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The Franchise Memorandum

Franchisor’s Claim for Liquidated Damages Survives Motion to Dismiss
Posted in Damages

A federal court in Georgia denied a franchisee’s motion to dismiss a franchisor’s claim for liquidated damages. Holiday Hosp. Franchising, LLC v. N. Riverfront Marina & Hotel, LLLP, 2021 WL 3798561 (N.D. Ga. Aug. 26, 2021). Holiday Hospitality entered into a license agreement with Northern Riverfront permitting Northern Riverfront to develop and operate a hotel under its brand but, in spite of numerous extensions, Northern Riverfront failed to commence construction on the hotel. Holiday Hospitality terminated the agreement and sued Northern Riverfront, seeking nearly $5 million in liquidated damages.

Northern Riverfront moved to dismiss the lawsuit for two reasons. First, it argued that Holiday Hospitality waived its rights under the agreement by waiting nearly four years to file the lawsuit. The district court disagreed, holding that waiver was a fact issue to be decided by a jury. Second, Northern Riverfront argued that the liquidated damages provision was unenforceable under Georgia law because (1) it included damages incurred over an excessive time period and (2) the calculation was based on the average daily revenue of other hotel locations within the brand, which amounted to an unreasonable estimate of potential losses. The court rejected this argument as well, concluding that a determination of the reasonableness of the liquidated damages sought is based upon facts alleged in the complaint, which alleged sufficient facts to satisfy the elements of the enforceability of a liquidated damages provision. In addition, the court noted that the Eleventh Circuit and Georgia Court of Appeals had already determined that the exact liquidated damages provision at issue was reasonable under Georgia law.

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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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