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The Franchise Memorandum

“Four Strikes” Termination Provision in Franchise Agreement Satisfies MichiganFranchise Investment Law’s Good Cause Termination Requirement

A federal court in Michigan granted 7-Eleven’s motion for summary judgment and enforced the franchisor’s right to terminate a franchisee following repeated defaults. 7-Eleven, Inc. v. CJ-Grand, LLC, 2021 WL 429332 (E.D. Mich. Feb. 8, 2021). The franchise agreement at issue permitted immediate termination if 7-Eleven issued four notices of default to its franchisee within a two-year period, regardless of whether any of the defaults were cured. 7-Eleven sought a declaratory judgment from the court vindicating 7-Eleven’s right to terminate its franchise agreement with CJ-Grand after the franchisee committed ten defaults under the agreement over a span of two years.\

CJ-Grand argued that 7-Eleven lacked good cause to terminate under the Michigan Franchise Investment Law (MFIL) because CJ-Grand had cured its defaults. The MFIL prohibits a franchisor from unilaterally terminating a franchise agreement, except for “good cause,” which includes a franchisee’s failure to comply with any lawful provision of the franchise agreement and to cure such a breach after being given a reasonable opportunity to do so. The court held that 7-Eleven’s “four-strikes” provision, aimed at rooting out serial breachers, satisfied the MFIL’s good-cause requirement. In doing so, it noted that the statute’s language concerning the failure to cure after a reasonable opportunity identified a non-exclusive example of good cause. The court also had little trouble in rejecting CJ-Grand’s argument that the “four-strikes” provision was unconscionable.

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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. 

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