The Franchise Memorandum

A federal district court in Florida recently held that a franchisee’s refusal to install a new point-of-sale (POS) system was valid grounds for termination. Peterbrooke Franchising of Am., LLC v. Miami Chocolates, LLC, 2018 WL 1083552 (S.D. Fla. Feb. 28, 2018). Peterbrooke Franchising of America (PFA) terminated its agreement with former franchisee Miami Chocolates after it refused to install a new point-of-sale system, as required under the franchise agreement. When Miami Chocolates continued to operate in the same location, PFA sued to enforce the noncompete provision, alleging an additional breach of contract claim for failure to install the new POS system. In response, Miami Chocolates and its owners challenged the validity of the termination, arguing that PFA was not entitled to terminate the agreement on those grounds. Specifically, they argued the termination was invalid because: (1) PFA did not adequately test the new POS system before rolling it out; (2) the quality of the new POS system was inferior; and (3) even if it was a breach, the breach was not material.

The court rejected each of these arguments. The agreement required Miami Chocolate to install the new POS after PFA’s “testing and determination that it will prove beneficial to” Miami Chocolates. However, the agreement did not set forth a testing regime, and the court determined that PFA’s six-month testing period in corporate-owned stores sufficiently established that PFA tested the POS system in good faith. The franchisee’s arguments regarding the quality of the POS system were similarly unavailing, as the agreement granted PFA broad discretion to require a new POS system of its own choosing. Finally, the court rejected the argument that any breach was immaterial because the franchisee already had a working POS system in place. Whether they had a working POS system was irrelevant, as the clear language of the agreement did not impose conditions precedent on PFA’s right to require installation of a new POS system.