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The Franchise Memorandum

Federal Court Voids Contractual Limitations Period and Holds Franchisor’s Claims Are Timely
Posted in Choice of Law

An urgent care franchisor can pursue claims against a franchisee who refused to use new trademarks after a federal court in Alabama voided a one-year period of limitations in the parties’ agreement. AFC Franchising, LLC v. Fabbro, 2019 WL 6683781 (N.D. Ala. Dec. 06, 2019). Laura Fabbro entered into a Doctor’s Express franchise agreement in 2009 to operate an urgent care center under the franchisor’s marks, but the contract obligated Fabbro to comply with the franchisor’s directions to modify or discontinue the use of certain trademarks. When AFC Franchising later acquired the Doctor’s Express franchise system, it directed franchisees to transition away from the Doctor’s Express trademark, eventually discontinuing that mark in favor of American Family Care or AFC Urgent Care. Fabbro, however, refused to implement the new trademarks and after a multi-year effort to secure Fabbro’s compliance, AFC eventually filed suit in its home state of Alabama.

Fabbro moved to dismiss on the grounds that AFC’s claim was untimely under the franchise agreement’s one-year period of limitation, which required that all claims arising out of or relating to the agreement be brought within one year of the discovery of the facts giving rise to an alleged claim. The agreement also included a Maryland choice of law provision, as Doctor’s Express was a Maryland-based company. Although Alabama law honors express choice-of-law provisions for purposes of determining substantive legal rights, Alabama courts apply the forum state’s own law as to procedural issues. The court held that the validity of the contractual limitations period was procedural rather than substantive, and therefore applied Alabama law. While the contractual limitations period would have been valid and enforceable under Maryland law, under Alabama law the provision was void. Accordingly, the court held that Alabama’s six-year statute of limitations for breach of contract applied to AFC’s claims, and the claims were thus timely filed.

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