The Franchise Memorandum

A Pennsylvania federal court in Khan v. GNC Franchising LLC, 2008 WL 612749 (W.D. Pa. March 3, 2008), granted a partial victory to franchisor GNC Franchising seeking to terminate franchisees based on non-payment. The court, however, denied the franchisor’s summary judgment motion requesting breach of contract damages because they were not proved with certainty. The franchisees presented evidence showing that they paid some of the outstanding amount owed, although it was not clear how much they had paid. The decision is a reminder that damages even in non-payment cases must be proved with certainty to succeed on a breach of contract claim.

The court also denied, among other things, the franchisees’ counterclaims alleging that the franchisor had wrongfully terminated them in breach of the implied covenant of good faith and fair dealing. The court sided with the franchisor that Pennsylvania law only recognizes the covenant when a franchisor terminates for reasons not explicitly set forth in the franchise agreement. Requiring the franchisees to pay the franchisor’s royalty fees and other fees were clearly required under the contract.