The Franchise Memorandum

A federal court in Illinois recently granted a franchisor’s motion for summary judgment, finding that it properly terminated the defendant’s six franchise agreements. Sears Home Appliances Showrooms, LLC v. Appliance Alliance, LLC, 2018 WL 3208514 (N.D. Ill. June 29, 2018). The franchisor, Sears Home Appliances Showrooms, terminated the agreements after the franchisee, Appliance Alliance, failed to meet several of its obligations, including paying rent and payroll on a timely basis, providing requested financial reports, and observing designated store hours. Sears ultimately brought a motion for summary judgment to enforce the termination, arguing that termination was proper because it had acted in accordance with the plain language of the franchise agreements.

The court agreed that the franchise agreements contained several provisions entitling Sears to terminate Appliance Alliance’s franchise rights. Specifically, the franchise agreements permitted termination if the franchisee failed to perform a term, condition, or other obligation in a loan agreement or a lease, or if the franchisee failed to pay obligations as they became due. It was undisputed that Appliance Alliance fell behind on rent and payroll payments, and failed to cure those defaults within the required time periods. While Appliance Alliance argued that termination was unjustified because of prior material breaches by Sears, including forced competition with other Sears-branded entities, failing to pay commissions due to Appliance Alliance, shifting costs of promotional offers onto Appliance Alliance, and altering the required hours of operation, the court found that Appliance Alliance had failed to present any evidence of such breaches. Because of the undisputed evidence demonstrating grounds to terminate the franchise agreements, along with Appliance Alliance’s lack of evidence showing any prior material breach by Sears, the court granted summary judgment in favor of Sears.