In 1990, Jeremy Bransford entered a Mobil Mini Mart filling station to purchase some food items. Shortly thereafter, an argument arose between Mr. Bransford and the filling station cashier. Suddenly, the cashier attacked Mr. Bransford and beat him severely, causing permanent injury.
Mr. Bransford filed suit against Mobil, alleging that Mobil had established an apparent authority relationship with the operator of the filling station, who was a Mobil franchisee. The evidence of apparent authority included facts indicating that Mobil owned the property on which the franchise was located, sold Mobil products at the filling station, used Mobil trademarks and logos throughout the premises, and sent Mobil representatives to the station to provide various routine support services. Further, the franchise agreement required the use of Mobil symbols and the selling of Mobil products, and the filling station employee was wearing the Mobil logo on his clothing when he attacked Mr. Bransford.
On January 25, 1995, the Supreme Court of Florida entered summary judgment in favor of Mobil Oil Corporation; the court found that there was no material issue of fact on the question of whether Mobil had incurred liability under the doctrine of apparent authority. Mr. Bransford's allegations, stated the court, "clearly fail[ed] to allege even the minimum level of a 'representation' necessary to create an apparent agency relationship."
By effectively ruling that a franchisor cannot be held liable for the torts of a franchisee, despite a level of representation clearly adequate to warrant a jury trial on the issue of whether a reasonable person would believe that the franchisee was the apparent agent of the franchisor, the Florida Supreme Court has virtually eliminated the doctrine of apparent authority as a means of imposing vicarious liability in the franchising industry. This Note argues that the Florida Supreme Court's grant of summary judgment in Mobil Oil despite ample evidence of apparent authority will likely set precedent leading to inefficient economic results and inequitable decisions in future cases involving customers injured by the negligence of a business operator. Part II of this Note provides a brief history of legal developments in oil company franchise cases and illustrates the challenges courts have faced in applying traditional vicarious liability principles in the context of modern franchise arrange ments. Part III discusses the court's holding in Mobil Oil and assesses the current status of vicarious liability law in Florida. In part IV, the rationale supporting the concept of vicarious liability is explored in order to analyze the impact the court's decision will have on Florida's agency law jurisprudence. Finally, alternative approaches are suggested for developing a theory that will better implement the policy goals behind vicarious liability in light of the commercial realities of the developing franchise industry.
Try to recall how many times you have patronized a filling station. How many times have you stopped to fill up your tank, ask directions, or purchase a drink from a filling station with a food mart? Over a thousand? Maybe five thousand? Did you ever wonder who really operated the filling station, or whether you could recover from the station in the event of injury?
Use of franchising as a form of business arrangement has steadily increased over the past several decades, with franchising arrangements becoming a particularly popular method for oil companies to distribute their products. Vicarious liability suits against franchisors have likewise continued to rise. Cases involving torts of filling station franchisees have presented a constant challenge for Florida courts, which have sought to develop a theory of vicarious liability that will produce equitable results for injured plaintiffs without placing an unreasonable burden on the franchising industry. The theories of liability developed by courts in oil company franchise cases often have implications beyond the oil industry; the precedent set in these cases frequently dictates who will bear the ultimate cost when customers are injured as the result of negligent business operations.
The earliest cases involving the liability of oil companies for the acts of their service station operators relied exclusively upon the doctrine of respondeat superior as the basis for holding the oil company liable. The concept of respondeat superior, or "imputed negligence," rests on the premise that by reason of some relation existing between A and B, A may incur liability for B's negligence, even though A has not been negligent. In order to determine whether the necessary agency relationship exists to hold A liable under the doctrine of respondeat superior, courts will examine, among other matters, the extent to which A controlled or had the right to exercise control over the time, manner, and method of B's work. There fore, the principal aspects courts examine include the working relationship between the parties and the written contract or franchise agreement. Unless the circumstances indicate that A maintained the ability to exercise the requisite degree of control over B's work, A cannot be held liable for B's negligent acts under the doctrine of respondeat superior.
Unlike the doctrine of respondeat superior, which normally requires the pres ence of an actual agency relationship (and therefore control), apparent authority is a form of implied agency; implied agency is entirely distinct from actual authority (and therefore from the control requirement). The Second Restatement of Agency defines apparent authority as "the power to affect the legal relations of another person by transactions with third persons, pro fessedly as agent for the other, arising from and in accordance with the other's manifestations to such third persons."
In Florida, three elements must exist for a finding of apparent authority: a) a representation by the purported principal that the alleged agent is acting on its behalf; b) a reliance on that representation by a third party; and c) a change in position by the third party. The representations of the principal may be made directly to a third person or may be made to the community by signs, advertising, authorizing the agent to state that he is permitted to act on behalf of the principal, or continuously employing the agent.
In 1971, the Third Circuit Court of Appeals decided for the first time, in Gizzi v. Texaco, Inc., that an oil company could be held liable for the acts of a filling station franchisee under the doctrines of apparent authority and agency by estoppel, despite the absence of control by the franchisor over the franchisee. In Gizzi, the plaintiff was injured when the brakes failed on a car that he had bought from an employee of a Texaco station. The trial court noted that no actual agency existed between Texaco and the employee who sold the car because the employee sold the car on his own behalf, not on behalf of Texaco. However, the plaintiff asserted that Texaco had clothed the employee with apparent authority to make the repairs and sell the car of behalf of Texaco. In support of his theory of liability, the plaintiff introduced evidence that Texaco's insignia and slogan "[t]rust your car to the man who wears the star" were prominently displayed. The United States Dis trict Court for the Eastern District of Pennsylvania granted Texaco's motion for summary judgment, but the Third Circuit reversed, stating that "[w]hile the evidence on behalf of appellants by no means amounted to an overwhelming case of liability . . . reasonable men could differ regarding [the sufficiency of the evidence to establish apparent agency] and . . . the issue should have been determined by the jury . . . ."
Since most franchise relationships fall short of creating an actual agency, the Third Circuit's holding in Gizzi broadened the scope of potential liability for oil companies in franchise arrangements by recognizing that the theory of apparent authority, as well as that of actual agency, could provide the basis for holding an oil company liable for the acts of a franchisee. Although other federal and state courts since Gizzi have used the doctrine of apparent authority to hold franchisors responsible for the acts of their franchisees, the use of the apparent authority doctrine in the franchise context has received substantial criticism since franchisors are left open to extremely broad liability. Broad liability results because plaintiffs can usually point out ample indicia of representation in a modern franchise arrangement to allege vicarious liability under apparent authority. These elements of representation are particular ly prevalent in most oil company franchise arrangements. Besides representa tion, the other two elements necessary to hold a franchisor vicariously liable for a franchisee's actions—reasonable reliance on the representation and change in position—do not require a high degree of proof to support the allegation.
To protect franchisors from the potentially broad liability imposed by the apparent authority doctrine, some courts have adopted a theory referred to as the common knowledge doctrine. The common knowledge doctrine assumes that the public understands that oil companies and certain other businesses commonly enter into franchise agreements whereby the franchisee displays the logos, markings, slogans, and other indicia of the franchisor, although the franchisee maintains control over daily business operations. Courts adopting this theory reason that since the public is deemed to understand that the franchisor actually has no significant control over a franchisee, a plaintiff cannot show that he or she relied upon the franchisor's reputation in choosing to do business with the franchisee. Thus, the common knowledge doctrine prevents a plaintiff from proving the element of reliance, despite the franchisee's display of signs, logos, or other indicia of the franchisor, unless additional facts exist to warrant the plaintiff's reliance upon the franchisor's business reputation.
Courts normally use the common knowledge doctrine to support a summary judgment ruling, thereby removing the case from the jury and the fact-finding stage. However, some courts have employed alternative methods to circumvent the jury's fact-finding function in apparent authority cases. One such method is to grant summary judgment on the basis that the indicia of franchisor control displayed by the franchisee falls short of the minimum level required for the plaintiff to go to the jury. This is what the Supreme Court of Florida did in Mobil Oil Corp. v. Bransford.
In 1990, eighteen-year-old Jeremy Bransford entered a Mobil Mini Mart gas station in Fort Lauderdale to purchase a sandwich. Mr. Bransford exchanged sharp words with the cashier, Hyman Stetham. The confrontation escalated and, without warning, Stetham punched Bransford three times in the face. Bransford's facial bones were crushed in three places; the injuries required permanent implantation of metal plates and screws in Bransford's face. After the incident, Bransford continued to experience pain when chewing and had blurred vision.
The Mobil station where the incident occurred was owned by Mobil and leased to Alan Berman. Stetham, who allegedly had a history of assaulting customers, was Berman's employee. Bransford sued Mobil on the theory that Mobil had established an apparent agency with Berman and, therefore, had assumed vicarious liability for torts arising out of Berman's operation of the filling station.
To show apparent authority, Bransford indicated that Mobil owned the property on which the station was located; Mobil trademarks and symbols were used throughout the premises; the franchise agreement required the use of Mobil symbols and the sale of Mobil products; and Mobil allegedly sent representatives to the station to provide routine support services. Further, Bransford presented evidence that employees of the station were required to wear Mobil uniforms and that Stetham was wearing a Mobil hat when he attacked Bransford.
After hearing oral argument, the trial court granted Mobil's motion for summary judgment without opinion. Bransford sought review of the trial court's ruling on apparent authority in the Fourth District Court of Appeal, which reversed the summary judgment, after finding that "Mobil might be liable under the theory of apparent agency . . . ." Mobil petitioned the Florida Supreme Court for review. The court granted review since the Fourth District Court of Appeal's decision was in apparent conflict with the Florida Supreme Court's opinion in Orlando Executive Park, Inc. v. Robbins, in which the court indicated that an oil company could not confer apparent authority on a service station franchisee by allowing the franchisee to use the franchisor's name and sell its products.
The Florida Supreme Court reversed the Fourth District Court of Appeal and entered summary judgment in favor of Mobil on the grounds that the factual allegations in Bransford's complaint "clearly fail[ed] to allege even the minimum level of a 'representation' necessary to create an apparent agency relationship." The court noted that in cases of alleged apparent agency, something must have happened to communicate to the plaintiff that the franchisor was exercising substantial control over the franchisee. The majority found that Bransford's evidence of representation failed to state a cause of action against Mobil because "[i]n today's world, it is well understood that the mere use of franchise logos and related advertisements does not necessari ly indicate that the franchisor has actual or apparent control over any substantial aspect of the franchisee's business or employment decisions." Further, the provision of routine contractual support services does not change the result, and actual ownership of the premises is relevant only to the extent that such ownership may indicate some degree of actual or apparent control over the business, which the facts in Mobil Oil did not indicate.
The court distinguished Mobil Oil from a seemingly conflicting case, Orlando Executive Park, on the basis that the franchisor's direct participation in Orlando Executive Park was sufficient to represent to the public that the franchisor exercised substantial control over the franchisee's business.5 In Orlando Executive Park, the plaintiff sued the Howard Johnson Company after she was attacked at a Howard Johnson Motor Lodge operated by an independent company, Orlando Executive Park, Inc. The Florida Supreme Court affirmed the Fifth District Court of Appeal's decision that the plaintiff had presented sufficient evidence at trial to support the trial court's finding of apparent authority.
In Orlando Executive Park, the Florida Supreme Court cited with approval the Fifth District Court of Appeal decision, which stated: "[W]hile [Orlando Executive Park, Inc.] might not be [Howard Johnson's] agent for all purposes, the signs, national advertising, uniformity of building design and color schemes allow the public to assume that this and other similar motor lodges are under the same ownership." The court believed that Howard Johnson's operation of the restaurant, lounge, and adult theater at the motel constituted additional evidence that Howard Johnson had established an apparent agency relationship with the franchisee. The opinion stated that "[t]he complex was an integrated commercial enterprise, and [Howard Johnson's] direct participation was significant."0 The Mobil Oil court focused on the latter factor in distinguishing Mobil Oil from Orlando Executive Park and concluded that "[t]he fact [that the franchisor actually operated several components within the complex in question] alone obviously and directly 'represented' to the public that the franchisor was in substantial control of the business [in Orlando Executive Park] . . . ."
In Orlando Executive Park, the Florida Supreme Court resolved an apparent conflict with the Fourth District Court of Appeal's decision in Sydenham v. Santiago, where no apparent agency was found between an oil company and a franchisee filling station despite signs and other indicia of representation similar to those of Howard Johnson in Orlando Executive Park. The court explained that the apparently anomalous rulings did not conflict because "the district court [in Orlando Executive Park] has set out the proper standard, limiting Sydenham and other oil company cases to their facts, and [the court] disapprove[s] extending the language of Sydenham [indicating that oil companies do not confer apparent authority on their franchisees by allowing the franchisee to use the franchisor's trade name and sell its products] into cases such as the instant one . . . . "
In Mobil Oil, the court clearly abrogated the portion of the holding in Orlando Executive Park that purported to distinguish the degree of representation required to find an apparent agency relationship in oil company cases from the degree of representation required in other franchise cases. The opinion stated:
[The court] recognize[s] that Orlando Executive Park suggested that oil company cases somehow are different from other franchising cases and that logos or other trademark symbols alone can create an apparent agency [in franchise cases not involving oil companies]. Because [the court] believe[s] these to be erroneous impressions, [it] recede[s] from Orlando Executive Park to the extent it is inconsistent with this opinion.From the language in Mobil Oil, one can surmise that no apparent agency relationship can exist between any type of franchisor and franchisee on the basis of representation by signs, logos, employee clothing, provision of routine support services, ownership of the premises on which the business is located, or any of the other indicia of representation alleged by Bransford in his complaint. To avoid summary judgment and get to the jury on the issue of apparent authority in franchise arrangements, plaintiffs will have to present additional evidence that the franchisor "participated in some substantial way in directing or managing acts of the franchisee . . . ." The only example we have of evidence the Florida Supreme Court believes adequate to avoid summary judgment under this standard is that involved in the Orlando Executive Park scenario, where the franchisor actually operates several components within a single complex, leaving only some components under the control of the franchisee. This scenario is particularly unlikely to occur in oil company franchises, in which the entire filling station is often operated by the franchisee.
Future plaintiffs will find it particularly difficult to allege apparent authority because the Mobil Oil opinion mixed apparent agency concepts, such as indicia of representation, with actual agency concepts, such as control of certain business operations. By requiring plaintiffs to demonstrate franchisor control to prove the element of representation, the court has basically limited franchisor liability to instances of actual authority. As discussed previously, since most franchisors do not maintain actual control over their franchisees' operations, most franchisors cannot be held liable for the acts of their franchisees on the basis of actual authority.
While the court could have limited the Mobil Oil ruling to oil company cases, the court opted to make the holding applicable to all types of fran chises. At least one commentator has noted that limiting the liability of oil company franchises, while leaving other types of franchisors open to broader liability, may be justified on the basis that oil companies use their franchisees merely to distribute their products, while other types of franchises, such as hotels and food service companies, involve the franchising of a specific business format. Because oil company franchisors are normally not concerned with how their service station franchisees operate, these franchisors can distribute their products through service station franchisees without exercising control over the franchisees' business format. Arguably, the less control a franchisor exercises over the franchisees' business methods, the less liability exposure the franchisor should be expected to bear for the franchisees' negligence.
However, by receding from its earlier opinion in Orlando Executive Park, which indicated that oil company franchises would be treated under a different standard from other types of franchises, the court declined to accept the common knowledge doctrine as a means of limiting the liability of specified franchises, such as those involving oil companies. The court's decision to extend its holding to all types of franchises, rather than to limit the holding to oil companies, makes Mobil Oil an exceptionally drastic and broad-reaching decision. For the first time in over thirty years, the apparent authority doctrine will be virtually unavailable as a means of recovery to plaintiffs who are injured when the company that owns all of the assets of a particular business contracts with an insolvent third party to operate the business, even if the company in ownership continues to represent to the public that the owner maintains control over the business operations. The result is that, under Mobil Oil, all a company has to do to avoid liability for a dangerous or a negligently operated business is to contract the operation of the business to a third party. The franchisor can then continue to market its products or services, while representing to the public that the franchisor still operates the business, without incurring any potential tort liability.
Businesses such as the oil, hotel, and fast food industries, which utilize an extensive franchise system of marketing and distribution, will likely view the Mobil Oil decision as long overdue relief from an onerous cause of action that places an unfair burden on industry and stifles economic growth. Many franchisors believe that apparent authority unfairly allows a plaintiff to hold a business liable for the negligence of its franchisees despite the fact that the business did not, and possibly could not, control the actions of its franchisees. These businesses argue further that imposing broad liability on franchisors makes the use of an efficient business arrangement impractical, if not impossible, and that communities ultimately will suffer from the resultant lack of economic growth.
Further, many franchisors (and also some courts) feel that the apparent authority doctrine is unfair because courts and juries will often overlook the requirements of the rule to allow a sympathetic plaintiff to recover from a large corporation. Prior to Mobil Oil, most apparent authority cases in the franchise context were contested over the reliance element. Since reliance is a jury question with no clearly defined standards, some courts have received heavy criticism for finding reliance where none could reasonably have been found in order to allow an injured plaintiff to recover.2 After Mobil Oil, apparent authority cases will no longer hinge on the reliance requirement alone; plaintiffs will now have to overcome a nearly impossible hurdle to avoid summary judgment on the representation element and reach a jury trial on the issue of reliance.
Despite some legitimate arguments in favor of limiting the liability of franchisors under the apparent authority doctrine, the court's controversial decision virtually to eliminate vicarious liability in the franchising industry holds some potentially serious consequences for tort victims and for society. By holding that no apparent authority can exist despite the presence of the signs, logos, and other indicia of franchisor control present in Mobil Oil, the Florida Supreme Court has perverted the apparent authority doctrine and, in so doing, has undercut the rationale behind the doctrine in a way that will likely lead to unjust and uneconomical results in future cases involving the torts of franchisees. This Note now explores the social and economic theories upon which the doctrine of vicarious liability is based in order to analyze the impact the Mobil Oil decision will have on Florida's agency law jurisprudence.
Why should the owner of a business be held liable for the actions of a franchisee, particularly when the owner does not exert any control over the franchisee's business operations?
Two schools of thought describe the chief reasons courts and scholars have asserted for holding a party who may not have been at fault liable for the negligent acts of another party. The first school holds that liability is imposed in order to produce economically efficient results, which ultimately provide the most favorable situation for individuals in our society. Alternatively, the second school asserts that vicarious liability arises out of ideas about social justice and moral responsibili ty. While these two rationales differ in their philosophical approach, both provide compelling reasons for enforcing a system of vicarious liability. This Note now examines these two schools of thought in order to provide the reader with an understanding of the foundations of the apparent authority doctrine.
Enterprise liability describes the idea that an enterprise should bear the costs the enterprise engenders, rather than distributing risk on the basis of fault. The enterprise liability school of thought is based on an alloca tion of resources justification. The ethical postulate at the heart of this concept is that people generally know what is best for themselves and will respond logically according to market incentives and disincentives. A pure system of enterprise liability requires two elements: first, the cost of injuries must be borne by the activities that cause them, whether or not fault is involved, because the injury is a real cost of those activities; second, among the several parties engaged in an enterprise, the loss should be placed on the party most likely to cause the burden to be reflected in the price of whatever the enterprise sells.
Proponents of the enterprise liability theory argue that, in many, but not all, circumstances, enterprise liability will lead to more efficient resource allocation and less cost to society. For example, if the government suddenly were to pay the cost of all auto accidents, people would no longer need to buy insurance, and the result would be that some people would buy more cars. The effect would be the same if the government suddenly chose to pay the cost of steel used by auto manufacturers and to raise the money out of taxes. In each case, an economist would say resources are misallocated because goods are produced that the purchaser would not buy if he really had to pay the full extent of their cost to society. Enterprise liability corrects this misallocation by placing all of the costs associated with producing a product on the manufacturer. This will cause the true cost of the product to be reflected in the price of the product, so that market forces will produce a more efficient allocation of resources. According to the enterprise liability school, "the most desirable system of loss distribution under a strict resource-allocation theory is one in which the prices of goods accurately reflect their full cost to society."
With respect to the oil company franchising industry, one commentator illustrated the advantages that a nonfault system of liability based on efficient allocation of resources may provide over a fault-based system by examining Smith v. Cities Service Oil Co. In Cities Service, a negligent repair case, the district court granted the oil company's motion for judgment notwithstanding the verdict, and the Seventh Circuit Court of Appeals affirmed. Applying the control test, the circuit court held that the operator was an independent contractor, rather than an agent of the owner, because the operator had control over the day-to-day operations of the station, including the repair business.
The operator, who was the eleventh operator of the station in less than seven years, had filed for bankruptcy about eight months after the acci dent. The operator had little, if any, insurance and no personal assets with which to pay damages. The station itself could not even be sold to pay the judgment because Cities Service owned the land, the station, and the major pieces of equipment. The operator merely leased the station from Cities Service and agreed to sell Cities Service's products.
The commentator explained that under the fault-based system of liability, the insolvency of the operator worked to the mutual benefit of the parties. The operator, who had no significant assets to invest, was able to lease the station from Cities Service for very little cost. This opportunity encouraged the operator to undertake the business and attracted additional customers for Cities Service's products. The operator did not assume great risk for potential tort claims because Cities Service owned the station. After the accident, the insolvent operator obtained a discharge in bankruptcy and moved on to other employment, while Cities Service found a new operator for the station.
This scenario illustrates how a rule of personal liability can produce extremely inefficient and inequitable results. Such a rule makes possible the continued operation of a business that probably cannot recover its marginal social costs, while encouraging the principal to use agents who have little, if anything, at risk and who consequently have diminished incentives to avoid losses. In this type of situation, vicarious liability will almost certainly provide more efficient resource allocation by creating additional incentives for the principal to provide adequate loss-avoidance incentives and to improve resource allocation by closing down unprofitable operations.
There are three separate premises offering justification for the allocation of resources theory: 1) the risk-spreading rationale, 2) the loss prevention rationale, and 3) the deep pocket rationale. These three theories will now be addressed in order to analyze further the basis for the allocation of resources theory. Particular attention will be paid to the effect these theories have in the context of the oil franchising industry.
The risk-spreading justification for nonfault liability rests on the idea that if losses are broadly spread among people and over time, they are the least harmful. In the purest form, risk spreading would probably be accom plished through some form of governmental accident relief program spread among the population through taxes. In the absence of a governmental program, enterprise liability would be essential to accomplish risk spreading in the oil company franchise industry because the franchisee in an oil company franchise contract generally has no capacity to allocate the risk to the public through what he or she charges. This is because prices are usually governed by the oil company, with the dealer receiving a commission based on sales. Therefore, "[t]he oil company is clearly in the best position to assess the business risks of social harm involved in [the] operation and to distribute the risk to the public through its prices."
Insofar as enterprise liability places the burden of risk on the party most likely to insure against such risks, the system accomplishes a large degree of risk spreading throughout time and among people. However, the efficiency and the extent to which a system of enterprise liability accomplishes the goal of risk spreading will depend on the structure of the industry involved, the nature of the costs charged, and the general economic conditions. In an essentially competitive industry, substantial loss spreading through wages and prices will occur so long as accident costs vary with output or through the use of some specific resource in production. The added cost of accidents will result in two effects: "(a) decreased output and higher prices, and (b) lower payments to, and decreased use of, those resources giving rise to the extra cost, assuming that these [resources] can be identified."
However, if the industry were one in which substantial control over price and output existed, such as in a monopoly, close-knit oligopoly, or price-leader industry, no immediate risk spreading would occur as the result of enterprise liability. No risk spreading would result because this sort of industry usually sets prices at a high enough level that any further price rise results in a substantial loss of sales. A tight pricing structure prevents these industries from shifting their increased costs to the consumer. Exit from the industry is unlikely because the profits in such industries are probably sufficient to bear the extra costs. In this situation, at least some of the burden will remain permanently on the industry in the form of decreased profits, which may create a sick industry. Although the oil industry probably most closely resembles an oligopoly or a price-leader industry, substantial risk spreading would likely be possible because consumer demand for oil-based products, such as gasoline, is unlikely to vary significantly from small or moderate price increases.
The loss prevention rationale rests on two public policy precepts. "First, the franchisor is in a good position to select responsible franchisees and to ensure that they exercise a high degree of care when dealing with their customers." Second, imposing vicarious liability encourages the franchisor to maintain the highest possible standards during its selection and supervision processes. Imposing vicarious liability on the basis of the loss prevention rationale encourages franchisors to maintain a higher degree of control over their franchisees' contractual dealings with third parties. Under this rationale, placing liability on the oil company would encourage franchisors to choose responsible franchisees, to supervise and inspect them routinely, and to ensure that their franchisees acquire and maintain sufficient insurance to cover any damage award that may result from the franchisee's negligence.
However, an overly broad application of the loss prevention rationale could result in franchisor liability for franchisees' actions that the franchisor could not have reasonably contemplated. Further, complete supervision of franchisees' activities is often impossible. Despite the limitations of this theory, its application would provide strong incentive for franchisors to assume greater care and responsibility in ensuring that their franchisees act in a responsible manner toward the public.
The deep pocket rationale is often represented as the real reason behind vicarious liability. Such a justification has been characterized as a philosophy to take from the rich and give to the poor. Advocates of this theory would argue that many franchises are extremely profitable and the franchisors are better able to cover the costs of accidents than are innocent victims. A franchisor typically receives profits from the actions of the franchisee over the life of the franchise through the use of exclusive dealing contracts. If the franchisor continues to profit from the consumption of franchisor-supplied products, the franchise can reasonably be expected to shoulder at least a portion of the liability burden.
The goals of this type of system could be accomplished either through a government accident compensation program paid out of progressive taxes, or through a system of liability (such as vicarious liability) that tended to put the burden of accidents on more wealthy litigants. Proponents of a pure deep pocket system would likely see enterprise liability as a halfway house to the ultimate goal of social insurance based on progressive taxes, which would probably be the ultimate means of distributing the burden of accident costs on those who could best afford them. While the deep pocket rationale, like the loss prevention theory, fails to define appropriate limits to the scope of vicarious liability, many people find it a legitimate and attractive justification for imposing vicarious liability on franchisors.
The school of thought that imposes vicarious liability based on reliance and estoppel, like the resource allocation school of thought, is not based on concepts of individual fault. However, unlike the theory of resource allocation, which is based on efficient or desirable allocation of resources, the theories of reliance and estoppel focus on concepts of societal fairness. Those who adhere to this school of thought would argue that the true reason for imposing vicarious liability on franchisors is that franchisors should not be able to enjoy the benefit of chain-store marketing methods and national identification with their franchisees without assuming concomitant social responsibilities.
The theories of reliance and estoppel hold that uniform stores, signs, and management methods give the consumer the impression that they are dealing with a standardized business operation. This impression gives greater market value to the franchisor's trademark and the franchised operation. In fact, one commentator has noted that the franchise contract typically requires franchisees to assist the franchisor in "fooling the customer" into thinking that they are doing business with an established chain.
If, as a result of such manifestations by the principal, the customer is indeed fooled into thinking that he or she is conducting business with the principal, the theory demands that the principal assume liability for any accident that arises out of the transaction, so long as the plaintiff's reliance on the principal's representation was reasonable. This is because basic societal tenets dictate that the party who serves to gain through inducing others to do business with its representatives should bear the costs of the representative's negligence, rather than the innocent customer's bearing such costs. As we have seen in Mobil Oil7 and Cities Service, if liability cannot be imposed on the oil company franchisor, the filling station franchisee may well be judgment proof and the unfortunate plaintiff may be left to bear the burden of any resultant injury. Theories of vicarious liability based on concepts of reliance and estoppel hold that innocent individuals should not be subjected to such an injustice.
While the resource allocation rationale for vicarious liability differs from the reliance and estoppel rationale, both arguments are frequently made, often in conjunction with one another, in support of a system that allows liability to be imposed on a franchisor for the torts of its franchisee, notwithstanding the fact that the franchisor may not actually control the franchisee. The theory of apparent agency was originally developed as a theory of vicarious liability in order to make it possible for one party to be held accountable for the acts of another party in the absence of control by the principal. Placing liability on the principal, under the theory of apparent agency, serves the policy goals behind the theories of efficient allocation of resources and estoppel. By dictating that a franchisor cannot be held liable for the torts of a franchisee, despite a level of representation clearly adequate to warrant a jury trial on the issue of representation, the Mobil Oil decision is abrogating the doctrine of apparent authority as a means of imposing vicarious liability in the franchising industry. The underlying reason for the court's departure from the traditional understanding of apparent authority is that the court is seeking to protect the franchising industry from potentially broad liability. However, by abrogating vicarious liability in the franchising industry, the court is compromising the social policies behind the doctrine of apparent authority at the expense of the individual plaintiff and, ultimately, at the expense of society.
As discussed previously, courts have encountered great difficulty in applying the doctrine of apparent authority in light of the rapidly developing system of franchising, such as that used extensively in the oil industry. While most scholars would probably agree that a pure system of enterprise liability, which would impose liability on the franchisor in all cases, would prove unduly burdensome on industry and would not produce the optimum results for our society, most would likely agree that society would benefit from a system of vicarious liability that advanced the policy goals behind the allocation of resources and estoppel theories. Several alternatives to the Mobil Oil approach allow the apparent authority doctrine to remain intact in the franchising industry (thereby maintaining the policy goals discussed in the preceding section of this Note), while better accommodating the needs of the oil company franchising industry.
While scholars may harbor differing viewpoints on the extent to which a principal should be held vicariously liable for the acts of its agent, one element must exist for any of the objectives of a system of vicarious liability to be effectuated—predictability. If the parties involved in oil company franchising arrangements, namely the consumer, the service station operator, and the oil company, are unable to determine who will ultimately bear the expense of a franchisee's negligence, neither the allocation of resources theory nor the reliance theory will effectively accomplish their respective goals.
The allocation of resources theory is based on the idea that the franchisor, when faced with the burden of liability for its franchisee, will act rationally to reduce or eliminate the risk of liability in the most efficient manner and thus will accomplish the loss prevention objective. Any expense arising from the franchisor's liability that cannot be eliminated will then be passed on to the consumer and will thus accomplish the risk-spreading objective. Since the franchisor is able efficiently to reduce losses and spread the remaining expense among consumers, it can operate at a substantial profit and thus can afford to bear much of the burden of mishaps.
However, this chain of events will not occur if the franchisor cannot predict with some degree of certainty when the franchisor will be held liable for expenses arising from the torts of its franchisees. The franchisor, acting in an economically rational manner, will not incur additional expense in the form of insurance or risk-prevention measures if the franchisor cannot be reasonably certain that it will be held liable consistently enough that the additional expense of such measures will ultimately be less than that which the franchisor would be required to pay in damages to those injured by its franchisees' negligence. Likewise, franchisees will not incur additional expense to eliminate or insure against unsafe conditions if a significant possibility exists that they will not be held accountable if accidents do occur. In the absence of a reliable system of liability, the parties cannot plan for their needs, and the societal objectives contemplated by the theory of efficient resource allocation will not be accomplished.
Predictability is also necessary for the reliance-based doctrines to accomplish their goal of producing an equitable outcome for injured parties. If the public is unable to determine which service stations are actually run by companies that are in a position to compensate customers for injuries incurred as a result of the negligence of the operator, customers will not be able to protect themselves from the dangers associated with doing business with stations that cannot satisfy a judgment. If customers cannot make an informed decision as to which stations they may safely frequent, many innocent victims of an operator's negligence, such as Jeremy Bransford, will be left with the potentially devastating expense of injuries suffered when the oil companies and their service station operators gamble on the unlikelihood of having to satisfy a judgment.
The best way to address the dilemma faced by courts and to provide consistency to the question of liability in oil company franchising is for the Florida Legislature to define the liability of the parties involved in oil company franchising arrangements. The legislative process provides a forum for the consumer, the service station operator, and the oil companies to present their views on proposed reforms. The Legislature could then take appropriate action in light of the policy to be implemented. There are several approaches the Legislature could take to give some direction to the parties.
One way to produce some degree of predictability in franchising rela tionships is for the Legislature to mandate that conspicuous notices be posted in all service stations—notices indicating which stations are actually controlled by oil companies and which stations, despite the display of logos and indicia of large oil companies, are independently operated franchises. This would give all parties involved the opportunity to conduct their business with the realization that the oil company would remain liable for torts occurring at a station controlled by the company, while the independently owned station would be solely liable for its negligence. Although the oil companies and their franchisees would certainly mount a strong lobby against any such notice requirement so that they could continue to profit from the public's misperception regarding the ownership and operation of the stations, the notice requirement would be fair and equitable for all parties involved.
Another possibility is for the Legislature to mandate that all oil companies adequately insure against injuries sustained at stations the company owns. Oil companies could be required to obtain such insurance as a condition precedent to the licensing of their franchisees. Although court decisions usually hold that oil companies do not maintain control over their service station operators, commentators have noted that such control would not be necessary for this system to be effective because the oil companies would be able to use the inherent power created by the structure and economics of the distribution system to ensure that operators maintain safe practices and avoid claims. The efficiency of this system would be increased because oil companies are in a much better position to negotiate favorable insurance rates than are their service station operators.
In the absence of legislative action, courts could better facilitate the policy objectives behind the doctrine of apparent authority by applying the doctrine to the oil company franchising industry with the same degree of objectivity that the doctrine is applied outside of the franchising industry. Although the development of the franchise industry has produced concerns regarding the use of the apparent authority doctrine to impose liability, excessive judicial control over the outcome of tort litigation has led only to greater uncertainty in the industry. If judges continue to usurp the function of the jury by devising theories to dictate the outcome of tort cases based on apparent agency, juries will no longer be able to address each case on its merits. Rather, the issue of franchisor liability will be decided through sweeping policy decisions made by judges.
The argument that overly sympathetic juries will impose unwarranted liability on large corporate franchisors is not sufficient justification for completely abrogating the vital social objectives achieved by a system of vicarious liability. The concern over biased jury decisions and excessive awards is present in many tort actions not involving vicarious liability, yet courts do not remove entire causes of action merely to eliminate this possibility. Rather, courts can reduce the occurrences of unfounded jury verdicts by taking extra care to communicate to juries their responsibility to rule objectively when determining whether the plaintiff has proven the elements of the apparent authority doctrine. The small number of jury awards that are clearly unfounded can be reversed by a judgment notwithstanding the verdict or ameliorated by remittitur of the award.
If the jury is not permitted to address the merits of each apparent agency action according to established principles of application, the courts will cease to serve the function of applying the law according to the facts of each situation. The result will be that individual plaintiffs will suffer and no predictability will be possible because judges will continue to play hide-the-ball by manipulating the elements of the apparent agency doctrine to achieve their policy objectives, often without realizing the full impact their decisions will have on agency law jurisprudence.
Lastly, if the courts insist on implementing policy in the oil company franchising industry by manipulating the apparent agency doctrine, they should adhere consistently to the common knowledge theory. Although statistical surveys have shown that the public actually has little understanding of which businesses are commonly operated by independent franchisees and which are owned by the principal corporation itself, the uniform application of this theory would eventually lead to an enhanced public perception of the franchis ing industry. As the public becomes educated through court decisions, the media, and other methods of communication, some degree of predictability will result. This will allow potential parties to plan accordingly—an effect that will ultimately achieve the policy goals behind the allocation of resources theory and the estoppel theory to some extent, while also protecting the franchise industry from broad liability.
Further, the common knowledge doctrine can be enforced to protect only those industries that arguably should not be subjected to broad vicarious liability. Since only certain industries would be protected under the doctrine, other businesses would not be able to escape liability by entering into franchise arrangements merely to shield themselves from liability. This would significantly reduce the "slippery slope" dilemma created by the Mobil Oil decision, which provides incentive for business owners to relinquish control of their branch operations to insolvent third parties in order to protect themselves from potential tort claims.
By dictating that franchisors cannot be held liable for the torts of their franchisees under the doctrine of apparent agency despite overwhelming indicia of franchisor control, the Florida Supreme Court's decision in Mobil Oil Corp. v. Bransford has virtually abrogated apparent agency as a theory of liability in the franchising industry. In doing so, the court has sacrificed the social goals of economic efficiency and fundamental fairness that can only be achieved through a system of vicarious liability. To achieve these goals without placing undue hardship on the franchising industry, the Legislature should take action to delineate which party will be held liable for tort claims in franchising arrangements, or the Legislature should mandate that franchisors insure their franchisees to some prescribed minimum.
If the Legislature refuses to act, courts should refrain from manipulating the elements of the apparent authority doctrine to keep decisions away from the jury. Alternatively, courts should apply the common knowledge doctrine consistently until the public becomes informed as to which party maintains liability in certain franchising arrangements and can plan accordingly. Only be producing a predictable system of liability without abrogating vicarious liability can the vital policy goals of economic efficiency and moral justice be implemented.