The Franchise Memorandum

In Bennigan’s Franchising Company v. Swigonski, 2008 WL 648936 (N.D. Tex. Feb. 26, 2008), the U.S. District Court for the Northern District of Texas awarded a franchisor, Bennigan’s Franchising Company, over $1.2 million in lost future profits and attorneys’ fees following a bench trial regarding a contractual dispute between the parties. In doing so, the court held that Bennigan’s proved by a preponderance of the evidence that the franchisees had materially breached a development agreement between the parties. It should be noted that the defendants were not represented at trial and appeared pro se.

The development agreement contained a schedule for opening six new restaurants. Bennigan’s terminated the franchisees’ development agreement after the franchisees failed to open the fourth restaurant. After the expiration of the notice and cure period and termination of the development rights, Bennigan’s commenced a lawsuit seeking payment of the past due initial fee and of future continuing and production fees pursuant to the development agreement. From the reported decision, it appears that Bennigan’s submitted evidence of its damages only with respect to the fourth restaurant, since only the fourth unit was scheduled to open before the date Bennigan’s terminated the development agreement and, presumably, any obligation to open the fifth and sixth restaurants. Bennigan’s also sought and was awarded its attorneys’ fees and costs incurred in the lawsuit.

In awarding damages of $25,000 for the unpaid initial fee, $1,005,452 in future continuing fees and $251,363 in future production fees, the court noted that the continuing fees and production fees, both of which were based on percentages of projected gross revenue (4% and 1%, respectively), were calculated for the unopened Bennigan’s restaurant using the middle one-third of average restaurant sales for Bennigan’s restaurants, as reported in Bennigan’s most recent UFOC. The court apparently believed such calculation to be reasonable.