The Franchise Memorandum

The United States District Court for the District of Arizona recently granted a hotel membership association’s motion to dismiss, holding that its termination of a hotel’s membership agreement did not constitute a breach of contract. Regency Midwest Ventures Ltd P’ship v. Best Western Int’l, Inc., 2017 WL 992357 (D. Ariz. Mar. 15, 2017). The membership association arrangement is akin to a franchisor-franchisee relationship. The membership association involved in this case, Best Western, initially determined that it had grounds to terminate the parties’ agreement after the hotel failed two quality assurance inspections. Nevertheless, Best Western granted a conditional extension listing conditions that the hotel would have to meet in a timely manner for it to continue its membership. After the hotel failed to meet all of those conditions, Best Western terminated the membership agreement.

Following termination, the hotel brought claims against Best Western for breach of contract and breach of the covenant of good faith and fair dealing. The hotel argued that it had “substantially complied” with the agreed upon conditions for continued membership by completing 194 out of 197 requested improvements. The court disagreed, and held that because the hotel failed to meet all of the express, agreed upon conditions of continued membership, termination was warranted.