Miller v. McDonald's Corp.

Name:Miller v. McDonald's Corp.

Cite:945 P.2d 1107 (Ore. App. 1997).

  • Procedural Posture:Trial court granted summary judgment to defendant because it did not own or operate the restaurant; the owner/operator, 3K Restaurants, was a nonparty that held a franchise.

  • Background and Description:Franchise license agreement required 3K to operate in a manner consistent with the "McDonald's System." The agreement described the 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." Defendant dictated many operational details of the restaurant, prescribed hours of operation, and sent consultants for inspections. The agreement also contains a disclaimer that the franchisor is not liable for the acts of the franchisee.

Plaintiff was unable to discern that this restaurant was not owned and operated by the defendant. All signs visible and obvious to the public held the name of the defendant.

  • Issues:
1. Did the defendant create a principal/agent relationship with 3K?

2. Was defendant vicariously liable for 3K's alleged negligence?

  • Holding:
1. Yes. The court adopts the general standard of the "Right to Control Test" and finds that the defendant retained ample controls to meet this standard. The Right to Control test is used to determine if the defendant created a principal/agent relationship with 3K. This test applies "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."

2. Yes. The court adopts the Restatement 2d of Agency Section 267. "One who represents that another is his servant or other agent and thereby causes a third person justifiably to rely upon the care or skill of such apparent agent is subject to liability to the third person for harm caused by the lack of care or skill of the one appearing to be a servant or other agent as if he were such."

  • Other Discusion:
McDonald's was liable because it retained control over food preparation, dress, hours, inspection rights, controlled labels.

Under the right to control test, McDonald's did control the day-to-day operations of 3K's restaurant.

If McDonald's relinquishes control it faces either loss of uniformity or liability for torts if its franchisors. McDonald's options are to either (1)require franchisee to take out an insurance policy, or (2)require franchisee to reimburse franchisor for payouts.
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