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Corporate Liability Extends Beyond the Franchisee to the Parent Company Where Bed Bug Management Systems Fail

Franchisors (Parent Hotel or ‘Parent’) typically contract with their franchisees (Individual Hotel or ‘Hotel’) to indemnify and hold harmless the Parent company from liability for the negligent acts of the Hotel in their franchise agreement.  The privity of contract in that instance is between the Parent and the Hotel.  The consumer (e.g., guest) is not a party to the franchise agreement and is not limited in its remedies to the local Hotel.

The theories of extending liability to the Parent can be found in both the franchise agreement where the Hotel is acting with direct actual authority of the Parent or through the apparent authority granted by the Parent to the Hotel.

The Parent can be held liable for a Hotel’s contractual obligations, which is essentially based on the right of control.  Most franchise agreements call for the Hotel to be kept in a neat and sanitary condition.  There are also general references to certain standards that provide for quality assurance inspections that are a material obligation under the franchise agreement.  While the Parent will argue that this has nothing to do with the day-to-day operations, it is clear that the Parent is delegating these responsibilities to the Hotel.

The problem is that the Parent is allowing the Hotel to operate under its corporate brand without sufficient education, training and preparedness for preventing bed bug infestations.  It is something that should have been included in the mandated Operation Standards or (if it was) overseen by the Parent.

The Parent will often times refer to its franchise agreement’s provisions where it invokes its independence setting out language where the Hotel is an independent contractor and has no power to obligate the Parent for any purpose whatsoever.  The “Independence” provisions customarily go so far as to provide that the Hotel and Parent are not in any joint venture and the Hotel exercises complete control over the operations and is responsible for the daily operations.  Again, this agreement is only binding between the contracting parties.

The fundamental flaw in the Parent’s position that this eliminates their liability for damages as a result of an infestation is that the Parent is allowing and encouraging the public to believe the Hotel is operating under its corporate brand.  The unwitting guest has no idea the Hotel is owned by anyone other than the brand name on the sign when it rents a room.

Therefore, the law provides for liability against the Parent under by virtue of “apparent authority”.  The law provides for such authority.   In short, the Hotel is acting as it purports to be the Parent with the Parent’s intent that the outside world believes it is doing business with that Brand.

This, in many respects, renders the franchise agreement between the Parent and Hotel meaningless as it relates to guests.  This is not to say the Parent is without recourse, but that recourse is against its Hotel and is not a valid defense against guests.

Parents can only protect themselves by developing and enforcing protocols and systems for prevention of infestations on a company-wide basis.  This requires the Parent to require its Hotels operating under its brand to be proactive and preventative when it involves pest control and specifically, in preventing bed bug infestations.  This requires education and training of its Hotels and enforcement of the brand’s (Parent’s) standards.  Failing to do so is tantamount to allowing persons operating under their brand name to represent to the public that the Hotel is operating up to certain standards when the Parent has reason to know the Hotel is not.  That, in and of itself, is negligence.

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Written by: Jeffrey M. Lipman, Attorney-At-Law and Polk County Magistrate Judge.

The Lipman Law Firm practice handles consumer class action litigation, specializing in class action bed bug litigation. Jeff Lipman is a frequent speaker throughout the United States, including the National Pest Management Association and Entomological Society of America.