A regional developer has entered into three agreements with a pizza franchisor and developed 50 franchises in Texas. The franchisor, Pizza Inn, Inc., has attempted to terminate all three contracts, although each has an initial term of twenty years and has allowed two five-year renewals. The promoter of the region sued for unfair dismissal. A Texas federal court dismissed Pizza Inn’s motion to dismiss the breach of contract claim.
The question was whether the termination provisions of the agreements required the franchisor to give notice of the developer violation and the timeframe for remedying it. The agreement stated that the franchisor “may” give thirty days’ notice. The promoter of the zone argued that “may” meant that the franchisor had the discretion to give thirty days or a longer cure period, and not the discretion to give less than thirty days or no period of notice. priest. The court agreed. The franchisor did not have the discretion to terminate immediately; notice and a chance to heal were needed. Only the time between the notice and the termination date was discretionary. The court ruled that this was the only reasonable interpretation of the agreements [see: Division One Foods Inc. v. Pizza Inn Inc., N.D. Tex. Dallas Div. (July 27, 2021)].
The franchisor also argued that the sector promoter had not sufficiently pleaded its damages. The complaint alleged that “Pizza Inn had abruptly terminated the three regional development agreements, without cause” and claimed that the developer in the region was denied its right to fifty percent of all royalties, franchise fees and license fees. transfers generated in its territories. The court ruled that these allegations adequately demonstrated that Pizza Inn’s termination without notice or redress had resulted in damages to the area developer for the lost share of franchisee fees.
Before issuing a notice of default or terminating a franchisee, zone developer, zone representative or sub-franchisor, franchisors should consult with a franchise advisor and confirm compliance with all contract terms and laws. on relations between states. The notice and processing times provided for in the agreement must be observed in order to avoid any breach of the agreement and to reduce the risk of a claim for damages. There may be laws governing the termination of franchisees to consider, depending on the state of the area developer or franchisee.