The Franchise Memorandum

In an action stemming from a franchisee’s alleged continued operation of a franchised restaurant after the termination of the franchise agreement, a federal district court in Georgia dismissed the franchisor’s claims for unjust enrichment, negligence, and punitive damages. Huddle House, Inc. v. Two Views, Inc., 2013 U.S. Dist. LEXIS 48754 (N.D. Ga. Apr. 4, 2013). The court stated that Georgia law precludes an unjust enrichment claim arising from a contract when the validity of the contract is undisputed. The court noted that although a party may plead an unjust enrichment claim in the alternative to a breach of contract claim, the existence of a contract cannot be conceded in a count alleging unjust enrichment. Because neither party disputed the existence or validity of the franchise agreement between them, and because the franchisor, Huddle House, acknowledged the existence of the agreement in its unjust enrichment claim, the court dismissed that claim as a matter of law. The court also found that Huddle House’s negligence claim was barred by the economic loss doctrine, which generally precludes tort claims for purely economic loss, as opposed to personal injury or property damage, when the parties’ relationship is governed by a contract. In so holding, the court rebuffed Huddle House’s argument that trademark infringement constitutes “property damage” that is actionable in tort. Finally, the court concluded that Huddle House could not recover punitive damages because the franchise agreement contained a provision waiving punitive damages and, in any event, none of Huddle House’s substantive claims supported such an award.