Caseflicks

Court of Appeals of Oregon • 1997

Miller v. McDonald's Corp.

945 P.2d 1107 | 150 Or. App. 274 | 1997 Ore. App. LEXIS 1417

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Takeaway

In short, a franchisor may face vicarious liability when its detailed operating controls support actual agency or when its uniform branding causes customers reasonably to believe that a franchise location operates as the franchisor's agent.

Background

Miller was injured when she bit into a heart-shaped sapphire stone in a Big Mac purchased at a McDonald's restaurant in Tigard, Oregon. The restaurant was owned and operated by 3K Restaurants, a nonparty franchisee, under a McDonald's License Agreement.

The agreement required 3K to operate under the McDonald's System. It incorporated detailed manuals governing food formulas, preparation and handling methods, restaurant design, staffing, hours, uniforms, packaging, advertising, and other operating practices. McDonald's could inspect the restaurant for compliance and could terminate the franchise for violations. The agreement also stated that 3K was an independent contractor rather than McDonald's agent.

Miller believed that McDonald's Corporation owned, controlled, and managed the Tigard location. The restaurant displayed McDonald's signs, used McDonald's uniforms and packaging, offered the familiar McDonald's menu, and appeared identical to other restaurants promoted in McDonald's national advertising. She testified that she chose the restaurant in reliance on McDonald's reputation and her expectation of consistent food quality and care.

The trial court granted McDonald's summary judgment because it did not own or operate the restaurant. Miller appealed, asserting that McDonald's could be vicariously liable for 3K's negligence under theories of actual agency and apparent agency.

Issues

Issue #1

Whether the evidence created a jury question that 3K was McDonald's actual agent, making McDonald's vicariously liable for negligence in food handling and preparation.

Holding

Yes. A reasonable jury could find that McDonald's retained the right to control 3K's daily operations in the area that allegedly caused Miller's injury.

Reasoning

Oregon applies a right-to-control test to determine whether one business entity may be vicariously liable for another's conduct. The important question is not whether the alleged principal actually exercised control on a particular occasion, but whether it retained the right to control the method by which the other party performed its work.

A franchisor may set general quality standards without creating an agency relationship. But an agency question arises when the franchise agreement goes further and gives the franchisor the right, in practical effect, to control the franchisee's daily operations. The court contrasted agreements imposing broad results-based standards with detailed manuals prescribing precisely how work must be done.

McDonald's agreement with 3K did more than require acceptable results. It required 3K to use McDonald's prescribed food products, ingredients, handling methods, and preparation methods, along with detailed operating procedures contained in McDonald's manuals. McDonald's enforced conformity through inspections and its power to cancel the franchise.

Those retained controls concerned the very activity alleged to have caused the harm: food handling and preparation. Because a jury could find that McDonald's had the contractual right to control 3K's methods in that area, the independent-contractor clause did not entitle McDonald's to summary judgment on actual agency.

Issue #2

Whether the evidence created a jury question that 3K was McDonald's apparent agent and that Miller justifiably relied on that appearance.

Holding

Yes. A reasonable jury could find that McDonald's held 3K out as its agent and that Miller reasonably relied on the McDonald's brand and its represented uniform standards.

Reasoning

Under Restatement (Second) of Agency section 267, a party that represents another as its agent may be liable for harm caused by that apparent agent's lack of care when a third person justifiably relies on the agent's care or skill. The central questions are whether McDonald's held 3K out as part of its operation and whether Miller relied on that representation.

A jury could find that McDonald's held 3K out as its agent. The Tigard restaurant bore the McDonald's name, marks, uniforms, menu, packaging, appearance, and products, all cultivated through McDonald's system and national advertising. Those features conveyed the image of a uniform McDonald's operation rather than a separately run local business.

There was conflicting evidence about a sign identifying 3K and its owners as the restaurant's operators. But Miller did not see it, and the record did not establish its size, prominence, or effectiveness. A single possible disclosure did not resolve as a matter of law whether it overcame the broader impression created by McDonald's pervasive branding and required uniformity.

Miller offered evidence of reliance: she selected the Tigard restaurant because of McDonald's reputation and her prior experiences at other McDonald's locations, expecting comparable food quality, service, and care. McDonald's could not demand that an ordinary customer distinguish company-owned from franchised locations when its own system was designed to make every restaurant appear part of one uniform national enterprise.

The court rejected the proposition that public familiarity with franchising makes reliance unreasonable as a matter of law. Whether Miller's reliance on the McDonald's name and system was objectively justified was a fact question for the jury. The trial court therefore also erred in granting summary judgment on apparent agency.