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Certification From The United States District Court for The Western District of Washington v. Brewer

Supreme Court of Washington, En Banc

September 19, 2019

CERTIFICATION FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF WASHINGTON IN
v.
WADE G. BREWER, Defendant. MONEY MAILER, LLC, Plaintiff, WADE G. BREWER, Counterclaim Plaintiff,
v.
MONEY MAILER, LLC, and MONEY MAILER FRANCHISE CORP, a Delaware corporation, Counterclaim Defendants.

          WIGGINS, J.

         The United States District Court for the Western District of Washington asks us to answer two certified questions about the meaning of "fair and reasonable price" in RCW 19.100.180(2)(d), part of the Franchise Investment Protection Act (FIPA):

[(1)] For purposes of FIPA's prohibition on selling "to a franchisee any product or service for more than a fair and reasonable price" (RCW 19.100.180(2)(d)), may the franchisee rely on the price at which the franchisor is able to obtain the product or service in the absence of evidence indicating that the price was not a true market price?
[(2)] Does a franchisor violate RCW 19.100.180(2)(d) as a matter of law when it charges the franchisee twice what it pays for a product or service?

         Order Certifying Questions to the State Supreme Ct. Money Mailer Certification Order) at 4-5.

         In answering these questions, we first define "fair and reasonable price" as a question of fact regarding what prudent franchisors and franchisees in similar circumstances would consider an appropriate price. In light of this definition, we answer both questions in the negative. We hold that (1) the fair and reasonable price is not inherently established by the price at which the franchisor obtains the good and (2) a franchisor does not violate the FIPA as a matter of law by selling a product or service to a franchisee for twice the price at which the franchisor obtained it.

         FACTS AND PROCEDURAL HISTORY

         In 2011, Money Mailer[1] and Wade Brewer entered a 10-year franchisor/franchisee relationship. Money Mailer, LLC v. Brewer, 2018 WL 3156901, at *2 (W.D. Wash. June 28, 2018) (Order Granting in Part Brewer's Mot. for Summ. J.). Money Mailer is an "envelope-based direct marketing company" whose franchisees sell local businesses advertisement space in Money Mailer's shared envelopes, which are mailed to potential customers in the area. Appellants' Opening Br. on Certified Questions (Appellant's Br.) at 4-6. Money Mailer requires its franchisees to enter into contracts with Money Mailer for services related to "'printing and inserting advertisements into shared mail envelopes.'" Money Mailer, 2018 WL 3156901, at *2.

         In 2015, Money Mailer sued Brewer in federal district court, alleging breach of contract and nearly $2 million in damages. Brewer counterclaimed against Money Mailer, arguing, among other things, that Money Mailer had violated the FIPA by selling him "products and services ... at more than a fair and reasonable price," contrary to RCW 19.100.180(2){d).

         Brewer moved for partial summary judgment on the alleged FIPA violation. The district court found it undisputed that Money Mailer sold printed advertisements to Brewer at twice the price at which Money Mailer obtained and/or produced them. Money Mailer, 2018 WL 3156901, at *2. The court found that this markup violated RCW19.100.180(2)(d) as a matter of law and, on this ground, granted in part Brewer's summary judgment motion. Id. at*3-4.

         In concluding that Money Mailer's behavior violated the FIPA, the district court relied on two conclusions regarding Washington law:

First, the Court impliedly found that a franchisee may generally rely on the price at which a franchisor purchased a particular good or service to show what the "fair and reasonable price" for that service is. Second, the Court found that selling a franchisee a particular good or service for twice what it cost the franchisor is not a "fair and reasonable price" and violates FIPA as a matter of Washington law.

Money Mailer Certification Order at 4. After denying Money Mailer's motion for reconsideration and/or interlocutory review, the district court certified two questions to this court, asking us to clarify whether those two rules of law are correct. Id. at 4-6.

         The district court first asks:

For purposes of FIPA's prohibition on selling "to a franchisee any product or service for more than a fair and reasonable price" (RCW 19.100.180(2)(d)), may the franchisee rely on the price at which the franchisor is able to obtain the product or service in the absence of evidence indicating that the price was not a true market price?

Id. at 4. Recognizing that Washington law differs from many states in the protection it allows to franchisees, the court "impliedly found that a franchisee may generally rely on the price at which a franchisor purchased a particular good or service to show what the 'fair and reasonable price' for that service is." Id. Put differently, this question asks, Is the price at which the franchisor obtains the good or service inherently the fair and reasonable price? See Allen v. Dameron, 187 Wn.2d 692, 701, 389 P.3d 487 (2017) ("We have the authority to reformulate certified questions." (citing Danny v. Laidlaw Transit Servs., Inc., 165 Wn.2d 200, 205, 193 P.3d 128 (2008) (plurality opinion))).

         The district court next asks:

Does a franchisor violate RCW 19.100.180(2)(d) as a matter of law when it charges the franchisee twice what it pays for a product or service?

Money Mailer Certification Order at 4-5. This question is drawn from the district court's second finding that "selling a franchisee a particular good or service for twice what it cost the franchisor is not a 'fair and reasonable price' and violates FIPA as a matter of Washington law." Id. at 4.

         Both questions are questions of law. The federal court has asked us to resolve only those questions of law. See id. at 4-6. We therefore resolve only whether the district court correctly interpreted Washington law; we do not resolve whether summary judgment was proper under the facts of this case. Resolving the questions in this manner, we answer no to both.

         STANDARD OF REVIEW

         We review certified questions from federal courts de novo. Broughton Lumber Co. v. BNSF Ry. Co., 174 Wn.2d 619, 624, 278 P.3d 173 (2012) (citing Bradburn v. N. Cent. Reg'l Library Dist, 168 Wn.2d 789, 799, 231 P.3d 166 (2010)). Legal issues in certified questions are not considered in the abstract but are based on the record provided by the federal court. Id. (citing Bradburn, 168 Wn.2d at 799 (citing RCW 2.60.030(2))). We review questions of statutory interpretation de novo. Dep't of Ecology v. Campbell & Gwinn, LLC, 146 Wn.2d 1, 9, 43 P.3d 4 (2002).

         ANALYSIS

         This case presents, at its core, a question of statutory interpretation: What is the meaning of "fair and reasonable price" in the FIPA? We first define "fair and reasonable price," and then we apply that definition to answer the certified questions.

         I. "Fair and reasonable price" is a question of fact regarding what prudent franchisors and franchisees in similar circumstances would regard as an appropriate price

         Both certified questions involve the meaning of RCW 19.100.180(2)(d). Located in the portion of the FIPA governing the "[r]elation between franchisor ...


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