What do Franchisors Know about Laches... and What Franchisees don't Know?

Nothing lasts forever. That includes the right to sue for franchise disclosure violations. If a franchisor does not comply with franchise disclosure laws, the franchisee has only a finite time to file a complaint.

This is referred to as the statute of limitation in the legal world. The statute of the limitations is the set period of time that claim must be filed. If the time period the complaining party has lapses, they cannot sue. There may be no remedy. No liability. No recovery - even for a great case.

So goes the case of Stocco v. Gemological Institute of America, Inc., Gemological Institute". Frederick Stocco and Kathleen Stocco, collectively "Stoccos" entered into a license agreement with the Gemological Institute in 2007. The license agreement was a franchise to be operated in California. In 2012, the Stoccos sued Gemological Institute. In one count, the Stoccos alleged Gemological Institute violated California franchise disclosure laws.

California's disclosure law states:

No action shall be maintained to enforce any liability created ..... unless brought before ..... [4] four years after .........the violation, [or] the expiration of [1] one year after the discovery........

That means the Stoccos could not claim a violation of the California franchise disclosure laws past 4 years. Do the math. The violation occurred in 2007 and the Stoccos did not bring their compliant until 2012. That is 5 years. The court disregarded the discovery issue. Four years was absolute. The Stoccos did not bring the claim within the 4 year window, the claim was dismissed!

Now, that is not the end of the story. The Stoccos had numerous other claims against Gemological Institute. So, don't assume a franchisor is off the hook after 4 years. In this case there were 5 other claims against the franchisor that will have to be defended.

Business Take Away: Disclosure violations have a finite life, but there are other counts to consider.

If you have an issue regarding a franchise disclosure violation, we want to hear about it. Contact us to discuss your specific case!