The Franchise Memorandum

The opinion recently handed down in Meineke Car Care Centers, Inc. v. RLB Holdings, LLC, 2009 WL 2461953 (W.D.N.C. Aug. 10, 2009), limited a franchisor’s rights to seek future royalties and lost profits where a franchise agreement does not specifically provide for such damages. Meineke was seeking to recover past-due royalty and advertising fees, along with lost prospective fees and future profits, from franchisees who operated four locations that closed before the expiration of the franchise agreements. The parties filed cross motions for summary judgment on Meineke’s claims and the franchisees’ counterclaims.

The court found that the franchise agreements allowed Meineke to recover fees due only up to the point when the franchisees prematurely closed their stores. The franchise agreements, however, did not entitle the franchisor to seek prospective fees because they did not specifically provide for them and because the fees provisions did not “expressly or by their nature survive the termination of the [contracts].” 

The opinion, however, was otherwise favorable to Meineke. The court granted summary judgment in favor of Meineke on its claim to recover past-due royalties against both the franchisees and one of their guarantors in the amount of $21,743. In addition, the court rejected the franchisees’ counterclaim that Meineke had failed to use marketing and advertising fees effectively or to provide an adequate number of local support staff. The court found instead that the franchise agreements gave Meineke “sole discretion” with respect to the use of advertising fees and to determine staffing levels of its field personnel. Finally, the court entered summary judgment for Meineke on the franchisees’ claim for breach of the duty of good faith and fair dealing.