Sickler v. Kirby

805 N.W.2d 675 (2011)

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Nature of the Case

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Facts

Ps began operating a 'European style' coffeehouse named 'Barista's Daily Grind.' They asked Orr to advise them on franchising laws and to prepare the necessary documents to sell franchises. Orr agreed to do so. Orr had no expertise in, nor experience with, franchising that would qualify him to do this type of work. B&F was formed to be the franchisor. Franchisees would do business under the name 'Barista's Daily Grind Espresso to Go.' Ps formed W.E. Corporation to own the real estate and buildings. Cup-O-Coa, Inc. was formed to distribute products used by the franchisees of B&F. Orr completed a draft of the franchise agreement, and in December, he drafted the disclosure statement-a crucial document, as will be explained below. From 2003 to 2006, B&F sold 22 franchises and collected over $800,000 from the sales. Once they moved to out of state sales, the troubles began. A banker in Colorado requested a 'Uniform Franchise Offering Circular' (UFOC). Revisions of the franchise agreement were made due to problems that B&F was having with a Des Moines, Iowa, franchisee whose attorney had sent a letter stating that B&F did not comply with federal law. A second disclosure statement was created, and franchises were then sold out of state. Ps sought to rescind a Colorado franchise and the judgment went against B&F in the amount of $132,422.95, which included slightly over $49,000 in attorney fees awarded after the court found that the violations alleged in the counterclaim had occurred as a matter of law with respect to federal requirements that were not met by the agreements signed. An Iowa franchisee seeking rescission, attorney fees, and other damages because of violations of the FTC rules and Iowa statutes relating to franchises. Ps were warned that they could be personally liable for return of the franchise fee as well as other damages. Ps demanded that Orr seek a second opinion. Orr and Holbrook, an attorney who worked under Orr, talked with D. Ps never had any direct contact with D. D advised that B&F's franchise documents had numerous defects-and that even if not independently material, such taken together would be material violations. Ps were sued by the Iowa franchisee. Holbrook engaged D to defend only the corporation, B&F. Holbrook defended P. D had no contact with Ps. D never discovered who drafted the franchise agreements. The FTC also indicated that B&F was under investigation. Holbrook contact yet another attorney specializing in franchise law and found that even the third rendition did not comply with FTC requirements. Eventually, the FTC fined B&F $240,000 (suspended) and put it under an injunction to not violate FTC requirements. After Ps and B&F suffered a judgment in the Iowa suit, Ps sued D for malpractice. D moved for summary judgment claiming he only represented B&F and not Ps. It was granted, and Ps appealed.