The Franchise Memorandum

A franchisee filed a complaint alleging that the franchisor had committed several precontractual torts, including fraud in the inducement, in Sumanth v. Essential Brands, Inc., 2018 WL 558612 (D. Md. Jan. 25, 2018). After franchisor Essential Brands moved to dismiss, Sumanth voluntarily dismissed its complaint, and Essential Brands sought its attorneys’ fees and costs under an attorneys’ fees provision contained in the parties’ franchise agreement. The provision entitled Essential Brands to recover the attorneys’ fees and costs that it incurred in enforcing the franchise agreement as the result of a franchisee’s violation of “a term or condition contained within” the agreement, and in defending any related “defenses, counterclaims and/or crossclaims asserted.” Applying Maryland law, the court observed that any ambiguity as to whether the attorneys’ fees provision included precontractual torts should be resolved against a finding that such claims were included because other provisions in the franchise agreement demonstrated that the parties knew how to provide for the recovery of fees and costs under a specified circumstance when so desired (e.g., in an indemnification clause). The court also declined Essential Brands’ request to award it attorneys’ fees as a sanction for Sumanth’s purportedly meritless lawsuit.