Facts

In July 1994, the California Department of Corporations (DOC) filed a complaint against SpeeDee Oil Change
Systems Inc., their California subfranchisors, CalNeva Oil Corporation (CalNeva) and Arrowhead Oil Corporation (AOC) and their respective officers and directors, alleging violations of the California Franchise Investment Law (FIL) based on false and misleading statements made in the registration, offer and sale of SpeeDee franchises in California. In October 1994, ten franchisees from Northern California intervened in the DOC action, asserting their own claims for violation of the FIL, fraud, breach of contract and unfair business practices. In February 1995, 26 franchisees from Southern California intervened into the DOC action, asserting similar claims. In August
1995, Mobil Oil Corporation (Mobil) was added to the franchiseesÆ case, and CalNeva filed a cross-complaint
against the Northern California plaintiffs for breach of contract and various other tort causes of action.
The DOC claims were severed from the franchisees and went to trial in June 1996. The two complaints-in-
intervention proceeded separately to trial. A mistrial was declared on the first day of trial as to all Southern
California plaintiffs, and nonsuits were granted in favor of all defendant except CalNeva during trial.
The jury trial proceeded as to eight Northern California franchisees against CalNeva, and
as to the breach of contract claims asserted in CalNevaÆs cross-complaint.

The plaintiffs contended that franchisors fraudulently induced the plaintiffs to enter into long-term franchise
agreements with the franchisors. False representations made to induce the franchisees to enter into the
agreements included: that the franchisors were "experts" in all phases of the franchise operation; that they
would provide all of the site selection, training and operational support the franchisees needed; and that each
franchise could expect to earn in the range of $100,000 after the first full year of operation of their franchise
store.
Once plaintiffs purchased their respective franchises, they were subjected to continuing fraudulent
misrepresentation to induce them to construct at SpeeDee store. These fraudulent inducements included false
and misleading financial statements supplied by CalNeva to assist franchisees in obtaining SBA-guaranteed
loans. These financial statements grossly exaggerated the amount of money to be earned from an actual
SpeeDee franchise shop, a fact that was known to CalNeva but concealed from the franchisees.
The plaintiffs further alleged that Mobil Oil bankrolled the expansion of the SpeeDee franchise system in
California; that Mobil used the SpeeDee franchise as a front to develop their own independent oil distribution
network through mandatory oil supply contracts that each franchisee was compelled to sign in order to operate;
that the nature and effect of these agreements was misrepresented to the franchisees by both SpeeDee and
Mobil, and, that the mandatory Mobil supply contracts were unregistered franchises in and of themselves, and
violations of the FIL.
The plaintiffs further alleged that it was difficult, if not impossible, to make a profit under the system, let alone
the size of profits they were promised.
The plaintiffs contended that fraud finding renders franchise agreement unenforceable.
DEFENDANT CONTENTIONS:
The defendant contended that they did not make any fraudulent
misrepresentations. The defendant did not breach any oral or written agreements with any of the plaintiffs. Not
only could plaintiffs make a profit under the system, but many were regularly doing so.
Further, the defendants claimed that plaintiffs failed to pay royalties and advertising fund

Damages

Economic loss and emotional distress.

Result

Following the conclusion of the case, the court granted nonsuit in favor of Mobil Oil, _______________ (AND OTHER DEFENDANTS? PLEASE SPECIFY) . Motion for summary judgment granted in favor of ________________ . The jury found in favor of defendant/cross-complainant CalNeva Oil Company on CalNeva's cross-complaint against plaintiffs/cross-defendants. The verdict on the cross-complaint was approximately $1.5 million.

Other Information

Defendant Mobil's motion for nonsuit was granted, and costs awarded to Mobil.