A federal court in New York dismissed with prejudice franchisee Salam Hospitality LLC’s fraud claim under the New York Franchise Sales Act but declined to dismiss its breach-of-contract claim against The Halal Guys Franchise Inc. Salam Hosp. LLC v. Halal Guys Franchise Inc., 2026 WL 2905872 (S.D.N.Y. Sept. 28, 2026). Salam alleged that Halal Guys induced it to enter a multi-unit development agreement and a franchise agreement through false oral statements about restaurant revenues, profitability, and opening timelines, although the franchise disclosure document contained no financial performance representations. In its contract claim, Salam alleged that Halal Guys rejected numerous proposed sites that satisfied its criteria despite contractual provisions prohibiting it from unreasonably withholding site approval. Salam sought damages and rescission of both agreements. Halal Guys moved to dismiss the fraud claim as inadequately pleaded and the contract claim because the agreements limited Salam’s remedies for unreasonably withheld approval to specific performance or declaratory relief.
The court applied Rule 9(b)’s heightened pleading requirements to Salam’s statutory fraud claim. Although Salam identified the statements, speaker, and when and where the representations were made, it failed to allege particularized facts explaining why the statements were false or misleading. Its conclusory assertions that the representations were untrue did not suffice. The court denied further leave to amend because Salam had already received an opportunity to cure that defect and failed to explain how another amendment would do so. Although it did not reach Halal Guys’ nonreliance defense based upon contractual disclaimers, the court noted that the statute’s antiwaiver provisions likely foreclosed that argument. On the contract claim, the court declined to dismiss based on the sole-remedy provisions because further factual development was needed to assess whether the prescribed remedies remained practical and available. Salam argued that the rejected sites were no longer available for rent, potentially making specific performance impracticable. The court explained that damages could be awarded when specific performance was impossible or impracticable and also cited authority questioning whether a contract could restrict the equitable remedy of rescission. Accordingly, the court allowed the contract claim to proceed without resolving the ultimate availability of damages or rescission.