Washington’s Court of Appeals has reversed a trial court ruling that dismissed all claims against janitorial and building maintenance franchisor NMC Franchising, LLC.
The case stems from a 2021 lawsuit filed by the State of Washington against NMC and its parent company under the Consumer Protection Act and the Franchise Investment Protection Act.
NMC operated its franchise model between 2006 and 2017, selling franchises to individuals running building maintenance and janitorial businesses across the state.
Under the company’s model, franchisees paid an initial fee to access a purchased monthly volume of revenue tied to client accounts that NMC itself secured from customers.
Franchisees were responsible for their own equipment, staffing, hours, taxes, and legal compliance, while NMC retained significant control over the client relationships underpinning the business.
The State alleged 16 claims of unfair and deceptive practices, including that NMC failed to disclose material facts to prospective franchisees and concealed how much it earned from customer accounts.
Further allegations included that NMC charged excessive office support fees, forced franchisees to sign releases and convert to LLCs, and imposed unconscionable out-of-state arbitration clauses.
The trial court had sided entirely with NMC, granting summary judgment on all claims and awarding the company more than $3 million in attorneys’ fees.
The Court of Appeals reversed the trial court on virtually every point, finding it had committed multiple errors of law in its analysis of both the Consumer Protection Act and the Franchise Investment Protection Act.
Among the errors identified, the appellate court found the trial court had improperly required a public interest impact showing that was already established as a matter of law.
The trial court also created an improper regulatory safe harbour by holding that conduct regulated by the Franchise Investment Protection Act could not simultaneously violate the Consumer Protection Act.
The appellate court further found the trial court had wrongly applied common law fraud standards to Consumer Protection Act and Franchise Investment Protection Act claims, which carry distinct legal tests.
Additionally, the lower court had incorrectly narrowed the Franchise Investment Protection Act’s disclosure provision to cover only vendor kickbacks, an interpretation the Court of Appeals rejected.
The appellate court remanded 15 of the 16 claims for trial, determining that genuine issues of material fact existed that required full judicial consideration rather than summary dismissal.
On NMC’s mandatory out-of-state arbitration clause, the appellate court directed summary judgment in the State’s favour, ruling the clause was unconscionable as a matter of law.
The $3 million attorneys’ fee award granted to NMC by the trial court was also vacated as part of the wider reversal.