Nieman v. Dryclean U.S.A. Franchise

[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
FILED
_____________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
No. 97-4745 06/21/99
_____________ THOMAS K. KAHN
D.C. Docket No. 95-1390-CIV-FERGUSON CLERK
MARIO NIEMAN,
Plaintiff-Appellee,
versus
DRYCLEAN U.S.A. FRANCHISE
COMPANY, INC.
Defendant-Appellant.
______________
Appeal from the United States District Court
for the Southern District of Florida
______________
(June 21, 1999)
Before TJOFLAT and DUBINA, Circuit Judges, and SMITH*, Senior Circuit Judge.
__________________
*Honorable Edward S. Smith, Senior U.S. Circuit Judge for the Federal Circuit, sitting by
designation.
SMITH, Senior Circuit Judge:
Dryclean U.S.A. Franchise Company, Inc. (DUSA) appeals the March 26, 1997 decision
of the U.S. District Court for the Southern District of Florida, granting summary judgment to
Mario Nieman.1 Nieman sued DUSA for return of a $50,000 nonrefundable deposit, on the basis
that DUSA failed to make certain disclosures required by the Federal Trade Commission's
Franchise Rule, 16 CFR § 436.1 (1998). DUSA defended on the ground that the Franchise Rule
does not apply to foreign transactions such as that between DUSA and Nieman. The district
court held that the Franchise Rule applied extraterritorially and therefore Nieman was entitled to
refund of his deposit. We reverse.
1
Nieman's name is spelled "Neiman" on some documents in the record. We use the spelling
used in Appellee's brief, the original complaint, and the judgment below.
2
Facts and Proceedings Below
This case arises out of negotiations between DUSA and Nieman, an Argentine citizen,2
concerning the possible opening of drycleaning franchises in Argentina. Nieman sought a
master franchise agreement which would give him the right to sell franchises throughout
Argentina. In February 1994, the parties executed a letter agreement. Nieman signed the
agreement in Argentina, then mailed it back to DUSA in Florida, where DUSA's representative
signed it. Under the terms of the agreement, Nieman gave DUSA a $50,000 non-refundable
deposit in exchange for DUSA's agreement not to negotiate with others regarding the Argentine
master franchise agreement for sixty days. In effect, Nieman bought a sixty-day option to
purchase the master franchise agreement.
Nieman intended to use the sixty-day period to arrange financing, but ultimately failed to
raise the necessary capital. DUSA kept the non-refundable deposit and Nieman sued for its
return under the Florida Deceptive and Unfair Trade Practices Act (DUTPA), FLA. STAT. ANN.
§§ 501.201 to 501.211 (West 1994). The basis of Nieman's suit was that DUSA had failed to
make the disclosures required under the DUTPA and under the Federal Trade Commission
(FTC) Franchise Rule, 16 CFR § 436.1 (1998). DUSA defended on the ground that the DUTPA
and the Franchise Rule do not apply because this transaction took place in Argentina and the
DUTPA and the Franchise Rule have no extraterritorial application.3 DUSA did not dispute that
2
Nieman was negotiating as part of a group of Argentine businessmen but only Nieman is
involved in this appeal.
3
DUSA also argued that Nieman lacked standing to sue under the DUTPA because that law was
intended to protect consumers, not sophisticated businessmen like Nieman. The district court
held that Nieman had standing. Because we conclude that the DUTPA and the Franchise Rule
do not apply extraterritorially, we do not reach the standing issue.
3
3
it failed to make the relevant disclosures.
Both parties moved for summary judgment. On March 26, 1997, the District Court for
the Southern District of Florida granted summary judgment to Nieman. The court held that the
DUTPA applied to this transaction because "Congress has the power to prevent unfair trade
practices in foreign commerce by citizens of the United States, although some acts are done
outside the territorial limits of the United States." The court ordered DUSA to refund the full
amount of Nieman's $50,000 deposit. DUSA appeals.
Standard of Review
Our review of a trial court's grant of summary judgment is plenary. Hale v. Tallapoosa
County, 50 F.3d 1579, 1581 (11th Cir. 1995). We apply the same standard applied by the district
court. Rodgers v. Singletary, 142 F.3d 1252 (11th Cir. 1998).
Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories,
and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to
any material fact and that the moving party is entitled to a judgment as a matter of law." FED. R.
CIV. P. 56(c). Here, the relevant facts are not in dispute. The only dispute concerns the
extraterritorial application of the Florida DUTPA and, through it, the FTC Franchise Rule.
4
4
Extraterritorial Application of the FTC Franchise Rule
The Florida DUTPA defines a violation of that law to include violations of rules
promulgated pursuant to the Federal Trade Commission Act. See FLA. STAT. ANN. §
501.203(3)(a) (West 1994). The FTC Franchise Rule was promulgated pursuant to the Federal
Trade Commission Act, 15 U.S.C. § 41 et seq. See 16 CFR § 436 (1998). The DUTPA also
creates a private cause of action where none exists under federal law. FLA. STAT. ANN. §
501.211 (West 1994). Thus, under the DUTPA, a U.S. franchisee could sue a Florida franchisor
such as DUSA for violating the Franchise Rule.
However, in order to provide a basis for a foreign franchisee to sue in regard to a foreign
franchise deal, the Franchise Rule would have to apply extraterritorially.4 An agency regulation
has the force and effect of law only if it is authorized by congressional grant of authority; it is
therefore subject to limitations imposed by Congress. Chrysler Corp. v. Brown, 441 U.S. 281,
302 (1979). The Franchise Rule was promulgated by the FTC under the authority of the Federal
Trade Commission Act. Thus, for the Franchise Rule to have extraterritorial application,
Congress must have intended the FTC Act to apply extraterritorially.
It is undisputed that Congress has the power to regulate the extraterritorial acts of U.S.
4
Nieman argues that extraterritorial application of the Franchise Rule is unnecessary in this case
because "most if not all of the pertinent conduct subject to regulation occurred in Florida."
Nieman argues that DUSA's status as a Florida corporation doing business in Florida should
make the DUTPA applicable regardless of the location of the prospective franchisee. We do not
find this argument persuasive. In the negotiations which culminated in payment of the deposit,
and which omitted the disclosures required by the Franchise Rule, DUSA negotiated with
Argentine citizens, in Argentina, concerning an Argentine franchise system. Under the
circumstances of this case, if the Franchise Rule is to apply at all, it must apply extraterritorially.
5
5
citizens. Whether Congress has chosen to exercise that authority, however, is an issue of
statutory construction. "It is a longstanding principle of American law 'that legislation of
Congress, unless a contrary intent appears, is meant to apply only within the territorial
jurisdiction of the United States.'" EEOC v. Arabian Am. Oil Co., 499 U.S. 244, 248 (1991)
(quoting Foley Bros., Inc. v. Filardo, 336 U.S. 281, 285 (1949)). This presumption "is based on
the assumption that Congress is primarily concerned with domestic conditions." Foley Bros.,
336 U.S. at 285. It also "serves to protect against unintended clashes between our laws and those
of other nations which could result in international discord." Arabian Am. Oil Co., 499 U.S. at248 (citing McCulloch v. Sociedad Nacional de Marineros de Honduras, 372 U.S. 10, 20-22
(1963)).
Mere boilerplate language in a statute is insufficient to overcome this presumption. The
Supreme Court has "repeatedly held that even statutes that contain broad language in their
definitions of 'commerce' that expressly refer to 'foreign commerce' do not apply abroad."
Arabian Am. Oil Co., 499 U.S. at 251. The presumption against extraterritoriality can be
overcome only by clear expression of Congress' intention to extend the reach of the relevant Act
beyond those places where the United States has sovereignty or has some measure of legislative
control. See id. at 248.
The courts "assume that Congress legislates against the backdrop of the presumption
against extraterritoriality." Id. Congress' awareness of the need to make a clear statement of
extraterritorial effect is confirmed by the many statutes that explicitly refer to extraterritorial
application. See, e.g., the Biological Weapons Anti-Terrorism Act of 1989, 18 U.S.C. § 175(a)
(1994) ("There is extraterritorial Federal jurisdiction over an offense under this section
6
6
committed by or against a national of the United States.").
The FTC Act provides that "unfair or deceptive acts or practices in or affecting
commerce[] are hereby declared unlawful." 15 U.S.C. § 45(a)(1) (1994). The Act defines
"commerce" to mean "commerce among the several States or with foreign nations." 15 U.S.C. §
44 (1994). Based upon these passages, Nieman argues that the Act applies in this case; viz., that
by defining commerce to include foreign commerce, Congress showed that it intended the FTC
Act to apply extraterritorially.
Nieman cites Branch v. FTC, 141 F.2d 31 (7th Cir. 1944), to support his position. In
Branch, the Seventh Circuit held that the FTC Act authorized the Federal Trade Commission to
exercise jurisdiction over a U.S. correspondence school that made fraudulent representations to
its Latin American customers. Id. at 35.
Branch does not support the exercise of authority by the FTC in this case. The court in
Branch concluded that the FTC had jurisdiction to regulate the school's conduct with respect to
foreign customers based on the effect on domestic competition. See id. at 34-35 ("The action of
the Federal Trade Commission was aimed at compelling the petitioner to use fair methods in
competing with his fellow countrymen. It was an attempt to eliminate the unfair, fraudulent, and
deceptive practices of the petitioner from a field already occupied by several firms and
potentially open to more. … The Federal Trade Commission does not assume to protect the
petitioner's customers in Latin America. It seeks to protect the petitioner's competitors from his
unfair practices.").
Thus, the Branch court found a basis for FTC jurisdiction based on the effect of the unfair
trade practices on domestic competition, not on foreign customers. Here, by contrast, there is no
7
7
evidence that DUSA's non-disclosure affected domestic competition in any way.
It is true that the Branch court concluded that the FTC Act authorizes extraterritorial
exercise of the FTC's unfair competition jurisdiction, which includes the Franchise Rule.
However, Branch is not the law of this circuit and is therefore persuasive authority at best. In
view of subsequent Supreme Court decisions, we disagree with the Branch court's statutory
analysis.
Rather, we agree with DUSA that the language of the FTC Act does not clearly indicate
that Congress intended the Act to apply extraterritorially. The provisions in the FTC Act that
Nieman points to as supporting extraterritorial application of the Act are at best ambiguous and,
more importantly, are virtually identical to those that the Supreme Court found not to support
extraterritorial application of Title VII of the Civil Rights Act of 1964. See Arabian Am. Oil
Co., 499 U.S. at 249-251: Title VII stated that it applied to employers "engaged in an industry
affecting commerce;" "commerce" being defined as "trade … among the several States; or
between a State and any place outside thereof." The Court rejected the argument that these
definitions were broad enough to support extraterritorial application. "The language relied upon
by petitioners—and it is they who must make the affirmative showing—is ambiguous, and does
not speak directly to the question presented here. The intent of Congress as to the extraterritorial
application of this statute must be deduced by inference from boilerplate language which can be
found in any number of congressional Acts, none of which have ever been held to apply
overseas." Id. at 250-251.
Title VII applied to employers "engaged in an industry affecting commerce," 499 U.S. at
249, while the FTC Act declares unlawful unfair practices "in or affecting commerce," 15 U.S.C.
8
8
§ 45(a)(1). Title VII defined commerce as "trade … among the several States; or between a
State and any place outside thereof," 499 U.S. at 251, while the FTC Act defines commerce as
"commerce among the several states or with foreign nations," 15 U.S.C. § 44. Given the
similarity of these definitions, the scope of the statutes should be interpreted similarly. Thus, the
Supreme Court's holding in Arabian American Oil Co. compels us to conclude that Congress did
not intend the similarly worded unfair trade provisions of the FTC Act to apply extraterritorially.
We therefore hold that the FTC Act does not authorize extraterritorial application of the
Franchise Rule.
Further, even if Congress intended the unfair trade provisions of the FTC Act to give the
FTC the authority to apply regulations extraterritorially, the evidence does not suggest that the
FTC exercised such authority. Rather, the evidence shows that the FTC did not intend its
Franchise Rule to apply to a U.S. franchisor in its dealings with foreign franchisees with respect
to franchises to be located in a foreign country.
First, the Franchise Rule was not intended to protect franchisees in foreign countries.
When it was promulgated, the Rule was accompanied by a Statement of Basis and Purpose that
reviewed the history of franchising in the United States and discussed measures that had been
taken by various U.S. federal agencies and state governments to address unfair franchising
practices. See 43 Fed. Reg. 59,621, 59,623-59,624 (1978). The Statement of Basis and Purpose
is silent regarding the history or problems of franchising in other countries.
Second, the provisions of the Rule itself reveal a purely domestic focus. For example,
the rule addresses potential conflicts with state law but does not mention foreign law. See, e.g.,
16 CFR § 436.1(a)(21) (disclosure statement shall not contain information "other than that
9
9
required by this part or by State law not preempted by this part"). Also, the Rule mandates a
cover sheet that directs prospective franchisees to consult appropriate state agencies but does not
mention foreign governmental agencies. See 16 CFR § 436.1(d)(1) (cover sheet must state that
"[t]here may also be laws on franchising in your State. Ask your State agencies about them.").
Third, the FTC has never indicated that the Franchise Rule was intended to apply to
foreign franchisees. For example, the Final Interpretive Guides devote a section to potential
conflicts between the Franchise Rule and state and local laws, but are silent with regard to
foreign laws. 44 Fed. Reg. 49,966, 49,971 (1979).
Finally, the FTC recently issued an Advance Notice of Proposed Rulemaking, proposing
to modify the Rule to "clarify" that it does not apply to the sale of franchises to be located
outside the United States. See 62 Fed. Reg. 9115, 9119 (1997); 62 Fed. Reg. 28,822, 28,823
(1997). Although the FTC has not issued a formal modification of the Franchise Rule, the
Federal Register notices are evidence that extraterritorial application of the Rule was not
contemplated at the time it was promulgated.
10
10
Conclusion
We have considered Appellee's other arguments for extraterritorial application of the
Franchise Rule but find them to be without merit. For the reasons explained above, the
Franchise Rule does not apply to the transaction between DUSA and Nieman. Therefore,
DUSA's failure to comply with the disclosure requirements of the Franchise Rule does not
provide Nieman with a cause of action to seek refund of his non-refundable deposit. Nieman
asserted no other basis on which to recover his deposit. The district court therefore erred in
granting summary judgment to Nieman. The judgment of the district court is reversed.
REVERSED
11
11