The Franchise Memorandum

In Hardee’s Food Systems, Inc. v. Hallbeck, 2011 U.S. Dist. LEXIS 127169 (E.D. Mo. Nov. 3, 2011), the court granted Hardee’s motion to dismiss allegations by a group of its franchisees of breach of the implied covenant of good faith and fair dealing. (Gray Plant Mooty represented the franchisor in this case.) The franchisees alleged that Hardee’s had treated them differently from other Hardee’s franchisees by (a) failing to allow a reduction in license fees, (b) failing to provide advertising support, and (c) not allowing the complaining franchisees to close their restaurant. The franchisees also alleged that Hardee’s breached the implied covenant by seeking to enforce a restrictive covenant contained in the franchise agreement, which the franchisees alleged Hardee’s knew or should have known was unenforceable.

The court agreed with Hardee’s that the plaintiffs’ claims were precluded by a provision of the franchise agreement providing that the manner in which Hardee’s enforced its franchise agreements with respect to other franchisees would not affect its ability to enforce the franchise agreements against the plaintiffs. The court also found that caselaw supported a franchisor’s ability to treat different franchisees differently. Finally, the court held that the franchisees could not state a claim for breach of the implied covenant of good faith and fair dealing based on Hardee’s attempt to enforce a contractual provision to which the franchisees had agreed.