The Wrong Way to Control Your Franchisee's Menu Pricing

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If you have ever eaten in a restaurant, you are likely to have seen an entire menu or specific menu items that do not list prices. And if you have ever been surprised by the prices you were charged for the unpriced items, you are not alone. That practice might come to an end if a vexed and crusading Houlihan's customer gets his way.

How Things Went Down

In a lawsuit currently pending in the New Jersey Federal District Court, the customer claimed he visited a Houlihan's restaurant in Brick, New Jersey and ordered several beers and mixed drinks from the menu. No prices were listed for the drinks or beers. On receiving the tab and after consuming the beverages, the customer learned that the prices far exceeded his expectations. Without objecting, the customer paid the tab and left.

Soon after that happening, the customer and his attorney filed a class action lawsuit against Houlihan's Restaurant, or the franchisor company ("Houlihan's"). The complaint stated that Houlihan's breached its contract with the customer and was unjustly enriched by the excessive charges for the drinks. See Pauly v. Houlihan's Restaurants, Inc., 2012 WL 6652754 (Dec. 20, 2012).

Houlihan's: the Franchisee Did It and Why We are Not at Fault!

The Houlihan's franchisor objected to the lawsuit and advanced several reasons for it being tossed. It claimed that as the franchisor, it had no dealings with the customer; that the franchisee, not it, overcharged the customer and thus it was not a party to the alleged contract between the customer and the franchisee; that it had no control over the franchisee's menu pricings; that the customer did not say what contract term it breached; and that the customer waived his right to sue because he accepted the prices when he paid the beverage tab without objection.

Customer's Complaint Lives to See Another Day

Over Houlihan's objections, the court refused to toss the lawsuit and allowed it to proceed. The court said the customer's complaint had alleged sufficient facts that, if true, entitled him to recover against Houlihan's.

The customer alleged that Houlihan's and the franchisee had a franchise relationship through which Houlihan's exerted control over the franchisee's menu items and shared in the franchisee's profits.

The customer also alleged that Houlihan's, through its franchisee, should have charged him a reasonable--as opposed to the excessive--price for the beverages since Houlihan's, the franchisee, and the menu remained silent about the price of the beverages.

The court also agreed that the customer had not waived his right to sue Houlihan's by paying the tab. The customer would have faced criminal charges if he had not paid since New Jersey imposes criminal penalties against diners who eat and dash without paying their tabs. Finally, the court agreed that--if the customer assertions are true--unjust enrichment would result if Houlihan's and its franchisee were allowed to keep the excessive charges from the beverage sale.

The Federal District Court's ruling in this case means the customer's complaint was not deficient in making its case for relief against Houlihan's. It does not mean the customer will win the case. Indeed, the customer will still need to prove that the facts in the complaint are true and has merit.

A Few Take-Aways

It is too early to glean a reckoning from this episode, but its very existence raises issues for businesses of all types. Do no-price menus make sense? And, although franchisors rightly shy from recommending prices for fear of anti-trust offenses and other legal entanglements, should they impose a "reasonable price" requirement across the franchise system?

No matter the ultimate outcome, this case is a reminder that each time a consumer enters a restaurant and consumes a meal or a drink, a contract is formed, and that a reasonable price is assumed if prices are absent from the menu or not discussed.

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1 Comment

This is an interesting case. It’s a dilemma for franchisors as "reasonable pricing" is subjective and does potentially increase the liability of the franchisor. Also not knowing all of the details it does strike me as potentially frivolous on the customer’s part. Still transparent pricing should be standard. Also it does seem that courts are expanding the ability plaintiffs to sure both the franchise and franchisor more often.

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This page contains a single entry by Frank Johns published on January 10, 2013 2:54 PM.

Papa John's Lessons from $250 Million in Text Message Class Action was the previous entry in this blog.

First Circuit Rejects Heightened Notice Requirements And Enforces Workplace Arbitration Clause is the next entry in this blog.

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