Florida Deceptive and Unfair Trade Practices Act (FDUTPA)

Overview of the Florida Deceptive and Unfair Trade Practices Act (FDUTPA) as Applied to Franchising

Franchisees and prospective franchisees that are located within the State of Florida may wonder what consumer laws there are to protect them from false statements by franchise sellers and what recourse franchisees may have in such a situation.

Fraud Protections in Florida

Florida has established the Florida Deceptive and Unfair Trade Practices Act (FDUTPA),) which states that unfair methods of competition, unconscionable acts or practices, and unfair or deceptive acts or practices in the conduct of any trade or commerce are…unlawful.”  §501.204(1) Fla. Stat.

To understand how the Florida Deceptive and Unfair Trade Practices Act applies to franchising, one must first understand more about the Federal Trade Commission (FTC) Franchise Rule

The FTC Franchise Rule

The federal government has established regulations of franchised businesses through the Federal Trade Commission (FTC), commonly referred to as the FTC Franchise Rule.  These require that franchisors prepare and provide a standard disclosure document containing information necessary for prospective franchisees to make an informed decision before purchasing a franchise.  However, while the FTC Act provides for disclosure laws, it does not provide for private rights of action.

Violations of the Franchise Rule

If a franchisor does not properly disclose items in their FDD or makes false disclosures, a plaintiff may assert a claim for fraud in the inducement or other related common law claims.  These claims have a high standard of proof, and therefore, plaintiffs usually prefer to bring claims of violations of the FTC Franchise Rule through a particular state’s unfair trade practices laws.  These state laws are commonly referred to as “Little FTC Acts,” and violations of these consumer protection statutes are predicated or based on violations of other statutes or regulations.

An area where we often see possible claims of fraud is within the FTC Franchise Rule in Item 19.  This Item states: “If the franchisor makes any financial performance representation to prospective franchisees, the franchisor must have a reasonable basis and written substantiation for the representation at the time the representation is made and must state the representation in the Item 19 disclosure.”  16 C.F.R. § 436.5(s)(3).  A financial performance representation is one that provides a “specific level or range of actual or potential sales.”  See 16 C.F. R. § 436.1(e).  This rule is intended to prevent a franchisor from making false or exaggerated promises in their sales pitch of the business to potential franchisees.  Item 19 financial performance representations, though disclosed, are not audited by any governing body.

Florida’s Little FTC Act – FDUTPA

The Florida Deceptive and Unfair Trade Practices Act (FDUTPA) is Florida’s Little FTC Act.  It is closely related to the FTC Act, in that the Florida legislature intended that “due consideration and great weight shall be given to the interpretations of the Federal Trade Commission and the federal courts relating to s. 5(a)(1) of the Federal Trade Commission Act, 15 U.S.C. s. 45(a)(1) as of July 1, 2017.”  (§501.204(2), Fla. Stat.)

In order to succeed on a claim under FDUTPA, three elements must be proven: 1) a deceptive act or unfair practice, 2) causation, and 3) actual damages (Bookworld Trade, Inc. v. Daughters of St. Paul, Inc., 532 F. Supp. 2d 1350, 1364 (M.D. Fla. 2007).  It is not enough that a violation occurred, but rather that there were actual damages as a direct result of an alleged deceptive or unfair practice which was likely to deceive a consumer acting reasonably in the same circumstances.  (See Hanson Hams, Inc. v. HBH Franchise Co., LLC, No. 03-61198-CIV, 2004 WL 6470401, at *4 (S.D. Fla. Dec. 21, 20040; Hennegan Co. V. Arriola, 855 F. Supp. 2d 1354, 1361 (S.D. Fla. 2012); Hetrick v. Ideal Image Dev. Corp., 758 F. supp 2d 1220, 231 (M.D. Fla. 2010)).  For franchise related claims it is important to be able to show that a franchisee was not properly disclosed or not disclosed at all about the particular information that affected the franchisee. Furthermore, a plaintiff must also demonstrate that had they known the missing information or truth, he or she would have acted differently or would not have suffered damages.

Dispute Resolution

Though FDUTPA is closely related to the FTC Act, proving claims is not simple.  It takes an attorney who understands franchise law to properly negotiate and/or litigate these types of matters.  If you are a franchisee who believes you may have a claim of fraud or disclosure violations, contact Luther Lanard today for a free consultation.