Blog Banner Image

The Franchise Memorandum

Delaware Bankruptcy Court Grants Motion to Dismiss Time-Barred Claims for Breach of Franchise Agreement
Posted in Bankruptcy

A federal bankruptcy court in Delaware has dismissed time-barred claims that a Chapter 7 Trustee alleged on behalf of a bankrupt franchisor, AVF Franchising, LLC, against several of its franchisees. In re Start Man Furniture, LLC., 2023 WL 2717662 (Bankr. D. Del. Mar. 30, 2023). AVF and related entities had filed for Chapter 11 bankruptcy protection, but their cases were converted to Chapter 7 cases and a Trustee was appointed. The Trustee initiated adversary proceedings against several franchisees, alleging breach of the franchise agreements for failure to pay royalties and for merchandise purchased from AVF, seeking damages and the turnover of bankruptcy estate property in the amount owed under the franchise agreements. The franchisees moved to dismiss, arguing that the Trustee’s complaints were time-barred under the one-year limitations period in the franchise agreements. The Trustee argued that a timeliness defense was not appropriate for the motion to dismiss stage and that there were unresolved factual issues regarding possible trademark violations that were not time-barred.

The court rejected the Trustee’s arguments. Although the court noted that, under 11 U.S.C. § 108(a), the bankruptcy filings extended the period of limitations to two years, that was not enough to save the cases from dismissal. The court acknowledged as a general rule that a statute of limitations defense is typically not appropriate to consider at the motion to dismiss stage. But because the complaints actually attached the franchise agreements and dated invoices giving rise to the claims, the applicability of the defense was clear. As a result, the court granted the motions to dismiss, noting that the possible trademark violations were a separate claim, not yet before the court, that the Trustee could still bring via separate actions.

Email LinkedIn Twitter Facebook

The information contained in this post is provided to alert you to legal developments and should not be considered legal advice. It is not intended to and does not create an attorney-client relationship. Specific questions about how this information affects your particular situation should be addressed to one of the individuals listed. No representations or warranties are made with respect to this information, including, without limitation, as to its completeness, timeliness, or accuracy, and Lathrop GPM shall not be liable for any decision made in connection with the information. The choice of a lawyer is an important decision and should not be based solely on advertisements.

About this Publication

The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

To subscribe to monthly emails for The Franchise Memorandum, please click here




















Blog Authors