Allegations that franchise disclosure documents were inaccurate did not toll the statute of limitations under Ohio’s Business Opportunity Plan Act
In a recent case, the United States District Court for the Northern District of Ohio sided with a franchisor and dismissed franchisees’ claims arising under Ohio’s Business Opportunity Plan Act, O.R.C. § 1334.01 et seq. (BOPA), on statute of limitations grounds.
In CajunLand Pizza, LLC v. Marco’s Franchising, LLC, No. 3:20-cv-536-JGC, 2021 WL 5916010 (N.D. Ohio December 8, 2021), a group of former franchisees (the “Franchisees”) commenced an action against a former franchisor (the “Franchisor”) and its president arising from the termination of franchise agreements. Two of the Franchisees signed their franchise agreements in 2010, two others in 2011, and one in 2013. The District Court initially dismissed all of the Franchisees’ claims except for a breach of contract claim and a claim for a violation of BOPA.
The Franchisor subsequently moved to dismiss the Franchisees’ BOPA claims arguing that such claims were time-barred by BOPA’s five-year statute of limitations codified in O.R.C. §1334.10(C), which provides that no action under BOPA may be brought “to recover for a transaction more than five years after either the occurrence of the violation or the date on which the parties executed the agreement selling or leasing the business opportunity plan, whichever is earlier.” The Franchisees argued that the statute of limitations period was tolled because they did not discover that the Franchisor allegedly had made misrepresentations in their franchise disclosure documents (FDDs) until 2017, when the Franchisor revoked its approval of a buyer who had contracted to purchase the Franchisees’ franchises.
In support of their position, the Franchisees cited Ohio case law for the proposition that a failure to make disclosures in the FDD is a continuing violation until such information is provided. The Franchisees relied on a case that involved a claim by a franchisee for contract rescission because the franchisor had not provided the franchisee with any FDD whatsoever and also had failed to include in its franchise agreement the notice of certain cancellation rights. In CajunLand, however, the District Court found that the Franchisor had provided each Franchisee with a FDD and that the Franchisees did not allege that Franchisor failed to give them the statutorily mandated notice of their cancellation rights. Instead, the Franchisees simply alleged that the disclosures in the FDDs were inaccurate and/or incomplete.
The District Court did not believe that the facts asserted by the Franchisees in CajunLand warranted a tolling of the statute of limitations period under BOPA where the franchisor provided an FDD, but the franchisee claims the document was somehow deficient. The District Court, therefore, determined that permitting the Franchisees to overcome the statutory five-year limitation merely by claiming that the FDD presented misrepresentations or omissions effectively would write the five-year limitation out of the statute. The District Court believed that to hold otherwise would undermine the Ohio legislature’s intent in enacting BOPA, including the limitation provisions set forth in the statute.
This case is instructive for both parties to a franchise agreement, albeit for different reasons. Franchisors operating in Ohio should be mindful of BOPA when negotiating a franchise agreement, including how representations are made in the FDD. For franchisees, however, it is stark reminder to not sit on your rights.
Regardless of the facts of your situation, a franchisee would be wise to take the default position that the limitations clock begins ticking on BOPA claims at the time a franchise agreement is signed.