Factual disputes over whether a franchisor waived its right to terminate a defaulted franchisee caused the Eastern District of New York to largely deny the franchisor’s motion for summary judgment. Kiddie Acad. Domestic Franchising, LLC v. Paradise Org. Corp., 2026 WL 1705964 (E.D.N.Y. June 12, 2026). In 2018, franchisor Kiddie Academy and its franchisee Paradise Organization entered into multiple agreements—including a voluntary termination agreement, settlement agreement, and promissory note—to restructure Paradise’s debt arising from chronic payment defaults. Under the voluntary termination agreement, Kiddie Academy could terminate the franchise agreement upon a “new default” without notice or the opportunity to cure. Paradise again fell behind on payments in 2019, but Kiddie Academy accepted late payments from Paradise and did not invoke the voluntary termination agreement to terminate Paradise’s franchise until March 2024, nearly six years later. After Kiddie Academy sent Paradise a notice of termination in March 2024, effective in April 2024, Paradise immediately started rebranding its childcare center. Kiddie Academy sued for breach of contract and sought to enforce the parties’ noncompetition agreement. Paradise alleged that Kiddie Academy wrongfully terminated the parties’ contract in 2024. Paradise counterclaimed for breach of contract. Kiddie Academy moved for summary judgment both on its breach of contract claims and on Paradise’s counterclaim.
The court denied summary judgment on Kiddie Academy’s breach of contract and noncompete claims, finding that a reasonable jury could find that Kiddie Academy waived its right to terminate the franchise agreement by accepting late payments and declining to provide notice of termination for five years after Paradise’s 2019 defaults. The court emphasized that, under Maryland law, continued acceptance of performance may waive termination rights, even in the presence of non-waiver clauses. Thus, waiver may be a fact issue inappropriate for summary judgment. The court also found the same factual disputes that prevented summary judgment on its Kiddie Academy’s breach of contract claims likewise precluded summary judgment for Kiddie Academy on Paradise’s breach of contract claim. The court could not determine whether Kiddie Academy wrongfully terminated a contract with Paradise until a trier of fact determined whether Kiddie Academy waived its termination right.
*Nathan Bothwell is a Summer Associate for Lathrop GPM who contributed to the writing of this post.