merely out-of-pocket losses would not make the franchisee whole.
Lastly, the act excludes recovery of any punitive damages. Cherrington v. Wild Noodles Franchise Co., LLC, Bus. Franchise Guide (CCH ) ¶ 13,349 (D. Minn. April 28, 2006.)
Under the MFA § 80C.17, a franchisee may sue for recision for a violation of the MFA. A franchisee might choose recision as a remedy if the franchisee claims that it was induced to enter into a franchise agreement through fraudulent means under the MFA. Recision is, however, also a remedy for any technical violation of the MFA.
The MFA identifies persons who are liable for a breach of the act and is liberal in its definitions. The following people are liable, including the franchisor:
- every person who directly or indirectly controls the franchisor,
- every partner of the franchisor,
- every principle executive officer or director of a corporate franchisor or every person occupying a similar status or performing similar functions, and
- every employee of the franchisor who materially aids in the act or transaction that constitutes the violation of the act. Minnesota Statute § 80C.17(2). The only way anyone identified in this list is not liable is if they can establish that they had no knowledge of or reasonable grounds to know of any facts that created liability.
Under the MFA any person who violates the registration requirement, public offering statement, advertising prohibited practices, or unfair practices section of the MFA is subject to a $2,000 fine for each violation. If a person fails to comply with a final judgment from the court for a violation of the MFA, they can be held liable for up to a $25,000 fine. And lastly, if someone is found to have willfully violated the MFA or is involved in a scheme to defraud a franchisee, they are subject to a fine of $10,000 or imprisonment of up to 5 years, or both. Minnesota Statute § 80c.16.