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New Jersey Court Holds That Hotel Franchisor Properly Terminated Franchise Agreement
Posted in Terminations

In Ramada Worldwide, Inc. v. RIP Management Group Corp., 2009 WL 1810733 (D.N.J. June 25, 2009), Ramada terminated the franchise agreement after the franchisees failed to cure certain quality assurance defaults. The franchisees argued that the termination was wrongful and that Ramada “unfairly and inconsistently” conducted the quality assurance inspections with the intention of defaulting them in breach of the covenant of good faith and fair dealing under New Jersey law.

On Ramada’s motion for summary judgment, the court held that the express terms of the franchise agreement allowed Ramada to make unlimited and unannounced inspections to determine whether the franchisees’ hotel was in compliance with Ramada’s quality requirements. The court also determined that the franchise agreement unequivocally granted Ramada the authority to terminate the agreement if any quality assurance defaults were not cured. Finally, the court found that there was no evidence of bad faith or improper motive on behalf of Ramada. Specifically, there was no evidence that Ramada intentionally assigned failing scores to the inspections in an effort to deprive the franchisees of the benefits of the franchise agreement. Accordingly, the court dismissed the franchisees’ good faith and fair dealing claim and granted judgment, as a matter of law, in favor of Ramada on its breach of contract claims, including the franchisees’ failure to pay liquidated damages.

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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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