Some communications are too important to be trusted to e-mail, according to a case decided in the franchisee’s favor.
The debate dates to 1991, when as a 17-year-old, Gregory Grosso began working as a driver for Domino’s. He became a store manager and then a franchisee in West Chester, Pennsylvania, in 1996. As he testified in court in Grosso Enterprises v. Domino’s Pizza, he worked 60 hours a week and invested from $30,000 to $50,000 on improvements in his store.
But in spring 2010, Domino’s notified him that it would terminate his most recent franchise renewal because he had defaulted three times in one year on his franchise agreement. After giving him about 10 months to sell his store, Domino’s last year stopped delivering supplies and turned off Grosso’s access to a computer system.
A little over a week later, Grosso was back in business. Senior U.S. District Judge Jan DuBois of the Eastern District of Pennsylvania issued a temporary restraining order against Domino’s and concluded the loss of Grosso’s franchise "constitutes irreparable harm."
But there was more to it. Because of flaws in e-mails used to notify Grosso about the problems, the judge said, Grosso Enterprises "did not commit three defaults in a 12-month period." Suddenly, the spotlight was on the explosion of e-mail communication in the business world and whether it is prone to legal flaws. The judge’s opinion indirectly raised uncertainty about speedy digital communications used by franchisors and franchisees.
What were the defaults in question? According to Domino’s, Grosso had taken several months to get a criminal background check for his employees. He took about 90 days to fix violations of system standards, including product freshness, cleanliness and employee appearance. As of his court appearance, he had not yet gone to a training class as he had been instructed to do some months before via e-mail.
But the judge noted that three e-mails requiring franchisees to do the background check were sent as mass e-mails and went to a number of franchisees not even identified in the e-mails. These franchisees were sent blind copies. In those cases, Grosso did not technically have notice, according to the judge. Finally, a default letter was sent to Grosso, and "almost immediately" on getting it he contracted for the background checks, according to the judge. In court, Grosso said he had never received the e-mails in question.
In addition, according to the company’s operating manual, all written notices, whether by e-mail or fax, had to be addressed to Grosso Enterprises at Grosso’s most current principal business address or home address, the judge said. None of the e-mails regarding the training course did that, nor did the e-mails regarding the criminal background checks.
Since the judge issued the temporary restraining order in March 2011, the case has led to much discussion online about how a franchisor can use e-mail properly to communicate with a franchisee. But even Grosso’s attorney, James Shrimp of High Swartz in Philadelphia, said, "I do not believe that the judge cast a negative view on the use of e-mail to communicate with franchisees in all situations. There are certainly instances when e-mail would be a satisfactory method of communication: announcements of meeting dates, teleconferences, sales statistics awards."
In the Grosso case, one key e-mail announced a mandatory training class, which, if not attended, would lead to a default. "This is where e-mail communication might not be satisfactory," Shrimp said.
Quentin Wittrock, principal of Gray Plant Mooty in Minneapolis, represented Domino’s in the Grosso case and noted the judge did not generally conclude that e-mails are not a valid way to communicate. "A company can send out systemwide bulletins and notices, but certain types of notices, such as notices of default, do have to be sent in certain ways," Wittrock said.
Craig Tractenberg, a partner with Nixon Peabody in New York who has written about Grosso v. Domino’s, advised that when companies use e-mail, they need to use e-mail systems that will provide a delivery receipt and a read receipt.
Shrimp said a settlement was reached between Grosso’s and Domino’s. When contacted, Grosso said he is still in business, but declined to discuss details.
