The Franchise Memorandum

A federal court in Arizona granted in part and denied in part cross-motions for summary judgment, finding that an unsigned agreement with various omitted terms and handwritten notations was not enforceable under Arizona’s statute of frauds. Realty Execs. Int’l Servs. LLC v. Devonshire W. Canada Ltd., 2020 WL 5057655 (D. Ariz. Aug. 27, 2020). In 2008, shortly before a previous agreement expired, franchisor REI sent Devonshire an FDD with a new form of Regional Developer Agreement. Devonshire did not sign the agreement as tendered; instead, its principal proposed substantive changes in handwritten notations and other material terms were not filled in. When various disputes arose between the parties, REI sued Devonshire under the agreement and Devonshire filed counterclaims against REI.

On the parties’ motions for summary judgment, Devonshire successfully asserted that the 2008 Area Developer Franchise Agreement between the parties failed to satisfy the statute of frauds. The 2008 Agreement contained a blank signature line, was just a sample agreement, was never returned to REI, and therefore could not be considered a final, enforceable agreement between the parties. Neither the 2008 Agreement nor the 2008 Franchise Disclosure Document in which it was contained identified Devonshire as a party. The court refused to look beyond the four corners of the contract to complete essential missing terms. The court also determined no exceptions to the statute of frauds applied
because performance of the 2008 Agreement was not possible within one year, and REI sought only monetary damages so the court would not grant an “equitable” exception for partial performance. The court granted summary judgment over all claims based on the 2008 Agreement, including breach of the implied covenant of good faith and fair dealing, leaving only Devonshire’s tortious interference claims.