Franchisor 101: Trashing the Competition

Lewitt Hackman

A trash collection business brought claims against a franchisor and franchisee of Smash My Trash, a mobile waste compacting brand. The business, Republic Services of Kansas City, claimed the defendants wrongfully solicited customers, used Republic’s dumpsters for trash compacting and made false statements about consumers’ legal rights against competitors. A federal court denied Republic’s motion for summary judgment, finding triable issues of fact.

Republic provides dumpsters to business customers and comes to the customer at scheduled times to haul away the waste. Republic’s agreement requires customers to use a Republic dumpster “only for its proper and intended purpose.”

Based on this language, Republic asked the court to rule that Smash My Trash could not use Republic’s dumpsters to provide mobile waste compacting services. Summary judgment was denied because the agreement was unclear whether Republic’s customers had exclusive control over the dumpsters, required under Missouri law to keep Smash My Trash from using them.

The court said the jury must decide whether Smash My Trash unjustly benefitted from using Republic’s dumpsters and whether its compacting services exceeded the “proper and intended purpose” of the dumpsters. The court was persuaded by the franchisor’s evidence and expert testimony that the franchisor’s “Smash Truck” did not damage the containers or exceed their intended design purpose, and that other waste-hauling companies also had franchisees compact waste in containers leased to customers.

The alleged false statements were posted on the franchisor’s website: “Q” Will my waste company let me Smash my trash? A: It’s not their waste, it’s yours. Well established legal doctrines protect your rights to manage your waste while under your control at your facility. This includes the right to Smash your trash.” The district court was not persuaded that any statement was false or misleading.

The first and third sentences of the FAQ were arguably true because Republic’s customer services agreement says Republic only acquires ownership to the waste after loading it onto Republic’s vehicles. Since waste belongs to the customer before pickup, such rights “include[ ] the right to Smash your trash.”

Nor was the second sentence literally false or misleading because the law regarding a customer’s right to smash their trash is unsettled, and the way Republic’s customers manage their waste presented a fact dispute not amenable to summary judgment.

Companies that rely on franchising to introduce new business models to existing industries, such as trash collection, should be prepared to defend the legality of the model. Such franchisors should also be mindful of their need to support franchisees from challenges from competitive businesses.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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