SC Lawyers Weekly News Story - May 12,2008

By GREGORY FROOM, Editor

Victims of a fatal 2004 fire at a Greenville Comfort Inn could not recover from the national hotel chain on claims that it was negligent for not requiring sprinklers, the Fourth Circuit has ruled in an unpublished decision.

The May 1 ruling tackled an issue that had never been directly addressed in South Carolina: Do hotel franchisors owe a duty to guests to require franchisees to retrofit sprinklers?

The appeals panel found no duty and denied the plaintiffs' request to certify the question to the state Supreme Court.

"It's great vindication of the last 15 years' development of franchise law, which not only benefits franchisors, it also benefits franchisees," said the franchisor's lawyer, James Thomas "Jay" Hewitt of Greenville.

"That's an important recognition, because if franchisors are going to be held liable for incidents that occur at franchisee properties, it begins to erode the incentive for a franchisor to sell franchises to small business owners," Hewitt toldLawyers Weekly.

"If the franchisor is going to be the one ultimately held liable, they might as well own it themselves," he said.

Robert P. "Robin" Foster, the Greenville attorney who represented the plaintiffs, said his clients were weighing whether to seek a rehearing.

The per curiam case is Allen et al. v. Choice Hotels International, Inc. et al. (South Carolina Lawyers Weekly No. 001-086-08, 14 pages).

"The mere terms of the franchise agreement do not establish that Choice exerted sufficient control over the operations of the hotel to create a duty," the court said, citing case law from Wisconsin and North Carolina.

"At best, taken together, the franchise agreement and the rules and regulations show that [the franchisee] operated and controlled the Comfort Inn under general guidelines intended to foster consistency throughout the Choice system," the opinion stated.

Foster, the plaintiffs' lawyer, disagreed with that.

"They controlled the detailed aspects of the life safety systems and instructed the franchisees what they had to do in that regard and they failed to instruct them to do the most important thing they should've done, which is to put in sprinklers," he said.

According to Foster, most consumers don't understand that many hotels are not operated

by the national chains.

"They proudly display the sign of the franchisor and create impressions to the general traveling public, but when you see who is really running the operation, it could be some little mom-and-pop that is thinly capitalized, has few assets and very little liability coverage," he said.

Background

The case arose from an intentionally set fire that killed six hotel guests and injured 12 more. The arsonist was convicted in November 2005.

The plaintiffs sued Choice Hotels, claiming that it should have required the local franchisee to install sprinklers something that was not required by the fire code, according to the opinion.

The trial court granted summary judgment in favor of Choice.

The Fourth Circuit upheld that decision, rejecting all three theories of liability the plaintiffs put forth.

Franchise Agreement

Their first argument was that Choice operated the hotel and, based on the franchise agreement and rules and regulations, controlled the fire safety equipment. The rules and regulations recommended, but did not require, sprinklers, according to the opinion.

The appeals panel said that the documents created no duty on Choice's part.

"[T]he franchise agreement specifically states that [the franchisee] is 'solely responsible for exercising ordinary business control over the hotel,'" the court said.

The franchisee testified that Choice played no role in his decision not to install sprinklers.

"Our argument was that Choice is not the owner/operator of the hotel, so Choice is not the one that had the duty to install or provide any type of security to the franchisee's guests," said Choice's lawyer, Hewitt.

"The franchisor just simply sells the franchise, and then it's up to the franchisee," he said.

Foreseeable Persons

The plaintiffs based their second theory on the S.C. Supreme Court's ruling in Dorrell v. SCDOT, 605 S.E.2d 12 (2004).

The Dorrell court held that a paving contractor could be held liable for an allegedly unsafe highway shoulder, despite his argument that he owed no duty to the driver only to the Highway Department (see the Oct. 4, 2004, issue of Lawyers Weekly).

The justices said there was a common law duty to avoid harm to foreseeable plaintiffs, regardless of who was party to the contract.

The Fourth Circuit panel rejected the plaintiffs' attempt to analogize their case to Dorrell.

"Such a comparison ignores the fact that while the contractor in Dorrell created the risk by building the shoulder in such a way that a driver could be injured, Choice did not create a risk or in any way make injury to the hotel guests more likely," the court said.

Voluntary Undertaking

The plaintiffs' third theory was that a duty arose when Choice voluntarily undertook to regulate the hotel's fire safety equipment through its recommendations in the rules and regulations.

Not so, the appeals panel said.

"Instead, Choice merely guarded its trademark by assuring uniform appearance and operations of hotels under the Comfort Inn mark," the opinion stated.

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