The Franchise Memorandum

A federal court in New Jersey recently denied a hotel franchisor’s motion for summary judgment that sought damages due to a franchisee’s unapproved transfer of the hotel. Travelodge Hotels, Inc. v. Huber Hotels, 2022 WL 44634 (D.N.J. Jan. 5, 2022). Under its franchise agreement, Travelodge requires franchisees to exclusively use Travelodge’s reservation system. After Huber Hotels signed a franchise agreement and its owners signed a personal guaranty, they conducted and completed renovations to the existing hotel to comply with Travelodge’s standards, but Travelodge did not integrate Huber Hotels into its reservation system for several months thereafter. Huber Hotels subsequently closed and transferred ownership of the hotel. Travelodge terminated the franchise agreement and filed suit against the franchisee and its owners, alleging that the unapproved transfer was a breach of contract and entitled Travelodge to lost profits and liquidated damages. Travelodge filed a motion for summary judgment on its contract claims, and Huber Hotels filed a cross-motion for summary judgment claiming that the owners of Huber Hotels signed the personal guaranty as representatives of their entity, not as individuals.

The court denied both motions. As to the breach of contract claim, the court held that there was a genuine issue of material fact as to whether Travelodge’s delay in implementing the reservation and other systems was itself a breach of the franchise agreement, which may excuse Huber Hotels from paying liquidated damages and lost profits under the franchise agreement. Although a dispute of fact precluded Travelodge’s motion, Huber Hotels’ cross-motion failed in light of clear language in the contract. While the owners of Huber Hotels told Travelodge orally that they were signing the guaranty as representatives of the entity and handwrote their titles next to their names, they did not otherwise alter or modify the clear language of the personal guaranty. As such, the court held that Huber did not meet its burden at the summary judgment stage to void the enforceability of the personal guaranty.