A Wisconsin federal district court allowed an insurance company’s field representative’s allegations that his representation agreement was an unregistered franchise to proceed beyond the pleading stage.

Plaintiff worked for GEICO in various roles since 2002. In 2017 and 2018, GEICO approached plaintiff several times asking that he open a field office and become a field representative for GEICO. Field representatives are “local agents” of GEICO and sell GEICO insurance policies. Plaintiff inquired about the initial investment and expected a profit in pursuing the venture and was allegedly told he would “make a lot of money” and “be in a great financial position.” Plaintiff was also provided spreadsheets detailing financial projections for Seattle and Milwaukee. In response to plaintiff’s request for GEICO’s franchise disclosure documents and operations manual, GEICO stated the field representative is not a franchise.

Based on the representations, plaintiff pursued the opportunity and opened a GEICO field office in Milwaukee, Wisconsin, and executed the GEICO Field Representative Agreement (“GFR Agreement”). When plaintiff did not attain the profits projected or the advertising assistance GEICO represented, plaintiff sued GEICO, asserting Wisconsin Franchise Investment Law (“WFIL”) violations and intentional misrepresentations, among other claims.

GEICO successfully moved to dismiss the WFIL claim based on the statute of limitations since plaintiff had not sued within three years from the day the parties executed the alleged franchise agreement. However, that did not preclude plaintiff’s intentional misrepresentation and fraud in the inducement claims based on the allegations that GEICO sold the plaintiff an unregistered franchise, because those claims begin to accrue after discovery of the fraud.

The district court agreed with plaintiff that whether GEICO is a franchise required discovery to determine whether alleged startup costs, unanticipated build out costs, mandatory fees, and other fees are “franchise fees,” and whether plaintiff was required to operate under a “marketing plan,” within the meaning of WFIL. The district court rejected GEICO’s argument that the exculpatory clause in the GFR Agreement precludes plaintiff’s claims since such clauses are not enforceable when the alleged misconduct is carried out intentionally and recklessly.

The statutes of limitation in many states’ franchise investment laws are complex. Depending on the nature of the alleged violation, franchisees may find themselves afforded little time to seek relief. Those who believe themselves to be “accidental franchisees” should promptly consult with franchise counsel to ensure timely filing of suit.

Rajaraman v. GEICO Indem. Co., Case No. 23-CV-425-JPS (E.D. Wis. Oct. 31, 2023)