The Franchise Memorandum

In a case in which Gray Plant Mooty represented H&R Block, the United States Court of Appeals for the Eighth Circuit reversed a district court holding that Block was required to continue performing its obligations under certain franchise agreements in perpetuity. H&R Block Tax Services LLC v. Franklin, 2012 WL 3870574 (8th Cir. Sept. 7, 2012). The franchise agreements at issue provided that they would “automatically renew” for successive five-year terms, but that the franchisee could elect not to renew if it gave 120 days’ notice. After the agreements had remained in force for 30 years, Block gave the franchisee notice that it would decline to renew the agreements again.

On cross-motions for summary judgment, the district court held that Block had “clearly implicated” that it intended to remain in the franchise relationship until the franchisee elected to end it, no matter how long that might be. The court of appeals reversed, finding that “the Missouri Supreme Court has set the bar high” with regard to construing a contract to allow one party to coerce the other to continue performing in perpetuity. To support such a holding under Missouri law, the Eighth Circuit held, “there must be an unequivocal expression that the contract last forever.” While acknowledging that the practical effect of the contract language at issue would be to create agreements that continued in perpetuity, the court held that the language was insufficient under Missouri law to create an enforceable perpetual agreement. Instead, the agreements were construed to allow Block, as well as the franchisee, to elect not to renew the relationship.