Opinion ID: 675766
Heading Depth: 2
Heading Rank: 1

Heading: Indiana Franchise Act

Text: 22 The McNeelys first contend that the district court erred in determining that Hardee's was not liable under the anti-fraud provision of the IFA, Ind.Code Sec. 23-2-2.5-27. Section 27 of the IFA provides: 23 It is unlawful for any person in connection with the offer, sale or purchase of any franchise, or in any filing made with the commissioner, directly or indirectly: (1) To employ any device, scheme, or artifice to defraud; (2) To make any untrue statements of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of circumstances under which they are made, not misleading; or (3) To engage in any act which operates or would operate as a fraud or deceit upon any person. 24 Ind.Code Sec. 23-2-2.5-27. At the time of the district court's decision, private recovery actions under Sec. 27 required a showing of a material misrepresentation of a past or existing fact, made with knowledge or reckless disregard of its falsity, on which the plaintiff detrimentally relied. Master Abrasives, 469 N.E.2d at 1200; Enservco, Inc. v. Indiana Securities Div., 605 N.E.2d 256, 265 (Ind.App.1992), rev'd, 623 N.E.2d 416 (Ind.1993). The district court denied recovery under the act because Hardee's statements were merely predictions or statements of opinion rather than material facts; as we have already indicated, the McNeelys had not detrimentally relied on these statements; and reliance would be unreasonable. 25 The plaintiffs argue that the subsequent Indiana Supreme Court decision in Enservco, 623 N.E.2d 416 (Ind.1993), proves the district court wrong. Enservco held that the plaintiff in a fraud action under the IFA need no longer prove that a defendant acted knowingly or recklessly. Id. But that holding has no direct relevance to the issue here, which does not involve the IFA's scienter requirement, but rather involves the questions whether there was a misstatement of fact; whether the plaintiffs relied on the misstatement; and whether their reliance was reasonable. The plaintiffs claim Enservco replaced the common law actual reliance requirement with some other, presumably more favorable, standard. But Enservco, except for the scienter requirement, clearly did not change the elements of statutory fraud, namely, a false statement or omission, materiality, and harm caused by reliance on the statement or omission. Id. at 425 (emphasis supplied). 26 The McNeelys also argue that they are entitled to recover under the IFA because Hardee's failed to provide them with information to back up their sales estimates for the Maumelle site in violation of an FTC franchise rule, 16 C.F.R. Sec. 436.1. Section 436.1 forbids a franchisor from making a statement about a specific level of potential sales without providing information showing the basis for that estimate. 5 Hardee's argues that the rule does not apply, since the projections of sales at the Maumelle site pertained only to a proposed company-owned store rather than to actual sales the plaintiffs could expect. But in any event, and as we have noted, the district court found that the plaintiffs did not rely on the sales figures, and hence could not have benefited from the omitted bases of the estimates. Since the district court found that the plaintiffs did not rely on Hardee's representations when entering the Maumelle transaction, the plaintiffs have failed to prove an essential element of a claim under the IFA, and we can affirm the district court's denial of relief on that ground alone. 27 The McNeelys argue, however, that the district court improperly considered whether their reliance on Hardee's statements was reasonable. The IFA, they contend, has abandoned the common law requirement of reasonable or justifiable reliance. But lower Indiana courts have read a reasonable reliance requirement into fraud under the IFA. Master Abrasives, 469 N.E.2d at 1201. Enservco did not disturb these holdings, and absent any other indication that the IFA intended to disturb the other common law elements of fraud, see Whiteco Properties, Inc. v. Thielbar, 467 N.E.2d 433, 437 (Ind.App.1984), we would follow the holdings of the lower Indiana courts that the IFA requires proof of reasonable reliance. In fact, we do not really have to reach this question, however, since the district court found no actual reliance. 28 The McNeelys also argue that the district court improperly characterized Hardee's representations as opinions or predictions rather than facts. The district court concluded that Hardee's earnings projections and the statements of Hardee's employees about opportunities to buy company-owned stores were mere speculation, and thus were not actionable. Vaughn v. General Foods Corp., 797 F.2d 1403, 1411 (7th Cir.1986), cert. denied, 479 U.S. 1087, 107 S.Ct. 1293, 94 L.Ed.2d 149 (1987); Peterson Industries, Inc. v. Lake View Trust and Sav. Bank, 584 F.2d 166, 169 (7th Cir.1978). Again, since we may affirm the district court on the basis of there being no actual reliance, the question of fact versus opinion is not dispositive. We agree, however, that at least some of Hardee's statements were false statements of fact. For example, in July 1990, Lee and Mosbacher told McNeely and Eubanks that company-owned stores were presently for sale; in September, Lee told McNeely that all of the company-owned stores were for sale. These are verifiable statements of fact rather than mere opinions, and Lentz testified that they were false. Some of the other statements--such as more generalized claims that the plaintiffs might be able to buy company-owned stores or that certain sites would be excellent spots for development--may be closer to predictions or opinions than to actual facts. But, as indicated, since the district court found that the plaintiffs had not relied on these misstatements, the plaintiffs cannot prevail even with respect to assertions of fact. 6