The Franchise Memorandum

In a case litigated by Gray Plant Mooty on behalf of Radisson Hotels International, Inc., a Minnesota federal court recently awarded more than $300,000 to compensate franchisor RHI for past due fees and liquidated damages owed by a former franchisee. In Radisson Hotels Int’l, Inc. v. KaanAm, LLC, 2011 U.S. Dist. LEXIS 3208 (D. Minn. Jan. 12, 2011), RHI had terminated a New York franchisee’s license agreement because of nonpayment. RHI sued in Minnesota seeking to recover past due fees owed for the time that the franchisee operated the hotel, along with liquidated damages for lost future fees as provided by the license agreement. The license agreement had a venue clause calling for all litigation to be filed in Minnesota.

The franchisee argued that RHI’s attempt to recover liquidated damages barred it from also recovering past due fees. The court rejected that argument, finding that the liquidated damages clause compensated RHI for lost future fees, an entirely distinct category of damages from the past due fees owed under the license agreement. The court also rejected the franchisee’s argument that RHI had breached the agreement, finding that the franchisee had failed to pay amounts owed to RHI. The court noted that even had RHI breached the license agreement in some way, such breach would not have justified the franchisee’s continued use of RHI’s trademarks and business system without compensation. Turning to the specific liquidated damages clause at issue, the court found the formula contained in the license agreement to be reasonable under New York law. It awarded RHI the fees it requested in its complaint, and invited RHI to move for an award of its attorneys’ fees, as provided for in the license agreement.