ABSTRACT

The Court of Appeals of Texas, Tenth District, in Cheyenne Partners, LLC v. Rainbow Int’l, LLC, 2026 Tex. App. LEXIS 2075 (Tex. App.—Waco Mar. 5, 2026), affirmed a trial court judgment enforcing Texas franchise agreements against a Michigan-based franchisee who failed to invoke Michigan’s franchise protections through proper procedural mechanisms. The appellate court held that the franchisee waived any choice-of-law issue by not filing a timely motion under Texas Rule of Evidence 202 requesting judicial notice of Michigan law, despite multiple alleged defaults under the franchise agreements. The court further found legally and factually sufficient evidence supporting breach of contract based on the franchisee’s failure to submit required reports, pay license fees, provide audited financial statements, and maintain the franchisor’s goodwill. The decision underscores the critical importance of procedural compliance when seeking application of foreign state law in Texas courts and clarifies that franchise agreement termination provisions permitting termination without notice for specific defaults will be enforced when those defaults are proven.

CASE IDENTIFICATION AND PARTIES

This case, Cheyenne Partners, LLC v. Rainbow Int’l, LLC, 2026 Tex. App. LEXIS 2075, was decided by the Court of Appeals of Texas, Tenth District, on March 5, 2026, on appeal from the 170th District Court of McLennan County, Texas. Rainbow International, LLC and The Grounds Guys, LLC served as appellees and franchisors, having sued to enforce franchise agreements governing two Rainbow restoration franchises in Monroe and Oakland, Michigan, and a Grounds Guys landscaping franchise. Cheyenne Partners, LLC, the franchisee entity, and Jason Alan Kitts, the individual franchisee and personal guarantor, served as appellants. The case was tried before Judge Jim Meyer in a bench trial in June 2024. The Tenth District affirmed the trial court’s judgment in favor of the franchisors, holding that Kitts and Cheyenne Partners waived application of Michigan franchise law by failing to comply with Texas’s procedural requirements for invoking foreign law and that sufficient evidence supported the trial court’s breach-of-contract findings.

FACTUAL BACKGROUND

Jason Kitts acquired his first Rainbow International franchise in Monroe, Michigan in 2009, operating a restoration and cleaning services franchise under Rainbow’s brand and system. In 2014, Kitts expanded his franchise portfolio by acquiring a second Rainbow franchise in Oakland, Michigan, and separately acquired a Grounds Guys franchise for landscaping services. Kitts subsequently assigned ownership of all three franchises to his company, Cheyenne Partners, LLC, though he remained personally liable as guarantor under the franchise agreements. Throughout the operational period, the franchises were financially successful, generating substantial revenue for both the franchisee and the franchisors through royalty payments and license fees.

Despite the financial success, Kitts developed a contentious relationship with Rainbow International marked by disputes over operational requirements and compliance with reporting obligations. The relationship deteriorated through months of unproductive communications between Kitts and Rainbow’s corporate representatives. On September 5, 2017, Rainbow and The Grounds Guys filed their original petition in the 170th District Court of McLennan County, Texas, initiating litigation to enforce the franchise agreements. Three days later, on September 8, 2017, Rainbow sent Kitts a formal Notice of Default and Intent to Terminate Franchise Agreements, specifying multiple contractual defaults and providing Appellants thirty days to remedy the identified breaches. When Appellants failed to cure the defaults within the prescribed period, Rainbow issued a Notice of Final Termination of Franchise Agreement dated November 16, 2017, formally ending the franchise relationships.

Between May 2016 and December 2016, Kitts failed to submit the weekly sales reports and royalty reports required under the franchise agreements. In 2017, Kitts failed to submit reports on time on twenty-three separate occasions, and he stopped reporting altogether in March 2017. As of the termination date, Kitts owed eighteen weeks of reports for 2017 for the Monroe territory and thirty-five weeks of reports for the Oakland territory. The failure to submit reports was accompanied by failure to remit the corresponding license fees owed to Rainbow. Rainbow sent email notifications to Kitts in July 2017 identifying the missing reports and requesting compliance.

Kitts also failed to provide required audited financial statements despite demands from Rainbow’s Chief Operating Officer, Mary Thompson. The franchise agreement required franchisees to submit income and expense statements, balance sheets, and upon demand, financial statements audited by an independent certified public accountant. Additionally, Kitts participated in Rainbow’s optional program with Liberty Mutual Insurance Company, under which Rainbow franchisees provided restoration services for Liberty Mutual insureds. Although participation was optional, franchisees who opted in were required to comply with Liberty Mutual’s operational and quality standards. Kitts failed to meet Liberty Mutual’s requirements, resulting in Liberty Mutual suspending both Kitts and Rainbow from the program. Thompson testified that this suspension caused Rainbow to lose substantial business and materially damaged Rainbow’s goodwill and reputation with a major insurance partner.

In April 2018, Appellants filed a Notice of Removal attempting to transfer the case to the United States District Court for the Western District of Texas, Waco Division. However, in December 2018, the federal court remanded the case back to the 170th District Court of McLennan County. After years of procedural maneuvering, a bench trial was held in June 2024. The trial court found that Appellants breached their franchise agreements with both Rainbow and The Grounds Guys, and that Appellants abandoned their Grounds Guys franchise. The court awarded damages to the franchisors and entered judgment in their favor.

PARTIES’ POSITIONS

Appellants contended that Michigan law should apply to this dispute because the franchise agreements involved Michigan-based franchise territories and Michigan provides statutory protections to franchisees under the Michigan Franchise Investment Law. They argued they adequately apprised the trial court of the choice-of-law dispute by raising the issue in various documents filed during the litigation, citing Michigan statutory provisions, and pointing out differing legal standards between Texas and Michigan law. Specifically, Appellants relied on documents filed in federal court and in state court, including their original answer and counterclaims filed in federal court, their supplemental response to the motion to remand in federal court, their response to the franchisors’ no-evidence motion for summary judgment, their objections to the proposed judgment, and their motion for new trial.

Appellants further argued that many of the alleged breaches cited as grounds for termination were legally invalid because Rainbow failed to provide notice and an opportunity to cure as required by the franchise agreements. They characterized this as a Casteel problem, arguing that the trial court’s findings improperly commingled legally valid theories of recovery with legally invalid theories, making it impossible to determine whether the judgment rested on a valid basis. Regarding the sufficiency of the evidence, Appellants asserted that the evidence presented by Rainbow consisted largely of testimony not based on personal knowledge and that Appellants were in substantial compliance with contractual requirements, particularly regarding tax documents. Appellants also contended they established affirmative defenses of fraud, fraudulent nondisclosure, violation of Michigan law, and prior material breach, along with counterclaims for fraud, breach of contract, violations of the Texas Deceptive Trade Practices Act, and violations of Michigan’s Franchise Investment Law.

Rainbow and The Grounds Guys countered that Appellants never properly invoked Michigan law through the procedural mechanism required by Texas courts. They argued that Appellants failed to file a motion under Texas Rule of Evidence 202 requesting the trial court take judicial notice of Michigan law, failed to provide the court with sufficient information to enable application of Michigan law, and raised the choice-of-law issue only in untimely filings made after trial commenced or after judgment was rendered. The franchisors maintained that without proper invocation of foreign law, Texas law applied by default, and under Texas law, the franchise agreements were enforceable as written.

On the merits, the franchisors presented evidence that Appellants materially breached multiple provisions of the franchise agreements, including failure to submit required weekly sales reports, failure to pay license fees, failure to provide audited financial statements, and conduct that materially impaired Rainbow’s goodwill. The franchisors argued that the franchise agreements expressly permitted termination without notice for certain categories of breaches, including failure to comply with reporting requirements, failure to provide required financial statements, and material impairment of goodwill. They contended that the evidence, including testimony from Mary Thompson and documentary evidence of missing reports and unpaid fees, amply supported the trial court’s breach findings.

DISPUTED FRANCHISE AGREEMENT PROVISIONS

The franchise agreements at issue contained detailed reporting, payment, and operational requirements that formed the basis for the franchisors’ breach claims. Section 3.6 of the Rainbow franchise agreement required franchisees to submit sales reports weekly. Section 5.7.1 mandated that license fee payments accompany these weekly reports. Section 5.7.3 required franchisees to timely submit income and expense statements and balance sheets, and further required franchisees to provide, upon demand by the franchisor, financial statements audited by an independent certified public accountant. These provisions established the franchisee’s ongoing obligations to keep the franchisor informed of business operations and financial condition and to remit the royalties and fees that constituted the franchisor’s primary consideration under the agreements.

The franchise agreements also contained termination provisions that distinguished between breaches requiring notice and an opportunity to cure and breaches permitting immediate termination without notice. Section 11.2.1 required the franchisor to provide notice and an opportunity to cure for failure to promptly pay monies owing to the franchisor. However, Section 11.1.11 permitted the franchisor to terminate the agreement without providing notice or an opportunity to cure when the franchisee failed to comply with reporting requirements. Similarly, Section 11.1.10 authorized termination without notice when the franchisee failed to provide required audited financial statements. Section 11.1.8 permitted termination without notice if the franchisee materially impaired Rainbow’s goodwill. Section 11.1.4 of the Grounds Guys franchise agreement allowed termination without notice if the franchisee abandoned the franchised business.

These contractual distinctions were central to the parties’ dispute. Appellants argued that the trial court’s findings impermissibly commingled breaches requiring notice with breaches not requiring notice, creating uncertainty about whether the judgment rested on valid grounds. The franchisors maintained that even if some theories required notice, other established breaches fell squarely within the categories permitting immediate termination, and thus the judgment was sustainable on multiple independent grounds.

CHOICE OF LAW AND APPLICATION OF MICHIGAN FRANCHISE LAW

The court began its analysis by addressing Appellants’ contention that Michigan law should apply to the franchise dispute. The court articulated the governing legal standard under Texas Rule of Evidence 202, which provides that a party may compel a trial court to take judicial notice of another state’s law by filing a motion, giving notice to other parties, and furnishing the court with sufficient information to enable it to properly comply with the request. The court noted that to have foreign law applied, a party must file both a preliminary motion requesting application of foreign law and a separate request for judicial notice. The court further recognized that choice-of-law issues can be waived if not properly invoked, and that preservation for appellate review requires making the complaint known to the trial court through a timely request or objection specific enough for the trial court to be aware of the complaint, followed by a ruling.

Applying these standards, the court examined the documents Appellants cited as evidence they raised the choice-of-law issue: their original answer and counterclaims filed in federal court, their supplemental response to the motion to remand in federal court, their response to the noevidence motion for summary judgment, their objections to the proposed judgment, and their motion for new trial. The court found that two of these documents were filed in federal court and therefore did not provide information to the state trial court. Two other documents were filed after trial commenced or after judgment was rendered, making them untimely for purposes of raising a choice-of-law issue. The final document, Appellants’ response to the no-evidence motion for summary judgment, cited one Michigan statute but did not raise a choice-of-law issue or address differences between Michigan and Texas law.

The court emphasized that Appellants never filed a Rule 202 motion requesting judicial notice of Michigan law. Although Michigan franchise law was mentioned at trial, the court held this was insufficient to constitute a request for judicial notice or to raise a choice-of-law issue. The court noted that when Appellants’ counsel referenced a Michigan statute during crossexamination, opposing counsel objected and stated that Appellants had not followed the proper procedure for informing the court of Michigan law, and Appellants’ counsel did not correct this characterization. The court concluded that nothing in the record demonstrated that Appellants asked the trial court to apply Michigan law and therefore held that Appellants waived their choice-of-law contention.

The court accepted the franchisors’ position because Appellants failed to comply with the mandatory procedural requirements established by Texas Rule of Evidence 202 and Texas appellate preservation rules. Under Texas law, when a party fails to properly invoke foreign law through a timely Rule 202 motion and adequate proof, Texas courts presume the law of the foreign jurisdiction is identical to Texas law. The court rejected Appellants’ argument that scattered references to Michigan law in various filings satisfied the procedural prerequisites, holding instead that the procedural mechanism exists for a reason and must be followed to preserve the issue.

SUFFICIENCY OF EVIDENCE SUPPORTING BREACH OF CONTRACT

The court next addressed whether legally and factually sufficient evidence supported the trial court’s finding that Appellants breached the franchise agreements. The court articulated the applicable standards of review, noting that in an appeal from a bench trial, the trial court’s findings of fact receive the same weight as a jury verdict and are reviewed for legal and factual sufficiency using the same standards applied to jury findings. For legal sufficiency, the court must determine whether the evidence would enable reasonable and fair-minded people to reach the verdict, crediting favorable evidence and disregarding contrary evidence only if no reasonable factfinder could credit it. If any evidence of probative force—more than a scintilla— supports the finding, the court must affirm. For factual sufficiency, the verdict should be set aside only if it is so contrary to the overwhelming weight of the evidence as to be clearly wrong and unjust.

The court stated the essential elements of a breach of contract claim: existence of a valid contract, performance or tendered performance by the plaintiff, breach by the defendant, and damages caused by the breach. The court then examined the evidence presented at trial supporting each category of alleged breach.

Regarding failure to submit required reports, the court found that Mary Thompson, Rainbow’s Chief Operating Officer, testified that between May 2016 and December 2016, Kitts did not submit the weekly sales reports required by Sections 3.6 and 5.7.1 of the franchise agreement. In 2017, Kitts failed to submit reports on time twenty-three times and stopped reporting entirely in March 2017. As of the termination date, he owed eighteen weeks of reports for Monroe and thirty-five weeks for Oakland. The court noted that the franchise agreement permitted termination without notice for failure to comply with reporting requirements under Section 11.1.11.

Regarding failure to pay license fees, the court found Thompson’s testimony established that when Kitts failed to send reports, he also failed to send the required license fees. Rainbow sent email notifications in July 2017 identifying the missing reports. While Section 11.2.1 required notice and an opportunity to cure for failure to pay monies owed, the September 8, 2017 notice of default specifically identified this breach.

Regarding failure to provide financial statements, the court found Thompson testified that Kitts failed to provide the audited financial statements required by Section 5.7.3 upon demand. The franchise agreement permitted termination without notice for this breach under Section 11.1.10.

Regarding impairment of goodwill, the court found Thompson testified that Kitts participated in Rainbow’s optional Liberty Mutual program but failed to comply with Liberty Mutual’s requirements, resulting in Liberty Mutual suspending both Kitts and Rainbow. Thompson testified this suspension caused Rainbow to lose substantial business and damaged Rainbow’s goodwill. Section 11.1.8 permitted termination without notice if the franchisee materially impaired Rainbow’s goodwill.

The court acknowledged that Kitts testified he eventually turned in missing reports along with checks for money due and provided tax returns, and that after receiving the notice of default he believed he cured everything. However, the court found this evidence did not undermine the breach findings because the franchise agreement expressly allowed termination without notice for several categories of breaches, including failure to timely submit reports, failure to provide audited financial statements, and material impairment of goodwill. The court concluded there was more than a scintilla of evidence supporting the breach findings and that the verdict was not so contrary to the overwhelming weight of the evidence as to be clearly wrong and unjust.

The court accepted the franchisors’ position because the evidence established multiple material breaches falling within contractual provisions that permitted termination without notice and opportunity to cure. The court rejected Appellants’ Casteel argument, finding that even if some theories were commingled, other theories with sufficient evidentiary support provided independent grounds for the judgment, and thus any commingling did not cause an improper judgment or prevent Appellants from presenting their case on appeal.

AFFIRMATIVE DEFENSES AND COUNTERCLAIMS

The court addressed Appellants’ third and fourth issues together, both relating to affirmative defenses and counterclaims allegedly established by the evidence. The court noted that Appellants asserted affirmative defenses of fraud, fraudulent nondisclosure, violation of Michigan law, and prior material breach, along with counterclaims for fraud, breach of contract, violations of the Texas Deceptive Trade Practices Act, and violations of Michigan’s Franchise Investment Law.

The court found that Appellants cited to their Original Answer and Counterclaims filed in federal court but did not request that document be included in the clerk’s record filed with the appellate court. The clerk’s record did not contain any document entitled Original Answer and Counterclaims filed in the state district court. The court held that Texas Rule of Appellate Procedure 34.5 requires the clerk’s record to include copies of all pleadings on which the trial was held, and the burden is on the party seeking review to ensure the proper record is before the appellate court. Without the pleading setting forth the affirmative defenses and counterclaims in the record, the court concluded it could not properly review the issues and held that Appellants waived their complaints regarding denial of their affirmative defenses and counterclaims.

The court accepted the franchisors’ implicit position that Appellants failed to preserve these issues for review. The court rejected Appellants’ arguments because Appellants failed to comply with the basic procedural requirement of ensuring the necessary pleadings were included in the appellate record, making meaningful review impossible.

POTENTIAL SIGNIFICANCE FOR FRANCHISEES AND FRANCHISORS

This decision may carry substantial implications for both franchisees and franchisors operating in Texas or litigating franchise disputes in Texas courts. For franchisees, the decision may serve as a stark reminder that procedural compliance is not merely technical but may determine the substantive outcome of franchise litigation. Franchisees who operate in jurisdictions with franchise-protective legislation but face litigation in Texas should affirmatively and timely invoke foreign law through a proper Rule 202 motion, provide the court with sufficient information about the foreign law, and preserve the issue through appropriate objections and rulings. Casual references to foreign statutes scattered through various pleadings, even when combined with arguments about differing legal standards, may not satisfy Texas procedural requirements and could result in waiver of the choice-of-law issue.

The decision also may suggest that franchise agreement termination provisions may be enforced according to their terms when the franchisor proves the specified breaches occurred. Franchisors that draft agreements with tiered termination provisions—distinguishing between defaults requiring notice and opportunity to cure and defaults permitting immediate termination—may be able to enforce those provisions when they present clear evidence of the qualifying breaches. Franchisees may not be able to rely on general equitable arguments or claims of substantial compliance when the agreement expressly permits termination without cure for specific categories of breaches and the evidence establishes those breaches occurred.

For franchisors, the decision may provide assurance that Texas courts can enforce franchise agreements as written when proper evidence is presented and may not impose foreign state franchise protections sua sponte when franchisees fail to properly invoke those protections. However, franchisors should still ensure they comply with any notice and cure provisions that do apply under the franchise agreement. The decision appears to demonstrate the value of provisions permitting termination without notice for breaches that may impair the franchisor’s ability to monitor the franchise system or that damage the franchisor’s business relationships and goodwill.

The decision also seems to highlight the importance of record preservation for appellate review. Both franchisees and franchisors should ensure that all relevant pleadings, particularly those asserting affirmative defenses or counterclaims, are properly included in the clerk’s record when appealing. Failure to do so can result in automatic waiver of issues dependent on those pleadings, regardless of the merits.

COMPARISON WITH SIMILAR CASES IN TEXAS AND OTHER JURISDICTIONS

The Tenth District’s holding on choice of law appears consistent with established Texas appellate precedent applying Rule 202. Texas courts have held that a party seeking application of foreign law should file a timely motion requesting judicial notice, provide sufficient information about the foreign law’s content, and give opposing parties adequate notice and opportunity to respond. When these procedural requirements are not met, Texas courts may presume the foreign law is identical to Texas law and apply Texas law without conducting a choice-of-law analysis.

This approach may differ from some other jurisdictions that take a more flexible view of when choice-of-law issues are preserved or that will conduct choice-of-law analysis sua sponte when contracts contain choice-of-law provisions or when the parties’ briefing alerts the court to potential conflicts. Texas courts seem to have rejected this flexibility, requiring strict compliance with Rule 202’s procedural mechanism. The rule can create certainty and efficiency by establishing a clear procedural pathway, but it also may create traps for unwary litigants who assume general references to foreign law will suffice.

The court’s application of sufficiency-of-the-evidence standards appears to follow standard Texas appellate practice and seems consistent with how Texas courts review bench trial findings. The distinction between legal sufficiency (requiring more than a scintilla of evidence) and factual sufficiency (requiring that the verdict not be clearly wrong and unjust) appears to apply across Texas civil appeals. What is notable in this case is the court’s analysis of the Casteel doctrine in the bench trial context and its conclusion that commingling of valid and invalid theories may not require reversal when other theories with sufficient evidentiary support independently sustain the judgment. This approach seems to align with the Texas Supreme Court’s recent clarification that the relevant question is whether the charge error probably caused an improper judgment, not merely whether valid and invalid theories were combined.

Other jurisdictions with strong franchise-protective statutes, particularly those with franchise relationship laws similar to Michigan’s, often take a more substantive approach to protecting franchisees from termination, sometimes finding contractual waivers of statutory protections unconscionable or void as against public policy. The contrast between Texas’s enforcement of franchise agreements as written and Michigan’s more protective statutory framework may illustrate the critical importance of forum selection and choice-of-law provisions in franchise agreements.

LAW AND ECONOMICS PERSPECTIVE

From a law-and-economics perspective, this decision may reduce transaction costs and may promote efficient contract enforcement by establishing clear procedural rules and enforcing contractual allocation of risk. The Rule 202 requirement can create a bright-line procedural standard that minimizes litigation uncertainty and enables parties to predict when foreign law will apply, thereby reducing the costs of legal research, motion practice, and appellate litigation over choice-of-law issues. By enforcing tiered termination provisions that distinguish between curable and non-curable defaults, the decision seems to respect the parties’ ex ante allocation of monitoring costs and remedies and seems to create appropriate incentives for franchisee compliance with reporting and payment obligations.

The franchise relationship may involve information asymmetries. Reporting requirements and audited financial statement provisions reduce information asymmetry by creating contractual mechanisms for information flow from franchisee to franchisor. When franchisees breach these obligations, the franchisor might face increased monitoring costs, uncertainty about system performance, and potential reputational harm with third parties such as insurance companies and lenders. Termination provisions that permit immediate termination without notice for reporting failures efficiently allocate the risk of information breakdown to the party that controls the information flow and can prevent the breach at lowest cost.

The court’s enforcement of these provisions may create incentives for franchisees to comply with reporting obligations and may discourage strategic behavior such as withholding information to gain bargaining leverage in disputes. The decision could also reduce moral hazard by suggesting that franchisees who fail to meet core contractual obligations may not be able to avoid consequences by relying on foreign protective statutes they failed to properly invoke, thereby preventing opportunistic behavior that would undermine the enforceability of franchise agreements generally.

From the franchisee’s perspective, this efficiency rationale carries less force where the franchisee, rather than the franchisor, controls fewer resources to navigate cross-jurisdictional procedural requirements, meaning the burden of strict compliance with Rule 202 may fall disproportionately on parties least equipped to absorb the cost of getting it wrong. The same reporting and disclosure obligations that reduce the franchisor’s monitoring costs also impose ongoing compliance burdens on the franchisee, and a termination regime that permits immediate, notice-free termination for those failures shifts substantially all of the risk of administrative lapse onto the franchisee notwithstanding the franchise’s underlying operational success. A more balanced efficiency account would weigh the franchisor’s interest in low-cost monitoring against the franchisee’s interest in retaining a substantial, going-concern investment, particularly where, as here, the alleged defaults are administrative rather than indicative of the kind of fundamental operational failure the termination-without-cure provisions appear designed to address.

FINAL DISPOSITION

The Court of Appeals of Texas, Tenth District, affirmed the trial court’s judgment in favor of Rainbow International, LLC and The Grounds Guys, LLC. The court held that Cheyenne Partners and Kitts waived their choice-of-law contention by failing to file a timely motion under Texas Rule of Evidence 202 requesting judicial notice of Michigan law, and that legally and factually sufficient evidence supported the trial court’s findings that Cheyenne Partners and Kitts breached the franchise agreements by failing to submit required reports, pay license fees, provide audited financial statements, and avoid impairing Rainbow’s goodwill. The court further held that Appellants failed to preserve their affirmative defenses and counterclaims for appellate review because the pleadings asserting them were not included in the clerk’s record.

ABSTRACT

In Derby Realty, LLC v. Macit, LLC, the Superior Court of Connecticut, Judicial District of Ansonia-Milford at Milford, denied a motion to dismiss in a summary process action, holding that a commissioned agent agreement for the sale of motor fuel did not constitute a franchise relationship under the Connecticut Petroleum Franchise Act. The court found that the parties expressly disclaimed any franchise relationship in their agreement and that the defendant lacked the entrepreneurial responsibility and ownership characteristics required to qualify as a retailer under the statute. The decision, rendered on March 26, 2026, relied heavily on the recent Connecticut Appellate Court decision in Branford Quick Mart, LLC v. Aldin Associates Ltd. Partnership and concluded that commissioned agents who sell motor fuel on behalf of property owners without purchasing, owning, or controlling the fuel are not entitled to the protections of the Petroleum Franchise Act.

CASE IDENTIFICATION AND PARTIES

This case, Derby Realty, LLC v. Macit, LLC, was decided on March 26, 2026, by the Superior Court of Connecticut, Judicial District of Ansonia-Milford at Milford. Derby Realty, LLC, the property owner, brought a summary process action against Macit, LLC, the commissioned agent, seeking possession of commercial property located at 208 New Haven Avenue in Derby, Connecticut. The commissioned agent moved to dismiss the action for lack of subject matter jurisdiction, arguing that its relationship with the property owner’s predecessor in interest, Alliance Energy, LLC, Global Partners LP, and Global Montello Group Corp., constituted a franchise relationship requiring sixty days’ written notice of termination under the Connecticut Petroleum Franchise Act. The court denied the motion to dismiss, holding that no franchise relationship existed between the parties as a matter of fact and law and that the property owner had standing to maintain the action.

FACTUAL BACKGROUND

Route 34 Auto Sales, Inc. owned the subject property, which operated as a gas service station and convenience store in Derby, Connecticut. Route 34 leased the property to Alliance Energy, LLC, Global Partners LP, and Global Montello Group Corp., effective January 23, 1998. Alliance, in turn, leased the existing building on the property to the commissioned agent, Macit, LLC, for a term of one year commencing April 1, 2022. The lease permitted the commissioned agent to use the demised premises solely for operating the convenience store but did not include the portion of the property utilized for the service station.

The lease between Alliance and the commissioned agent included a commissioned agent agreement whereby the commissioned agent agreed to act as Alliance’s commissioned agent with respect to the sale of Alliance’s petroleum products at the service station. The commissioned agent agreement expressly provided that title to all motor fuels would remain with Alliance until sold to retail customers and that title would never pass to the commissioned agent. The agreement further stated that proceeds from motor fuel sales would remain the sole property of Alliance and would be held in trust by the commissioned agent for Alliance’s benefit and account. Alliance retained the authority to establish retail prices for motor fuel sales at the service station, and the commissioned agent was required to sell motor fuels only at the retail prices established by Alliance.

Under the terms of the commissioned agent agreement, Alliance paid monthly commissions to the commissioned agent in the amount of $0.045 per gallon of motor fuel sold at the service station. The agreement explicitly disclaimed the creation of any employer-employee relationship, agency relationship, partnership, business opportunity, joint venture, or other form of joint enterprise between Alliance and the commissioned agent. The agreement also explicitly stated that it did not establish a franchise or franchise relationship between Alliance and the commissioned agent under any state or federal laws, rules, or regulations, and that the commissioned agent remained at all times a commissioned agent, lessee, and independent entity. The lease’s terms and conditions section provided that Alliance could terminate the lease and commissioned agent agreement upon thirty days’ prior notice if Alliance desired to sell, transfer, or assign all or a portion of the property or its interest therein.

The property owner, Derby Realty, LLC, was formed as a Connecticut limited liability company on November 12, 2023, with Iyad Jamal as its single member. On or around October 27, 2023, Ibrahim Jamal, Iyad Jamal’s brother, executed a purchase and sale agreement as part of a bid process to purchase Alliance’s interest in the property. Alliance accepted the bid by executing the purchase and sale agreement, which included the primary contingency of obtaining consent from Route 34 for the property owner to assume the lease from Route 34 to Alliance. After obtaining that consent, the property owner executed an assignment and assumption of the lease agreement with Alliance, effective July 1, 2024.

In anticipation of the assignment’s execution, Alliance provided notice to the commissioned agent on June 26, 2024, that it was selling and transferring its interest in the property and that the commissioned agent’s tenancy would terminate on July 31, 2024. The property owner was not assigned and did not assume the lease between Alliance and the commissioned agent. In July 2024, Iyad Jamal met with Abdulaziz Almashi, a member of the commissioned agent and the primary operator of the convenience store, and the two orally agreed that the commissioned agent could remain as a tenant on a month-to-month basis. That oral agreement included a rent amount different from the amount provided in the original lease and reflected Iyad Jamal’s intention to operate both the service station and the convenience store on the property. The property owner served the commissioned agent with a notice to quit possession of the premises on November 10, 2024, requiring that the commissioned agent vacate the premises by November 30, 2024, and the commissioned agent refused to vacate.

THE PARTIES’ POSITIONS

The commissioned agent argued that the commissioned agent agreement and lease created a franchise relationship within the meaning of the Connecticut Petroleum Franchise Act and that the property owner, as Alliance’s successor in interest, was required to provide the commissioned agent with sixty days’ written notice of termination setting forth due cause for the termination. The commissioned agent contended that because the property owner failed to provide such notice, the court lacked subject matter jurisdiction over the summary process action. The commissioned agent further argued that the property owner lacked standing to bring the action because it did not have an actual legal interest in the property.

The property owner countered that the commissioned agent agreement and lease between the commissioned agent and Alliance did not create a franchise relationship and that the Connecticut Petroleum Franchise Act did not apply. The property owner asserted that the parties expressly disclaimed any franchise relationship in the commissioned agent agreement and that the commissioned agent lacked the entrepreneurial responsibility and ownership characteristics required to qualify as a retailer under the statute. The property owner further argued that it possessed a legally cognizable interest in the property because it was duly assigned the lease for the subject property and formally assumed the rights and obligations thereunder. The property owner maintained that as holder of the lease interest, it had standing to enforce the lease and seek relief arising from that interest.

THE DISPUTED FRANCHISE AGREEMENT DOCUMENTS

The court examined the lease and commissioned agent agreement between Alliance and the commissioned agent in detail to determine whether the relationship constituted a franchise. The commissioned agent agreement provided that the commissioned agent agreed to act as Alliance’s commissioned agent with respect to the sale of Alliance’s petroleum products at the service station. The agreement explicitly stated that title to all motor fuels would be and remain with Alliance until sold to retail customers and that title would never pass to the commissioned agent. The agreement further provided that the proceeds from motor fuel sales would be and remain the sole property of Alliance and would be held in trust by the commissioned agent for Alliance’s benefit and account.

The commissioned agent agreement vested Alliance with exclusive authority to establish the retail prices for sales of motor fuels at the service station and required the commissioned agent to sell motor fuels only at the retail prices established by Alliance. The agreement provided that Alliance would pay monthly commissions to the commissioned agent in the amount of $0.045 per gallon of motor fuel sold at the service station during the period in which the commissioned agent agreement was in effect. The agreement explicitly disclaimed the creation of an employer-employee relationship between Alliance and the commissioned agent for any purposes whatsoever and stated that nothing contained in the commissioned agent agreement would be construed as creating any other type of agency, partnership, business opportunity, joint venture, or other form of joint enterprise, or fiduciary relationship between the commissioned agent and Alliance.

Most significantly, the commissioned agent agreement expressly stated that the agreement and lease were not intended to, and did not, establish a franchise or franchise relationship between Alliance and the commissioned agent under any state or federal laws, rules, or regulations. The agreement emphasized this point in italics, declaring that the commissioned agent remained at all times a commissioned agent, lessee, and independent entity whose obligations to Alliance would be determined by the terms of the agreement and lease. The lease’s terms and conditions section provided Alliance with the right to terminate the lease and commissioned agent agreement upon thirty days’ prior notice to the commissioned agent if Alliance desired to sell, transfer, or assign all or a portion of the property or its interest therein.

THE COURT’S ANALYSIS AND RESOLUTION OF THE FRANCHISE RELATIONSHIP ISSUE

The court began its analysis by identifying the legal standard governing whether a contract creates a franchise relationship. The court explained that in order to form a binding and enforceable contract, there must exist an offer and an acceptance based on a mutual understanding by the parties, and the mutual understanding must manifest itself by a mutual assent between the parties. The court stated that in order for an enforceable contract to exist, the court must find that the parties’ minds had truly met. If there has been a misunderstanding between the parties, or a misapprehension by one or both so that their minds have never met, no contract has been entered into by them and the court will not make for them a contract which they themselves did not make.

The court noted that the requirement that the parties have a meeting of the minds is consistent with the objective theory of contracts, which holds that the making of a contract does not depend upon the secret intention of a party but upon the intention manifested by his words or acts, and on these the other party has a right to proceed. The court explained that in construing the agreement, the decisive question is the intent of the parties as expressed, and the intention is to be determined from the language used, the circumstances, the motives of the parties, and the purposes which they sought to accomplish. The court emphasized that in any claim brought under the Petroleum Franchise Act, the court must first determine whether there is a franchise relationship under the contract.

The court then examined the statutory definitions under the Connecticut Petroleum Franchise Act. General Statutes section 42-133k(1) defines franchise as any contract between a refiner and a distributor, between a refiner and a retailer, between a distributor and another distributor, or between a distributor and a retailer, under which a refiner or distributor authorizes or permits a retailer or distributor to use, in connection with the sale, consignment, or distribution of motor fuel, a trademark which is owned or controlled by such refiner or by a refiner which supplies motor fuel to the distributor which authorizes or permits such use. A franchise relationship is defined as the respective motor fuel marketing or distribution obligations and responsibilities of a franchisor and a franchisee which result from the marketing of motor fuel under a franchise. A franchisor is defined as a refiner or distributor who authorizes or permits, under a franchise, a retailer or distributor to use a trademark in connection with the sale, consignment, or distribution of motor fuel, and a franchisee is defined as a retailer or distributor who is authorized or permitted, under a franchise, to use a trademark in connection with the sale, consignment, or distribution of motor fuel.

The court concluded that the evidence failed to indicate that the parties intended the commissioned agent agreement to constitute a franchise relationship. The lease and commissioned agent agreement contained no language characterizing the relationship between the commissioned agent and Alliance as a franchise. Indeed, the commissioned agent agreement specifically stated that the agreement and lease were not intended to establish a franchise relationship. The court observed that the agreement set forth discrete contractual duties consistent with an ordinary commercial relationship for the sale of motor fuel. The court further noted that there was no testimony that either the commissioned agent or Alliance considered the agreement to constitute a franchise or that they understood the agreement to be such at the time of execution. In other words, there was no meeting of the minds between the parties that the agreement would constitute a franchise relationship.

The court stated that in the absence of any contractual provision or testimonial evidence establishing that the commissioned agent agreement and lease executed between the commissioned agent and Alliance were intended to constitute a franchise relationship, the court declined to characterize the agreement as one. The court emphasized that the answer to whether the terms of the commissioned agent agreement come within the framework of the provisions of the Connecticut Petroleum Franchise Act is irrelevant if the parties of the contract had no desire or intent to form a franchise agreement. The court stated succinctly that the motion to dismiss must be denied because the motion is premised on the existence of a franchise agreement that does not exist based on the evidence presented. The court observed that not only does the witnesses’ testimony regarding the commissioned agent agreement fail to support the commissioned agent’s claims, the agreement itself explicitly states that no franchise or franchise relationship is established by its terms.

THE COURT’S ANALYSIS AND RESOLUTION OF THE RETAILER STATUS ISSUE

Even assuming there was evidence that the contracting parties intended their relationship to constitute a franchise, the court concluded that the commissioned agent agreement did not constitute a franchise agreement as a matter of law. The court relied heavily on the Connecticut Appellate Court’s recent decision in Branford Quick Mart, LLC v. Aldin Associates Ltd. Partnership, which concluded that commissioned agent agreements for the sale of motor fuel similar to the agreement in the present case do not constitute franchise agreements as a matter of law. In Branford Quick Mart, the franchisees operated convenience stores and gas stations similar to the commissioned agent in the present case. The franchisor in that case leased the convenience store premises to the franchisees but retained ownership of the surrounding property and provided motor fuel which was sold to the retail public. Pursuant to contractual provisions, the franchisees sold motor fuel and other petroleum products for the account of the franchisor.

The franchisor in Branford Quick Mart arranged deliveries of motor fuels to each location and the fuels were then sold to retail customers under a trademark owned or controlled by a refiner of motor fuels. The franchisees had no involvement with the purchase, negotiation, or transport of petroleum products delivered to the station, nor did they pay for motor fuel equipment. The franchisor owned the underground storage tanks and was responsible for their cleanup and repair, and if a petroleum product was lost in transit, the franchisor remained at risk for the loss. The Appellate Court, after reviewing the text, history, and case law addressing the Connecticut Petroleum Franchise Act, concluded that the franchisees were not retailers within the meaning of the Connecticut Petroleum Franchise Act and, thus, the leases and commissioned agent agreements executed between the parties did not establish a franchise relationship.

The court in Branford Quick Mart reasoned that although the motor fuel was sold to the public, it was sold by the franchisor rather than the franchisees because the franchisor purchased the motor fuel and owned it until such time as it is transferred to a motorist’s tank. The court stated that the franchisees may be agents of the seller, but they are not the seller, and therefore it is the franchisor rather than the franchisees that is the retailer. The court also concluded that commissioned agent agreements for the sale of motor fuel do not constitute consignment agreements under the Connecticut Petroleum Franchise Act because the commissioned agent does not take possession and control of the motor fuels such that they receive the fuel on consignment.

The court in the present case found the reasoning of Branford Quick Mart directly applicable. Similar to Branford Quick Mart, although the commissioned agent may have been an agent of a seller of motor fuel, first Alliance and later the property owner, the commissioned agent is not a seller of motor fuel because it does not purchase nor take possession or control of motor fuel. Thus, the commissioned agent is not a retailer within the meaning of the Connecticut Petroleum Franchise Act and, therefore, not entitled to its protections. The court also considered the testimony of Kumar Ananthan, vice president of Alliance, which the court found credible. Ananthan testified that Alliance ordered all of the fuel for the service station, arranged for its delivery, and sold the fuel itself. Ananthan testified that title to the gasoline passed directly from Alliance to the retail customer at the point of sale and that title never passed to the commissioned agent.

Ananthan also testified that retail pricing authority rested exclusively with Alliance, and Alliance established the retail price, controlled the margin, and was the party at risk of loss based on those pricing decisions. Ananthan testified that Alliance delivered, priced, and sold the gasoline, and that Alliance simply compensated the commissioned agent solely through commissions for its limited administrative responsibilities. Ananthan testified that Alliance owned and was responsible for all major equipment, including above-ground and underground storage tanks, and would be responsible for replacing that equipment if necessary. Ananthan also testified that Alliance retained control over all funds associated with motor fuel sales and that the commissioned agent simply entered the daily transactions into Alliance’s portal, while Alliance withdrew the cash and controlled the credit card receipts. Ananthan further testified that Alliance held the gasoline retailer’s license for the location and that the commissioned agent never held such a license.

THE COURT’S BASIS FOR ITS RULING

The court accepted the property owner’s position that no franchise relationship existed because the evidence supported the conclusion that the parties expressly disclaimed any franchise relationship and that the commissioned agent lacked the entrepreneurial responsibility and ownership characteristics required to qualify as a retailer. The court found persuasive the unambiguous language of the commissioned agent agreement, which explicitly stated that the agreement and lease were not intended to establish a franchise or franchise relationship. The court gave effect to the parties’ express intent as manifested in their written agreement, consistent with the objective theory of contracts. The court also found credible and unrebutted the testimony of Kumar Ananthan, which established that Alliance, not the commissioned agent, owned the motor fuel, established retail prices, bore market risk, owned major equipment, held the retailer’s license, and controlled funds from motor fuel sales.

The court rejected the commissioned agent’s position because the commissioned agent offered no testimony or evidence to refute the property owner’s showing that no franchise relationship existed. The commissioned agent presented no witness to testify regarding the parties’ intent when forming the commissioned agent agreement or to contradict Ananthan’s testimony regarding the operational realities of the relationship. The court found that the commissioned agent’s arguments focused on whether the terms of the commissioned agent agreement might fall within the framework of the Connecticut Petroleum Franchise Act, but the court deemed that question irrelevant in the absence of evidence that the parties intended to form a franchise. The court also found that even if the commissioned agent could establish intent to form a franchise, the commissioned agent agreement did not constitute a franchise as a matter of law under Branford Quick Mart because the commissioned agent was not a retailer within the statutory definition.

STANDING TO BRING THE SUMMARY PROCESS ACTION

The court also addressed and rejected the commissioned agent’s alternative argument that the property owner lacked standing to bring the summary process action. The commissioned agent had argued that the property owner did not have an actual legal interest in the property. The court explained that the property owner bears the burden of proving subject matter jurisdiction and that a plaintiff has the burden of proof with respect to standing. The court noted that in this case, the complaint on its face alleged facts sufficient to establish the property owner’s standing to maintain the summary process action, and the commissioned agent made allegations but presented no evidence to refute or dispute the complaint’s jurisdictional allegations.

The court held that when the allegations of the complaint are sufficient to establish subject matter jurisdiction, a defendant cannot prevail on a motion to dismiss by merely making a bald assertion that jurisdiction is lacking. The court stated that although the ultimate burden remains on the property owner to prove jurisdiction, under these circumstances, the burden of production is upon the commissioned agent to present evidence in support of its motion. The court found that the property owner met its burden of proving standing to maintain the action because the property owner was duly assigned the lease for the subject property and formally assumed the rights and obligations thereunder, thereby possessing a legally cognizable interest in the property. The court explained that it is axiomatic that an action upon a contract can be brought and maintained by one who is a party to the contract sued upon and that an assignee stands in the shoes of the assignor and succeeds to the assignor’s rights. Thus, as holder of the lease interest, the property owner had standing to enforce the lease and seek relief arising from that interest.

POTENTIAL SIGNIFICANCE OF THE DECISION FOR FRANCHISEES AND FRANCHISORS

The Derby Realty decision may have significant implications for both franchisees and franchisors operating under commissioned agent agreements for motor fuel sales in Connecticut. For parties seeking the protections of the Connecticut Petroleum Franchise Act, the decision appears to suggest that express contractual disclaimers of franchise status will be given effect, particularly when supported by operational realities demonstrating that the purported franchisee lacks ownership of inventory, pricing authority, market risk, and other indicia of entrepreneurial responsibility. The decision appears to state that parties cannot invoke statutory franchise protections when they have contractually disclaimed such a relationship and when the business arrangement does not meet the statutory definition of a franchise. This ruling may protect property owners and motor fuel suppliers who structure their relationships as commissioned agent arrangements and who do not intend to create franchise relationships subject to statutory termination requirements.

For commissioned agents operating gas stations and convenience stores, the decision may suggest that they should not rely on the Connecticut Petroleum Franchise Act’s notice and good cause requirements for termination if they do not purchase, own, or control the motor fuel they sell. The decision seems to clarify that acting as an agent of a motor fuel seller, even if associated with the seller’s trademark, may not transform the agent into a retailer entitled to franchise protections. This ruling may limit the ability of commissioned agents to resist termination or eviction when property owners or motor fuel suppliers decide to end the relationship or transfer their interests. The decision also may suggest that commissioned agents should negotiate for contractual termination protections if they desire advance notice or limitations on termination, as statutory franchise protections might not be available absent a genuine franchise relationship.

COMPARISON TO OTHER JURISDICTIONS

The Derby Realty decision appears to reflect Connecticut’s approach to distinguishing between true franchise relationships and commissioned agent arrangements, an approach that may align with federal law under the Petroleum Marketing Practices Act. Connecticut courts seem to have historically required that franchise relationships involve genuine entrepreneurial responsibility and market risk, not merely the use of a trademark or the sale of products on behalf of another. This approach appears similar to the framework applied by federal courts interpreting the federal Petroleum Marketing Practices Act, which defines a retailer as any person who purchases motor fuel for sale to the general public for ultimate consumption. Some federal courts have held that commissioned agents who do not purchase or take title to motor fuel may not qualify as retailers under the federal act.

Other state jurisdictions have reached similar conclusions when examining commissioned agent arrangements under their respective petroleum franchise statutes. Courts in several states have held that the critical distinction lies in whether the dealer purchases motor fuel for resale or merely facilitates sales on behalf of the supplier. Jurisdictions that focus on ownership, pricing authority, and market risk have seem to have generally concluded that commissioned agents are not franchisees entitled to statutory protections. However, some jurisdictions have broader franchise definitions that might encompass commissioned agent relationships if the agent has significant operational autonomy or if the relationship substantially resembles a franchise in economic substance. Connecticut’s approach, as reflected in Derby Realty and Branford Quick Mart, appears to emphasize formalistic distinctions based on title passage, pricing control, and contractual intent, which may provide clarity but may be criticized for prioritizing form over substance in some cases.

LAW AND ECONOMICS PERSPECTIVE

From a law and economics perspective, the Derby Realty decision may promote efficient contracting by enforcing the parties’ expressed intentions and avoiding the imposition of costly statutory obligations on relationships that lack the economic characteristics justifying such regulation. Franchise statutes seem to typically aim to protect franchisees who make substantial relationship-specific investments and who face hold-up problems due to franchisor market power. Commissioned agents who do not purchase inventory, invest in equipment, or bear market risk may not face the same vulnerability to opportunistic termination that justifies mandatory notice periods and good cause requirements. Allowing parties to structure their relationships as commissioned agent arrangements without triggering franchise regulation may reduce transaction costs and may permit more flexible business models, which can enhance economic efficiency and consumer welfare by facilitating entry into motor fuel retailing.

However, the decision may also raise potential concerns from a law and economics standpoint regarding the ability of sophisticated parties to contract around protective statutes through carefully drafted disclaimers. If franchisors can avoid statutory obligations simply by labeling a relationship as a commissioned agent arrangement while maintaining substantial control over the agent’s operations, the protective purposes of franchise statutes may be undermined. The decision’s emphasis on formalistic indicia such as title passage and pricing authority may create opportunities for strategic drafting that exploits legal distinctions without changing economic substance. Nonetheless, the Derby Realty court’s reliance on credible testimony regarding operational realities, including testimony that the supplier owned equipment, controlled pricing, bore market risk, and held the retailer’s license, may suggest that courts can look beyond contractual labels to ensure that economic substance aligns with legal form, thereby reducing the risk of evasion and promoting accurate legal characterization of business relationships.

FINAL DISPOSITION

The Superior Court of Connecticut, Judicial District of Ansonia-Milford at Milford, denied the commissioned agent’s motion to dismiss. The court held that no franchise relationship existed between the property owner and the commissioned agent because the parties expressly disclaimed any such relationship in the commissioned agent agreement and because the commissioned agent lacked the entrepreneurial responsibility and ownership characteristics required to qualify as a retailer under the Connecticut Petroleum Franchise Act. The court further held that the property owner had standing to bring the summary process action because it was duly assigned the lease for the subject property and formally assumed the rights and obligations thereunder.

ABSTRACT

This case involves a franchise dispute between Home Instead, Inc. (franchisor) and twenty franchisees who alleged breach of a settlement agreement. The franchisees claimed they were entitled to early renewal of their franchise agreements under a March 2024 settlement, but Home Instead refused, arguing the settlement only applied to franchisees whose agreements expired before March 17, 2027. The United States District Court for the District of Nebraska granted Home Instead’s motion to dismiss in part, finding the settlement agreement’s plain language did not create early renewal rights for franchisees whose agreements expired after the three-year settlement period. The court rejected the franchisees’ arguments that the agreement was ambiguous and dismissed both breach of contract and breach of implied covenant claims. This decision reinforces the principle that courts will enforce unambiguous contract terms as written and will not create obligations beyond what the parties expressly agreed to in settlement agreements.

CASE CAPTION AND COURT

WJM Home Care, LLC v. Home Instead, Inc., 2026 U.S. Dist. LEXIS 72263, was decided on April 2, 2026, by the United States District Court for the District of Nebraska. Chief United States District Judge Robert F. Rossiter, Jr. presided over the case.

The plaintiffs were twenty franchisees: WJM Home Care, LLC; EM Home Care, Inc.; Uzoma Care Corp.; Sanders Senior Care, Inc.; Diercks Senior Care, LLC; Weber Home Care Services, LLC; Solicitude, Inc.; Revere Care, Inc.; Buckskin 903 Ventures, LLC; GMW Solutions, LLC; RSGR, LLC; River Phoenix Health, LLC; Geocare, Inc.; Tailored Home Care, LLC; Meck, LLC; DITP Business Ventures, Inc.; Aubby, Inc.; Home Care for Seniors Massachusetts, Inc.; Commonwealth Senior Care, LLC; and Essex County Senior Care, LLC. The defendant and franchisor was Home Instead, Inc., a Nebraska corporation with its principal place of business in Omaha. The plaintiffs were represented by Alec R. Shelowitz, Himanshu M. Patel, and Roberto Zarco of Zarco, Einhorn Law Firm in Miami, Florida, along with James Polack of Omaha, Nebraska. Home Instead was represented by Jessica K. Robinson of Cline, Williams Law Firm in Lincoln, Nebraska, and Theresa D. Koller of Cline, Williams Law Firm in Omaha, Nebraska.

FACTUAL BACKGROUND

Home Instead operated as a franchisor providing non-medical companionship and athome health care assistance to seniors through its network of franchisees. Each of the twenty plaintiff franchisees operated in different service territories across the country under franchise agreements that were set to expire sometime after March 17, 2027. In August 2021, Honor Technology, Inc. acquired a controlling interest in Home Instead from its founders.

Honor utilized a different business model called the Care Platform, which differed significantly from the traditional model that franchisees had been using. The traditional model provided franchisees with more autonomy and control over their businesses compared to the Care Platform. Concerned about these changes to their business operations, the franchisees formed the Franchisee Association in early 2022 as a means to defend their rights against the new ownership and business model.

Over time, tensions escalated between Home Instead and the association members. In an effort to resolve the growing dispute, a large subgroup of association members known as the Zarco Group Members participated in mediation with Home Instead on March 18, 2024. The mediation session lasted almost fourteen hours and resulted in a term sheet. However, it took an additional six weeks to convert the mediation term sheet into the final Settlement Agreement and Release. The plaintiffs blamed Home Instead for this delay, arguing that the franchisor attempted to rewrite the language regarding the franchisees’ right to a five-year auto-renewal of their franchise agreements in a manner inconsistent with the negotiated language agreed upon during mediation and memorialized in the binding material term sheet.

The Settlement Agreement became effective as of March 18, 2024. Section 5.0 of the Settlement Agreement, titled Existing Franchisees’ Right to Renew, provided that Home Instead agreed franchise agreements executed within three years of the effective date would not include language granting Home Instead discretion over renewals, and that franchisees would have a five-year auto-renewal as long as the franchisee was in good standing and met other material conditions set forth in the franchise agreement. Section 6.0 addressed the Care Platform, stating that for a three-year period from the effective date, Home Instead would not require any franchisee not operating on the Care Platform to begin operating on it.

The plaintiffs asserted they were authorized to secure the benefits of the Settlement Agreement within a confined three-year period from the effective date, or by no later than March 17, 2027. Despite these provisions, the plaintiffs alleged that Home Instead actively denied them the right to renew their existing franchise agreements early, before their current agreements expired after March 17, 2027. Home Instead took the position that only franchisees with agreements expiring before March 17, 2027, had renewal rights under the Settlement Agreement.

PROCEDURAL HISTORY AND HOLDINGS

The franchisees filed their initial complaint on November 10, 2025, alleging breach of the Settlement Agreement and breach of the covenant of good faith and fair dealing. Home Instead moved to dismiss on both jurisdictional grounds under Federal Rule of Civil Procedure 12(b)(1) and for failure to state a claim under Rule 12(b)(6). In response to Home Instead’s motion, the franchisees amended their complaint as a matter of course under Federal Rule of Civil Procedure 15(a)(1)(B), attempting to address some of the issues Home Instead had raised.

The court denied Home Instead’s original motion to dismiss without prejudice as moot given the amended complaint. Home Instead then filed a renewed motion to dismiss the amended complaint, arguing it did not cure any jurisdictional or pleading defects. The court addressed two primary challenges: first, whether it had subject-matter jurisdiction under the diversity statute, and second, whether the franchisees stated a plausible claim for relief.

On the jurisdictional issue, the court denied Home Instead’s motion to dismiss for lack of subject-matter jurisdiction, finding that the franchisees had adequately alleged the amount in controversy exceeded $75,000 as required by the diversity statute. However, on the merits, the court granted Home Instead’s motion to dismiss for failure to state a claim. The court held that the plain and unambiguous language of the Settlement Agreement did not create early renewal rights for franchisees whose existing franchise agreements expired after March 17, 2027. The court found the franchisees were attempting to create contract rights and duties where none existed and failed to state a plausible claim for breach of the covenant of good faith and fair dealing under Nebraska law. The case was dismissed with prejudice, and judgment was entered in favor of Home Instead.

PARTIES’ POSITIONS ON THE ISSUES

Home Instead argued that the court lacked subject-matter jurisdiction because the franchisees failed to adequately allege the amount in controversy exceeded $75,000, despite the franchisees’ specific allegations to that effect. On the merits, Home Instead contended that the plain and unambiguous language of the Settlement Agreement did not provide the franchisees with early renewal rights.

Home Instead maintained that the Settlement Agreement only applied to franchise agreements executed within three years of the effective date, meaning franchisees could only obtain new agreements with the favorable renewal terms if their existing agreements expired before March 17, 2027. Home Instead argued that the fact some franchisees were not eligible to renew before that date under their existing franchise agreements did not create a breach of the Settlement Agreement. Regarding the implied covenant claim, Home Instead asserted the covenant cannot be used to modify express contract terms and that the franchisees were impermissibly seeking to impose duties not arising from the Settlement Agreement itself.

The franchisees, in contrast, argued that Section 5.0 constituted a promise from Home Instead that franchise agreements executed by existing franchisees on or before March 17, 2027, would not grant Home Instead discretion over renewals and that franchisees would have a fiveyear auto-renewal. The franchisees maintained there was no language in the Settlement Agreement conditioning their right to renew by March 17, 2027, only if their existing franchise agreements expired prior to that date. They contended Home Instead’s interpretation was absurd and deprived them of the benefit of their bargain reached during mediation.

Alternatively, the franchisees argued that the parties’ conflicting interpretations created an ambiguity requiring parol evidence to resolve, including evidence of discussions during mediation. They asserted that Section 5.0’s failure to expressly account for varying expiration dates created a latent ambiguity that could be resolved with extrinsic evidence. On the implied covenant claim, the franchisees argued Home Instead’s refusal to exercise discretion to extend the Settlement Agreement’s benefits to them violated the covenant of good faith and fair dealing, as it defied logic that they entered into a binding agreement from which they were now precluded from securing any benefits.

SETTLEMENT AGREEMENT PROVISIONS IN DISPUTE

The central provision in dispute was Section 5.0 of the Settlement Agreement, titled Existing Franchisees’ Right to Renew. This section stated: ‘Home Instead agrees that franchise agreements executed within three (3) years of the Effective Date shall not include language granting Home Instead discretion over renewals. Home Instead further agrees that franchisees shall have a five (5) year auto-renewal as long as the franchisee is in good standing and meets the other material conditions set forth in the franchise agreement.’ The Settlement Agreement became effective as of March 18, 2024.

The franchisees interpreted this provision to mean they had the right to execute new franchise agreements with favorable renewal terms at any time within the three-year period ending March 17, 2027, regardless of when their existing franchise agreements expired. Home Instead interpreted the same provision to mean that only franchisees whose existing franchise agreements expired within the three-year period could execute new agreements with the favorable renewal terms.

The dispute centered on whether ‘franchise agreements executed within three (3) years of the Effective Date’ referred to new agreements that could be executed at the franchisees’ option during that period, or only to agreements executed to replace existing agreements that naturally expired during that period. Section 6.0, titled Care Platform, was also relevant to the dispute. It provided that ‘for a three (3) year[] period from the Effective Date, it would not require any franchisee that was not operating on the Care Platform to begin operating on the Care Platform.’ The franchisees argued this provision, combined with Section 5.0, demonstrated their right to obtain early renewals that would protect them from being forced onto the Care Platform. Section 12.3 of the Settlement Agreement contained a choice-of-law provision stating that

Nebraska substantive law applied to all questions pertaining to the validity, interpretation, or administration of the agreement. Both parties relied on Nebraska law in their briefs, and the court applied Nebraska law to resolve the dispute.

COURT’S ANALYSIS AND RESOLUTION OF JURISDICTIONAL ISSUE

The court first addressed Home Instead’s challenge to subject-matter jurisdiction under the diversity statute. Under Federal Rule of Civil Procedure 12(b)(1), a defendant can make either a facial or factual challenge to jurisdiction. In a facial challenge, the court restricts itself to the face of the pleadings and presumes all factual allegations concerning jurisdiction to be true, dismissing only if the plaintiff fails to allege an element necessary for subject-matter jurisdiction. In a factual challenge, the defendant attacks the veracity of the facts underpinning jurisdiction, and the court can consider matters outside the pleadings. The court found Home Instead’s challenge was more facial than factual, as it focused on the franchisees’ factual allegations rather than presenting affidavits, documents, or other evidence.

Under the applicable legal standard, a plaintiff’s good-faith allegation that the jurisdictional amount is met will ordinarily suffice to confer jurisdiction. It must appear to a legal certainty that the claim is really for less than the jurisdictional amount to justify dismissal. If the defendant challenges the plaintiff’s allegations, the plaintiff must establish jurisdiction by a preponderance of the evidence.

The Eighth Circuit has determined that a district court has subject-matter jurisdiction in a diversity case when a fact finder could legally conclude from the pleadings and proof adduced before trial that damages exceeded $75,000. The franchisees specifically alleged twice in their amended complaint that the amount in controversy exceeded $75,000. Home Instead neither alleged bad faith, nor argued legal certainty, nor offered probative evidence to challenge the jurisdictional allegations.

The court found that while the franchisees’ specific allegations may have been thin, they had adequately alleged the amount in controversy. The court emphasized it would not lightly dismiss for lack of subject-matter jurisdiction and cautioned against prejudging the monetary value of an unliquidated claim. Accordingly, the court denied Home Instead’s motion to dismiss for lack of subject-matter jurisdiction.

COURT’S ANALYSIS AND RESOLUTION OF BREACH OF CONTRACT CLAIM

On the merits, the court applied Nebraska contract law principles to resolve the breach of contract claim. Under Nebraska law, a contract written in clear and unambiguous language is not subject to interpretation or construction and must be enforced according to its terms. The court found that the franchisees’ breach-of-contract claims depended on early-renewal rights that the plain and unambiguous language of the Settlement Agreement did not provide. The court agreed with Home Instead that the Settlement Agreement’s language referred to franchise agreements that would naturally be executed within the three-year period because existing agreements expired during that time, not to early renewals of agreements that had not yet expired. The court applied the principle that non-occurrence of a condition is not a breach by a party unless that party is under a duty that the condition occur.

Here, the fact that some franchisees were not eligible to renew before March 17, 2027, under the express terms of their existing franchise agreements with varying renewal dates did not create a breach by Home Instead. The court rejected the franchisees’ argument that Section 5.0 was ambiguous. Under Nebraska law, a contract is ambiguous when a word, phrase, or provision has at least two reasonable but conflicting interpretations or meanings.

The franchisees argued that the parties’ conflicting interpretations created an ambiguity requiring parol evidence, including evidence of mediation discussions. They contended that Section 5.0’s failure to expressly account for varying expiration dates created a latent ambiguity. A latent ambiguity exists when collateral facts make the meaning of a contract uncertain even though the language appears clear and unambiguous.

The court rejected this argument, finding that the franchisees were attempting to create an ambiguity where none existed. The court concluded that the plain language of Section 5.0 unambiguously referred to franchise agreements executed within three years because they naturally came due for renewal during that period, not because franchisees could demand early renewal regardless of their existing agreement terms.

COURT’S ANALYSIS AND RESOLUTION OF IMPLIED COVENANT CLAIM

The court also rejected the franchisees’ claim for breach of the implied covenant of good faith and fair dealing. Under Nebraska law, the scope of conduct prohibited by the covenant of good faith is circumscribed by the purposes and express terms of the contract. The covenant cannot be used to modify the express terms of a contract. A violation of the covenant occurs only when a party violates, nullifies, or significantly impairs any benefit of the contract.

The franchisees argued that Home Instead’s refusal to exercise discretion to extend the Settlement Agreement’s benefits to them violated the implied covenant because it defied logic that they entered into a binding agreement from which they were precluded from securing any benefits. The court found this argument unpersuasive. Home Instead was not refusing to exercise discretion or denying benefits that the Settlement Agreement actually provided. Rather, the franchisees were seeking to impose duties that did not arise from the Settlement Agreement itself.

The court agreed with Home Instead that the franchisees were impermissibly attempting to use the implied covenant to create obligations beyond what the parties expressly agreed to in the Settlement Agreement. Because the Settlement Agreement’s plain language did not provide early renewal rights to franchisees whose existing agreements expired after March 17, 2027, Home Instead’s refusal to provide such renewals did not violate any benefit the franchisees were entitled to under the contract. The court concluded the franchisees failed to state a plausible claim for breach of the implied covenant of good faith and fair dealing under Nebraska law.

WHY THE COURT ACCEPTED HOME INSTEAD’S POSITION

The court accepted Home Instead’s interpretation of the Settlement Agreement for several interconnected reasons grounded in fundamental contract law principles. First, the court found the plain language of Section 5.0 supported Home Instead’s reading. The provision stated that ‘franchise agreements executed within three (3) years of the Effective Date’ would have certain favorable terms. The natural reading of this language referred to agreements that would be executed during that period in the ordinary course—that is, when existing agreements expired and needed renewal—not to early renewals demanded by franchisees whose agreements had not yet expired.

Second, the court applied Nebraska’s rule that unambiguous contracts must be enforced according to their terms without interpretation or construction. The franchisees could not point to any language in the Settlement Agreement that explicitly granted them the right to early renewal or that conditioned renewal rights on anything other than the natural expiration of existing agreements.

Third, the court rejected the franchisees’ attempt to create an ambiguity through conflicting interpretations. The mere fact that parties disagree about a contract’s meaning does not make it ambiguous under Nebraska law; there must be at least two reasonable interpretations. The court implicitly found that only Home Instead’s interpretation was reasonable given the contract’s plain language.

Fourth, the court refused to allow the franchisees to use parol evidence of mediation discussions to contradict or supplement the Settlement Agreement’s clear terms. While latent ambiguities can sometimes be resolved with extrinsic evidence, the court found no latent ambiguity existed here.

Fifth, regarding the implied covenant claim, the court emphasized that the covenant cannot be used to modify express contract terms or impose duties not arising from the contract itself. The franchisees were essentially asking the court to rewrite the Settlement Agreement to provide benefits they claimed to have negotiated but failed to include in the final written agreement. The court declined to do so, adhering to the principle that parties are bound by the agreements they sign, not by what they claim they intended to agree to.

POTENTIAL SIGNIFICANCE FOR FRANCHISEES AND FRANCHISORS

This decision may have significant implications for both franchisees and franchisors in future settlement negotiations and franchise agreement disputes. For franchisees, the case can serve as a cautionary tale about the critical importance of ensuring that settlement agreements contain explicit, unambiguous language granting the specific rights they believe they negotiated.

The franchisees here claimed they negotiated early renewal rights during mediation, but the final Settlement Agreement did not clearly provide those rights. The court’s refusal to consider parol evidence of the mediation discussions or to find an ambiguity may demonstrate that franchisees cannot rely on what they believe was discussed or intended; they must ensure the final written agreement clearly states their rights. This is particularly important in franchise contexts where agreements often involve complex renewal provisions, territorial rights, and operational requirements.

For franchisors, the decision may reinforce that courts could enforce settlement agreements according to their plain terms and may not impose additional obligations based on one party’s subjective understanding. It may also suggest that both franchisors and franchisees engage in more detailed and potentially contentious negotiations over settlement language, as parties seek to avoid ambiguity and ensure their expectations are clearly reflected in the agreement.

The decision could also highlight the importance of the choice-of-law provision in settlement agreements. Nebraska law’s strict approach to contract interpretation—enforcing unambiguous terms without construction and limiting the implied covenant’s scope—was favorable to the franchisor here. In jurisdictions with different contract interpretation principles, the outcome might have differed. Both franchisees and franchisors should carefully consider which state’s law will govern their settlement agreements and how that choice might affect interpretation of key provisions.

COMPARISON TO CASES IN OTHER JURISDICTIONS

This case’s outcome reflects Nebraska’s relatively strict approach to contract interpretation, which may differ from approaches in other jurisdictions. Nebraska follows the traditional rule that unambiguous contracts must be enforced according to their terms without interpretation or construction. Some jurisdictions take a more flexible approach, allowing courts to consider context, purpose, and the parties’ course of dealing even when contract language appears clear on its face.

For example, California courts sometimes apply a contextual approach to contract interpretation, considering the circumstances under which the agreement was made and the parties’ subsequent conduct. Under such an approach, the franchisees’ evidence of mediation discussions and their understanding of what was negotiated might have received more consideration. Similarly, some jurisdictions have broader views of when parol evidence is admissible to resolve ambiguities or explain contract terms.

The Eighth Circuit, applying Nebraska law, could be viewed to have taken a narrow view here, refusing to find an ambiguity based solely on the parties’ conflicting interpretations. Other circuits applying different state laws might be more receptive to arguments that varying franchise agreement expiration dates created a latent ambiguity requiring extrinsic evidence to resolve. Regarding the implied covenant of good faith and fair dealing, Nebraska’s approach—limiting the covenant to conduct that violates, nullifies, or significantly impairs contract benefits and prohibiting use of the covenant to modify express terms—appears relatively restrictive.

Some jurisdictions recognize broader implied covenant obligations, particularly in franchise relationships characterized by significant power imbalances. For instance, some courts have found that franchisors violate the implied covenant when they exercise contractual discretion in ways that undermine the franchise relationship’s fundamental purpose, even if not explicitly prohibited by contract terms. However, the outcome could be argued to be consistent with the general trend in franchise litigation across most jurisdictions: courts appear reluctant to rewrite settlement agreements or impose obligations beyond what the parties expressly agreed to, particularly when sophisticated parties negotiated the agreement with legal counsel.

LAW AND ECONOMICS PERSPECTIVE

From a law and economics perspective, this decision can be viewed to promote efficiency in contracting by enforcing the parties’ written agreement and reducing uncertainty about contract interpretation. The court’s strict adherence to the Settlement Agreement’s plain language creates incentives for parties to invest in careful drafting and to ensure that final written agreements accurately reflect their intentions. This approach reduces transaction costs in the long run by minimizing post-agreement disputes about what the parties meant to agree to, even if it may increase upfront negotiation costs as parties work to ensure precise language.

The decision could also be viewed to address the moral hazard problem that can arise if courts routinely allowed parties to escape unfavorable settlement terms by claiming the written agreement did not reflect what was discussed during negotiations. If franchisees could successfully argue that mediation discussions trumped the final written agreement, it could create incentives for parties to be less careful in reviewing and finalizing settlement documents, knowing they could later seek judicial modification based on claimed prior understandings.

However, the decision may create some inefficiency by potentially discouraging settlement in future franchise disputes. If franchisees believe courts will strictly enforce settlement language without considering negotiation context, they may be less willing to settle and more likely to litigate to final judgment, increasing overall dispute resolution costs.

The decision may also raise questions about information asymmetry and bargaining power in franchise relationships. If the franchisor had superior legal resources or negotiating leverage that allowed it to draft settlement language favorable to its interpretation despite different understandings reached during mediation, the strict enforcement approach may produce outcomes that do not reflect the parties’ true agreement or maximize joint surplus. From an economic standpoint, the optimal rule would balance the benefits of clear enforcement against the costs of potential strategic behavior by the party controlling the drafting process.

FINAL DISPOSITION

The court denied the franchisees’ request for a hearing on Home Instead’s motion to dismiss. The court granted in part and denied in part Home Instead’s motion to dismiss the amended complaint. Specifically, the court denied the motion to dismiss for lack of subjectmatter jurisdiction under Federal Rule of Civil Procedure 12(b)(1), finding the franchisees had adequately alleged the amount in controversy exceeded $75,000. However, the court granted the motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), finding the franchisees failed to state plausible claims for breach of contract or breach of the implied covenant of good faith and fair dealing.

The case was dismissed with prejudice, meaning the franchisees cannot refile their claims. The court entered a separate judgment in favor of Home Instead and against all twenty franchisee plaintiffs.

ABSTRACT

This article examines Indo-Phili, Inc. v. Circle K Stores, Inc., decided by the United States District Court for the Central District of California on March 19, 2026. The case involved a petroleum franchise dispute under the Petroleum Marketing Practices Act (PMPA) where franchisee Indo-Phili challenged franchisor Circle K’s nonrenewal of their franchise relationship. Circle K issued a Notice of Nonrenewal after Indo-Phili failed to accept a renewal offer containing increased rent and higher gasoline volume requirements. The court granted summary judgment in favor of Circle K, finding that the franchisor complied with all PMPA requirements and that the nonrenewal based on the franchisee’s failure to agree to non-discriminatory rent increases was lawful. The decision reinforces franchisors’ flexibility to modify franchise terms at renewal and clarifies that contract extensions do not invalidate prior valid nonrenewal notices. This ruling has significant implications for the balance between protecting franchisees from arbitrary termination and preserving franchisors’ business flexibility.

CASE CAPTION AND PARTIES

Indo-Phili, Inc. v. Circle K Stores, Inc., 2026 U.S. Dist. LEXIS 63308 (C.D. Cal. March 19, 2026), involved Plaintiff and Counter-Defendant Indo-Phili, Inc. (franchisee), a California corporation operating service stations in Southern California, and Defendant and CounterClaimant Circle K Stores Inc. (franchisor), a Texas corporation operating convenience stores and gas stations throughout the United States and internationally. The case was decided by the Honorable John F. Walter, United States District Judge for the Central District of California.

FACTUAL BACKGROUND

Indo-Phili was a family business started by Sheikh Hassan Imam and his two sons, operating four service stations in Southern California. The station at issue was a Mobil-branded retail motor fuel facility and convenience store located at property owned by Circle K at 3950 West Olympic Boulevard, Los Angeles, California.

On June 9, 2021, Circle K and Indo-Phili entered into a Contract of Sale (BrandedLessee), a Station Lease, and various related agreements and amendments, collectively establishing a petroleum franchise relationship under the PMPA that was set to expire on May 31, 2024, after a three-year term. On March 15, 2024, Circle K sent Indo-Phili a Renewal Offer proposing to extend the existing agreements for another three-year term from June 1, 2024 to

May 31, 2027. The Renewal Offer specified increased monthly base rents of $35,010 for months 1-12, $38,511 for months 13-24, and $42,362 for months 25-36, calculated based on current appraised property value.

The offer included a Voluntary Appraisal Option allowing Indo-Phili to challenge the rent calculation through a new appraisal if requested within twenty-five days. The Renewal Offer stated that if Indo-Phili did not timely elect the appraisal option, acceptance of the rental terms would be presumed unless Indo-Phili provided written notice to the contrary via certified mail within twenty-five days.

On May 21, 2024, Imam called Bryan Topham, Circle K’s Director of Wholesale Fuels for the West Coast Division, asking whether the rental and gasoline volume requirements could be reviewed and lowered. Imam made clear he did not want to lose the station, and Topham said he would look into the matter. That same day, Imam sent Topham an email confirming their conversation, noting that rent had increased by $6,000 to $42,000 and minimum gasoline volume requirements had increased to 151,000 gallons per month. Imam stated he already had the highest rent among Mobil stations and only pumped between 120,000-130,000 gallons monthly, questioning how he could pay the rental increase while increasing gas volume by almost 30,000 gallons.

He requested more time to review the documents while Circle K figured out the numbers for gas volume and rent. On May 24, 2024, Circle K issued a Notice of Nonrenewal pursuant to the PMPA, stating the franchise relationship would terminate effective August 29, 2024, based on Indo-Phili’s failure to agree to changes to the Station Lease, specifically the rent increase, which Circle K asserted was a valid basis under 15 U.S.C.S. § 2802(b)(3)(A).

On May 29, 2024, Imam attended a Mobil service station dealer meeting in Pasadena where he spoke with Topham about his concerns and asked if Circle K would consider changing to a Commissioned Based Marketing (CBM) model, under which Indo-Phili would manage the station for $0.15 per gallon while Circle K would own gasoline sales and set retail prices, with Indo-Phili operating the convenience store and car wash without paying rent. Between May 29 and July 12, 2024, Imam called Topham seven times to follow up, with Topham responding that he was working on it but never informing Imam that Indo-Phili would not be permitted to renew or that it was too late to accept the Renewal Offer. During this period, Indo-Phili continued paying rent and operating the business under the existing agreements.

On July 12, 2024, Imam emailed Topham noting he had not signed anything yet and requesting follow-up, to which Topham responded he was still waiting on modeling for CBM consideration. On July 22, 2024, Circle K emailed a Contract Extension extending the existing agreements through August 31, 2024. On August 3, 2024, Imam and Topham discussed Imam’s concerns and the CBM possibility, with Topham requesting financial documents. On August 13, 2024, Imam emailed Topham financial information with the subject line proposing conversion to CBM. On August 14, 2024, Circle K issued another Contract Extension through September 30, 2024. On September 16, 2024, Imam called Topham about the status, and Topham said he was still working on it.

On November 29, 2024, Imam emailed Topham noting it had been a while since they spoke about the Olympic site renewal. On December 12, 2024, Imam spoke with Topham who assured him he was still working on it. On December 19, 2024, Imam met with Mark Harrison, Circle K’s Development Manager, who informed him that Circle K would be repairing canopies at Imam’s three other locations. During this meeting, Harrison received a call from Topham on speaker phone, during which Topham informed Imam that the Renewal Offer had expired and Circle K would not convert the station to a CBM model, instead intending to run it as a Circle K company-operated station. That same day, Circle K issued a second Notice of Nonrenewal stating the franchise relationship would terminate effective March 19, 2025, based on Indo-Phili’s failure to agree to the rent increase.

On December 20, 2024, Imam called Harrison stating he was willing to sign the Renewal Offer with its original terms, but Topham informed Imam that Circle K would not renew the relationship and would proceed with termination and conversion to a company-operated station. Indo-Phili never signed or returned the renewal agreements, never took steps to accept or comply with the renewal terms, and instead continued operating under the original agreements.

PROCEDURAL HISTORY AND CURRENT POSTURE

On March 5, 2025, Indo-Phili filed a Complaint against Circle K alleging wrongful nonrenewal of franchise in violation of the PMPA, seeking an order enjoining the nonrenewal and mandating Circle K to present franchise renewal documents for execution. On March 12, 2025, Circle K filed its Answer and Verified Counterclaim, which was amended on April 2, 2025, seeking declaratory relief that its Notice of Nonrenewal was valid under the PMPA and that Indo-Phili must vacate the property by March 19, 2025. On April 16, 2025, Indo-Phili filed its Answer to Circle K’s Counterclaim. On September 26, 2025, Circle K filed a Motion for Summary Judgment. Indo-Phili filed its Opposition on October 27, 2025, Circle K filed a Reply on November 10, 2025, and Indo-Phili filed a Sur-Reply on December 16, 2025.

The court found the matter appropriate for submission on papers without oral argument pursuant to Federal Rule of Civil Procedure 78 and Local Rule 7-15. The court granted Circle K’s Motion for Summary Judgment on March 19, 2026, concluding that Circle K was entitled to judgment on both Indo-Phili’s Complaint and Circle K’s Counterclaim, finding that Circle K’s nonrenewal complied with all PMPA requirements and that Indo-Phili must vacate the property.

PARTIES’ POSITIONS

Circle K argued that it issued a valid and timely Notice of Nonrenewal on May 24, 2024, that the franchise relationship subsequently expired, that the nonrenewal did not violate the PMPA, that Indo-Phili must vacate the property, and that Circle K was entitled to declaratory relief that the relationship had ended. Circle K contended that Indo-Phili failed to agree to changes in the Station Lease, specifically the rent increase, which was calculated using a nondiscriminatory rent formula based on an appraisal process and offered in good faith in the normal course of business. Circle K asserted that the July 22 and August 14, 2024 Contract Extensions, continued negotiations regarding the CBM model, and the December 19, 2024 Notice of Nonrenewal did not void or invalidate the May 24, 2024 Notice of Nonrenewal.

Indo-Phili argued that Circle K failed to meet its burden of establishing that the renewal was offered in good faith and in the normal course of business because Circle K made the decision in September 2024 to convert the station to a company-operated station. Indo-Phili contended that it accepted the renewal, including the proposed rent increase, and that there was no requirement that Indo-Phili had to sign the Renewal Notice. Indo-Phili argued that the extensions, continued negotiations, and second nonrenewal notice demonstrated that the franchise relationship was still subject to renewal and that these actions voided or invalidated the May 24, 2024 Notice of Nonrenewal.

FRANCHISE AGREEMENT DOCUMENTS IN DISPUTE

The franchise agreements at issue included the Contract of Sale (Branded-Lessee), the Station Lease (Lessee Branded) dated June 1, 2021, and various related agreements and amendments. Section 1(b) of the Contract of Sale provided that Circle K had the right to grant temporary extensions of the Contract of up to 180 days, and that any such extension would not be considered a renewal of the Contract. Section 34 of the renewal Contract of Sale provided that the Contract or any modification thereof would not be binding upon Circle K until signed on its behalf by an authorized representative of Circle K.

Section 32 of the original Contract of Sale provided that no amendment, deletion, modification, or alteration to the Contract would have any effect unless and until made in writing and signed by an authorized representative of Circle K and by Indo-Phili. Section 28 of the Station Lease similarly provided that no amendment, deletion, modification or alteration to the Lease would have any effect unless and until made in writing and signed by an authorized representative of Circle K and by Indo-Phili.

The March 15, 2024 Renewal Offer specified that base rent would be calculated upon current appraised property value with monthly base rents of $35,010 for months 1-12, $38,511 for months 13-24, and $42,362 for months 25-36. The Renewal Offer included a Voluntary Appraisal Option allowing Indo-Phili to challenge the rent calculation through a new appraisal if requested within twenty-five days by certified mail. The Renewal Offer stated that if Indo-Phili did not timely elect the appraisal option, acceptance of the rental terms would be presumed unless Indo-Phili expressly provided written notice to the contrary via certified mail within twenty-five days.

LEGAL STANDARDS AND COURT’S ANALYSIS

The court applied the summary judgment standard under Federal Rule of Civil Procedure 56(a), which requires the movant to show there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. The moving party has the burden of demonstrating the absence of a genuine issue of fact for trial. Once the moving party meets its burden, the opposing party may not rest upon mere denials but must set out specific facts showing a genuine issue for trial. When the non-moving party bears the burden of proving an element essential to its case, that party must make a showing sufficient to establish a genuine issue of material fact or be subject to summary judgment. An issue is genuine if evidence is produced that would allow a rational trier of fact to reach a verdict in favor of the non-moving party.

The court explained that the PMPA was enacted to serve two main objectives: first, to provide protection for petroleum marketing franchisees against arbitrary or discriminatory termination or nonrenewal of their service station franchises; and second, to provide adequate flexibility so that franchisors may initiate changes in their marketing activities to respond to changing market conditions and consumer preferences. The court noted it is particularly important to recognize franchisors’ need for flexibility, and that exceptions allowing for franchise termination are broad, reflecting an intent to allow reasonable business judgments by the franchisor.

The cornerstone of the PMPA is 15 U.S.C.S. § 2802, which precludes franchisors from terminating any franchise or failing to renew any franchise relationship unless notification requirements are met and the termination or nonrenewal is based on specified grounds. Section 2802(a) makes a significant distinction between a franchise and the franchise relationship. The term franchise refers to any number of contracts between a retailer/distributor and a supplier of motor fuel, and Section 2802(a)(1) prohibits a franchisor from terminating a franchise before it expires. The term franchise relationship refers to the respective motor fuel marketing or distribution obligations and responsibilities of a franchisor and a franchisee which result from the marketing of motor fuel under a franchise.

The legal entity of the franchise relationship was created by Congress to avoid any contention that because the franchise does not exist after it expires, there is nothing to renew, and to clarify that the PMPA contemplates changes in the specific provisions of the franchise agreement at the time of renewal. When a franchise expires, the franchise relationship between the parties continues and it is that relationship which the franchisor is obligated to renew under Section 2802(a)(2) unless the requirements of Section 2802(b)(1) are met. Franchisors may terminate or decline to renew a franchise relationship only if they satisfy both prongs of Section 2802(b)(1), which requires that the notification requirements of Section 2804 are met and that such nonrenewal is based upon a ground described in paragraph (2) or (3).

Section 2804(a) provides that prior to nonrenewal of any franchise relationship, the franchisor shall furnish notification to the franchisee in the manner described in subsection (c) and not less than 90 days prior to the date on which such nonrenewal takes effect. Section 2804(c) provides that notification shall be in writing, shall be posted by certified mail or personally delivered to the franchisee, and shall contain a statement of intention not to renew the franchise relationship together with the reasons therefor, the date on which such nonrenewal takes effect, and the summary statement prepared under subsection (d).

The court found that Circle K satisfied the requirements of Section 2804 when it issued the May 24, 2024 Notice of Nonrenewal in writing and sent it to Indo-Phili by certified mail with at least ninety days notice. The court noted it was undisputed that the May 24, 2024 Notice of Nonrenewal satisfied all Section 2804 requirements. The court also found that the May 24, 2024 Notice of Nonrenewal satisfied the requirements of Section 2802(b)(1) because it included a lawful reason for the nonrenewal—Indo-Phili’s failure to agree to changes to the Station Lease, specifically the rent increase.

The PMPA requires only that the franchisor articulate with sufficient particularity the basis for the decision not to renew so that the franchisee can determine his rights under the Act. Section 2802(b)(3)(A) provides that the failure of the franchisor and the franchisee to agree to changes or additions to the provision of the franchise is a ground for nonrenewal if such changes or additions are the result of determinations made by the franchisor in good faith and in the normal course of business, and such failure is not the result of the franchisor’s insistence upon such changes or additions for the purpose of converting the leased marketing premises to operation by employees or agents of the franchisor for the benefit of the franchisor or otherwise preventing the renewal of the franchise relationship.

The court found that Indo-Phili admitted that after Circle K made the Renewal Offer, it never signed anything. Instead, Indo-Phili informed Circle K through phone calls and emails that it thought the rent and minimum gasoline volumes in the Renewal Offer were too high and asked Circle K to consider lowering them. Indo-Phili also pursued converting its relationship with Circle K from a franchise relationship to an alternative CBM model. The court rejected IndoPhili’s argument that it was not required to sign the Renewal Offer in order to accept it, noting that although the Renewal Offer did not require a signature, the renewal franchise agreements clearly required a signature in order to become effective.

Section 34 of the renewal Contract of Sale provided that the Contract or any modification thereof shall not be binding upon Circle K until signed on its behalf by an authorized representative of Circle K. The original franchise agreements also required signatures by both parties to effectuate any modification, and Indo-Phili could not persuasively argue that the parties agreed to some sort of modification of the original agreements.

COURT’S RESOLUTION OF GOOD FAITH ISSUE

The court concluded that the increased rent in the Renewal Offer was sought by Circle K in good faith. The court found it undisputed that the increased rental amount was based on a nondiscriminatory rent formula calculated by an appraisal process, citing objective rental formulas and uniform application, appraisal procedures, and rent review programs as objective evidence of good faith. The court noted that the Renewal Offer included a Voluntary Appraisal Option which allowed Indo-Phili to challenge the appraisal through a formal process, but although Indo-Phili expressly protested the increased rent and asked Circle K to consider an alternative arrangement such as the CBM Model, it never pursued the Voluntary Appraisal Option.

The court rejected Indo-Phili’s argument that Circle K acted in bad faith by planning to convert the property to a company-operated station, finding that Indo-Phili failed to provide any evidence demonstrating that Circle K took any affirmative steps to do so prior to Indo-Phili’s failure to agree to the Renewal Offer and Circle K’s issuance of the Notice of Nonrenewal. The undisputed evidence demonstrated that Circle K issued the Notice of Nonrenewal only after Indo-Phili objected to the increase in rent and minimum gasoline volumes. Indo-Phili admitted that Circle K did not consider converting the property to a company-operated station until September 2024, nearly four months after Circle K issued the Notice of Nonrenewal.

COURT’S REASONING FOR ACCEPTING CIRCLE K’S POSITION

The court accepted Circle K’s position over Indo-Phili’s for several reasons. First, the court found that Indo-Phili’s failure to sign the renewal agreements was fatal to its claim because the agreements explicitly required signatures to become effective, and the original agreements required written modifications signed by both parties. Second, the court found that Circle K’s rent increase was based on an objective, non-discriminatory formula calculated through an appraisal process, which constituted objective evidence of good faith. Third, the court found no evidence that Circle K planned to convert the station to a company-operated facility prior to issuing the May 24, 2024 Notice of Nonrenewal, as Indo-Phili admitted Circle K did not consider conversion until September 2024, four months after the nonrenewal notice. Fourth, the court found that Indo-Phili had the opportunity to challenge the rent through the Voluntary Appraisal Option but failed to pursue it, instead only protesting the rent and requesting alternative arrangements. Fifth, the court found that Circle K’s nonrenewal based on Indo-Phili’s failure to agree to a non-discriminatory rent increase, after Indo-Phili was given several months to consider the rent increase, was a legitimate basis for nonrenewal under the PMPA.

The court emphasized that Congress affirmatively declined to give franchisees more elaborate protections because of concern that this might unduly interfere with franchisors’ property rights, possibly amounting to an unconstitutional taking, and addressed this problem by allowing the franchisor to alter the terms of the franchise at the time of renewal and to terminate the franchise relationship if agreement could not be reached.

COURT’S ANALYSIS OF EXTENSIONS AND MULTIPLE NOTICES

The court rejected Indo-Phili’s argument that the July 22 and August 14, 2024 Extension Notices, the parties’ negotiations regarding conversion to a CBM model, and the December 19, 2024 Notice of Nonrenewal voided or otherwise invalidated the May 24, 2024 Notice of Nonrenewal. The court found that the extension notices did not void or invalidate the May 24, 2024 Notice of Nonrenewal because such extensions were permitted pursuant to the franchise agreements. Section 1(b) of the Contract of Sale provided that Circle K had the right to grant temporary extensions of the Contract of up to 180 days, and that any such extension would not be considered a renewal of the Contract. The court stated that the law is clear that such extensions and even subsequent notices of nonrenewal do not have any effect on an initial, valid notice of nonrenewal.

The court cited authority holding that a notice is not revoked by the parties’ mutual agreement to extend the original contract for the purpose of continuing negotiations. The court explained that because the PMPA distinguishes between the nonrenewal of franchise relationship and the termination of the franchise, which is the contract(s) governing the franchise relationship, the extensions of the franchise agreements in this case could not void the nonrenewal of the franchise relationship pursuant to the May 24, 2024 Notice of Nonrenewal. The court found that the franchisee’s attempt to rely on remaining on the property posttermination and attempts to agree to renewal as proof that the franchise relationship endured was pure, unadulterated sophistry.

POTENTIAL SIGNIFICANCE FOR FUTURE FRANCHISE RELATIONSHIPS

This decision may have significant implications for both franchisees and franchisors in petroleum franchise relationships governed by the PMPA. For franchisors, the decision appears to reinforce a degree of flexibility to modify franchise terms at renewal, including rent increases based on objective appraisal formulas, without necessarily being deemed to act in bad faith. At the same time, such changes may raise practical and legal considerations for franchisees evaluating renewal offers. Franchisors may be able to issue valid nonrenewal notices when franchisees do not timely accept renewal offers with modified terms, even if the franchisor continues negotiations or extends the existing contract temporarily. The ruling also suggests that contract extensions for the purpose of continuing negotiations do not automatically invalidate prior nonrenewal notices, which may provide some additional predictability in business planning while still leaving room for case-specific outcomes.

For franchisees, the decision appears to emphasize the importance of timely and formal acceptance of renewal offers, particularly when the franchise agreements require written signatures for modifications. Franchisees may not be able to rely on informal communications expressing a willingness to accept terms or continued operation under existing agreements as constituting acceptance of renewal offers.

The decision may also highlight the importance of utilizing contractual mechanisms such as voluntary appraisal options when challenging proposed rent increases, rather than simply protesting the increases informally. Franchisees should be aware that continued negotiations after a valid nonrenewal notice does not necessarily preserve their right to renew, and that late acceptance of renewal terms may not be effective once a valid nonrenewal notice has been issued. The decision appears to reinforce the PMPA’s dual objectives of protecting franchisees from arbitrary termination while preserving franchisors’ business flexibility to respond to changing market conditions.

COMPARISON TO OTHER JURISDICTIONS

The Central District of California’s decision seems to align closely with First Circuit precedent, particularly the C.K. Smith case, which held that failure to timely respond to a renewal offer constitutes a valid ground for nonrenewal under Section 2802(b)(3)(A) of the PMPA and that franchisors are not required to wait until the end of the franchise term to issue a notice of nonrenewal when the franchisee fails to respond within the specified timeframe. The court’s reliance on C.K. Smith may demonstrate consistency with First Circuit jurisprudence holding that failure to execute renewal documents in a timely manner can be entirely the franchisee’s fault and that there is no failure more important to the franchise relationship than a failure to enter into the very lease by which that relationship would be renewed.

The decision also may align with Ninth Circuit precedent in cases like Dass v. Tosco Corp., which held that various notices of nonrenewal and extensions do not affect the validity of an initial, valid notice of nonrenewal. The court’s analysis of good faith rent increases based on objective appraisal formulas appears to be consistent with decisions from multiple jurisdictions, including the District of New Jersey in Florham Park Chevron and the District of Connecticut in Bellmore v. Mobil Oil Corp., which found that rental formulas and appraisal procedures constitute objective evidence of good faith. The decision’s emphasis on franchisors’ flexibility to modify terms at renewal may reflect the broad interpretation of PMPA exceptions found in First Circuit cases like Veracka v. Shell Oil Company, which held that exceptions allowing for franchise termination are broad, which may suggest an intent to allow reasonable business judgments by the franchisor.

The court’s rejection of the argument that planning to convert a station to company operation demonstrates bad faith may be consistent with First Circuit precedent in C.K. Smith v. Motiva Enterprises, which held that there must be evidence of affirmative steps toward conversion prior to the nonrenewal notice for such an argument to succeed.

LAW AND ECONOMICS PERSPECTIVE

From a law and economics perspective, this decision appears to efficiently balance the competing interests of franchisors and franchisees by minimizing transaction costs while preserving property rights and contractual freedom. The court’s holding that objective rent formulas based on appraisals may constitute good faith reduces information asymmetries and provides a clear, predictable standard that both parties can rely upon when negotiating renewals. By allowing franchisors to issue nonrenewal notices when franchisees fail to timely accept renewal offers, the decision may reduce holdout problems that could otherwise allow franchisees to extract rents by delaying acceptance while continuing to operate under expired terms.

The ruling that contract extensions do not invalidate prior nonrenewal notices may prevent strategic behavior by franchisees who might otherwise use continued negotiations as a means to indefinitely extend their occupancy beyond the franchise term. The decision appears to promote efficient resource allocation by allowing franchisors to reclaim properties for alternative uses, including company operation, when franchisees are unwilling to accept market-based rent increases. The requirement that franchisees formally accept renewal offers through written signatures may reduce ambiguity and potential litigation costs by establishing clear evidence of contract formation.

However, the decision may create some inefficiency by potentially discouraging goodfaith negotiations after nonrenewal notices are issued, as franchisees may be reluctant to invest time in discussions that cannot result in renewal. The ruling’s emphasis on procedural compliance over substantive fairness may also lead to outcomes where franchisees lose valuable business relationships due to technical failures to timely respond, even when they ultimately would have accepted the renewal terms, potentially destroying relationship-specific investments and goodwill.

FINAL JUDGMENT

The court ordered the parties to meet and confer and agree on a joint proposed judgment consistent with the order, to be lodged with the court by March 26, 2026. The final judgment entered on March 27, 2026, provided that judgment was entered in favor of Circle K and against Indo-Phili on Indo-Phili’s Complaint, with Indo-Phili to take nothing by its Complaint. Judgment was also entered in favor of Circle K and against Indo-Phili on Circle K’s Counterclaim for declaratory relief under 28 U.S.C.S. § 2201. The court declared that Circle K’s Notice of Nonrenewal dated May 24, 2024 was valid and lawful under the Petroleum Marketing Practices Act, 15 U.S.C.S. §§ 2801-2841, and that Indo-Phili must vacate the property located at 3950 West Olympic Boulevard, Los Angeles, California 90019 within 60 days of entry of the judgment. The judgment resolved all claims and counterclaims in the action.

In the case BrightStar Franchising, LLC v. Foreside Mgmt. Co., No. 1:25-cv-08741, 2025 U.S. Dist. LEXIS 213306 (N.D. Ill. Oct. 29, 2025) the federal court faced the issue of determining whether Illinois or California law applied to the non-compete clauses in the franchise agreements. The agreements included an Illinois choice-of-law provision, which the franchisees challenged, arguing for the application of California law. Illinois generally honors such provisions unless the chosen state has no substantial relationship to the parties or the transaction, or if applying the chosen law would contravene a fundamental public policy of a state with a materially greater interest.

The franchisees argued that California law, specifically Section 16600 of the California Business Code, per se invalidates the restraints on competition in the franchise agreements. However, the court found that the California Supreme Court’s decision in Ixchel Pharma, LLC v. Biogen, Inc. clarified that Section 16600 does not per se invalidate such restraints in a commercial context, applying a reasonableness standard instead. The court determined that the relationship between BrightStar and the franchisees was a business relationship, not an employment relationship, and thus subject to the reasonableness standard under Ixchel. Consequently, the court concluded that the franchisees did not demonstrate a conflict of laws that would affect the outcome, and therefore, the Illinois choice-of-law provision in the franchise agreements was applied.

Regarding the preliminary injunction, the court found a strong likelihood of success on the merits for BrightStar’s breach of contract claims under Illinois law. The franchise agreements were deemed valid and enforceable, with the restrictive covenants being reasonable in scope and duration to protect BrightStar’s legitimate business interests. BrightStar demonstrated irreparable harm, as the franchisees’ actions threatened its business interests, including the use of confidential information and goodwill. The court noted that violations of non-compete clauses are a canonical form of irreparable harm, making them prime candidates for injunctive relief. The balance of harms favored BrightStar, as the franchisees’ alleged harm was self-inflicted by their failure to renew the franchise agreements and adhere to post-termination requirements. The public interest also supported enforcing valid commercial agreements, including non-compete clauses.

The court granted the preliminary injunction in part, focusing on Count I, as BrightStar had not demonstrated a strong likelihood of success on the merits for Count II related to the Mission Viejo Agreement. The scope of the injunction was limited to the remaining terms and timetable for enforcement. In summary, the court applied Illinois law based on the choice-of-law provision in the franchise agreements and granted a preliminary injunction to protect BrightStar’s business interests, finding the restrictive covenants enforceable under Illinois law.

Pro-Franchisor Elements

The court upheld the enforceability of non-compete clauses under Illinois law, which is generally more favorable to franchisors. This decision supports franchisors by protecting their business interests and preventing former franchisees from competing directly after termination.

By honoring the Illinois choice-of-law provision, the court reinforced the franchisor’s ability to select a legal framework that may be more favorable to their interests. This can provide consistency and predictability for franchisors in enforcing agreements across different jurisdictions.

The court’s decision to grant a preliminary injunction based on the potential harm to BrightStar’s business interests, including the use of confidential information and goodwill, underscores a pro-franchisor stance. It emphasizes the importance of protecting the franchisor’s brand and business model.

Anti-Franchisee Elements

The court assigned little weight to the potential harm to the franchisee, viewing it as self-inflicted. This approach may be seen as less sympathetic to the challenges faced by franchisees, particularly in transitioning away from a franchise system.

The enforcement of restrictive covenants can be seen as limiting the franchisee’s ability to operate independently post-termination. This may be viewed as anti-franchisee, as it restricts their business opportunities and mobility.

Overall Assessment

The court’s decision in this case leans towards a pro-franchisor stance. By upholding the enforceability of non-compete clauses and honoring the choice-of-law provision favoring the franchisor, the ruling supports in general the protection of franchisor interests and contractual rights, while ignoring some of the legal nuances in non-compete jurisprudence necessary to protect the parties and competition specifically. While the decision provides stability and predictability for franchisors, it may impose significant limitations on franchisees, particularly in their ability to compete and operate independently after the termination of the franchise agreement.

The case of McLaren v. UPS Store, Inc., No. 21-14424 (RMB/MJS), 2025 U.S. Dist. LEXIS 228406 (D.N.J. Nov. 20, 2025) centers on allegations that The UPS Store, Inc. (TUPSS) and certain of its New Jersey franchisees systematically overcharged consumers for notary services, in violation of New Jersey law capping notary fees. Plaintiffs Barbara McLaren and Vincent Tripicchio, representing themselves and a putative class, claimed that for over a decade, TUPSS and its franchisees charged notary fees exceeding the statutory maximum, thereby violating the New Jersey Consumer Fraud Act (CFA), the Truth-in-Consumer Contract, Warranty, and Notice Act (TCCWNA), and principles of unjust enrichment. The plaintiffs sought relief for themselves and similarly situated consumers.

The facts established that New Jersey law, specifically N.J. Stat. Ann. § 22A:4-14, set a maximum fee of $2.50 for certain notarial acts. Despite this, McLaren was charged $10 for two acknowledgments (instead of $5), and Tripicchio was charged $15 for a power of attorney notarization (including a $12.50 “Notary Convenience” fee), both at TUPSS franchise locations. The franchisees provided no additional services beyond the notarial act itself.

TUPSS operated through a network of franchisees, requiring them to execute a Franchise Agreement and adhere to an Operations Manual. The agreement mandated compliance with all applicable laws, including those governing notary fees, and required franchisees to offer notary services, maintain certain staffing levels, and use a uniform point-of-sale system. TUPSS also provided extensive training, issued directives on notary pricing, and closely monitored franchisee operations, including notary transactions and revenues. TUPSS collected royalties and marketing fees based on store revenues, including those from notary services, and sometimes directly addressed customer complaints about overcharges, even issuing refunds.

The defendants moved to dismiss, arguing that the plaintiffs failed to state viable claims, that TUPSS as franchisor was not vicariously liable for franchisee conduct due to lack of day-to-day control, and that class allegations should be struck. The court addressed each claim in turn.

On the CFA claim, the court found that the plaintiffs had pled with sufficient particularity under Rule 9(b), detailing the who, what, when, where, and how of the alleged overcharges. The court reasoned that overcharging for notary services in violation of a statute could constitute an “unconscionable commercial practice” under the CFA, even if the statute was not enacted under the CFA itself. The court analogized to cases where overcharging in violation of rent control ordinances supported CFA liability, emphasizing that notaries are public officers with duties to the public, and that the statutory cap on fees serves a public benefit. The court concluded that the plaintiffs plausibly alleged unlawful conduct, ascertainable loss, and causation, and thus denied the motion to dismiss the CFA claim.

Regarding the TCCWNA claim, the court dismissed it, finding that the plaintiffs failed to allege the required “writing” (such as a contract, notice, or sign) containing a provision that violated a clearly established legal right. Receipts for the notary transactions were deemed insufficient to meet this requirement.

On the unjust enrichment claim, the court held that, while unjust enrichment is not an independent tort in New Jersey, it may be available outside the quasi-contractual context, including where a party overcharges for services beyond what the law allows. The court found that the plaintiffs had plausibly alleged that defendants were unjustly enriched by retaining fees in excess of the statutory maximum, and that it was too early to apply the voluntary payment rule, as the complaint did not establish that the payments were truly voluntary or made without mistake of fact.

The court also addressed the issue of vicarious liability. It explained that a franchisor may be held vicariously liable for a franchisee’s conduct if the franchisor has the right to control the day-to-day operations of the franchisee, particularly as to the instrumentality at issue. The court found that TUPSS exercised more direct involvement than typical, mandating notary services, controlling staffing, marketing, training, and pricing, monitoring transactions, and collecting a share of notary revenues. TUPSS also had the contractual right to terminate franchisees for overcharging but did not do so. These facts supported a plausible inference of an agency relationship and the right to control, sufficient to survive a motion to dismiss on vicarious liability grounds.

On the civil conspiracy claim, the court found that the plaintiffs had alleged sufficient facts to infer an agreement between TUPSS and its franchisees to overcharge for notary services, noting that direct evidence of conspiracy is rarely available and circumstantial evidence may suffice. The court held that the conspiracy claim could proceed, as the underlying CFA claim was viable.

The court denied the motion to strike class allegations, finding it premature to do so at the pleading stage, as class certification issues are better addressed after discovery.

In conclusion, the court granted the motion to dismiss only as to the TCCWNA claim, allowing the CFA, unjust enrichment, and civil conspiracy claims to proceed, and denied the motion to strike class allegations.

The policies and goals underlying the court’s reasoning reflect a strong commitment to consumer protection and the enforcement of statutory limits designed to prevent abuse by those providing essential public services. By holding that overcharging for notary services can constitute an unconscionable commercial practice under the CFA, the court reinforced the principle that statutory caps serve a public benefit and that those who act as public officers must adhere strictly to the law. The court’s willingness to consider vicarious liability for franchisors who exercise significant control over franchisee operations signals that franchisors cannot insulate themselves from liability simply by structuring their businesses as franchises, especially when they direct, monitor, and profit from the very conduct at issue.

This decision is potentially unfavorable for both franchisees and franchisors. For franchisees, it underscores the risk of liability for statutory violations, even when acting under the direction or with the knowledge of their franchisor. For franchisors, the decision demonstrates that significant operational control, especially over pricing and compliance with law, may expose them to vicarious liability for franchisee conduct or misconduct. The court’s approach may encourage franchisors to exercise greater oversight to ensure compliance with applicable laws, but it also increases franchsiors’ potential exposure to class action litigation and damages arising from the acts of their franchisees. While this enhances consumer protection, it may increase compliance costs and legal risks for franchise systems.

Massage Heights Franchising, LLC v. Hagman (2025 Tex. LEXIS 359):

• Negligence and Duty of Care:

The central legal issue was whether Massage Heights Franchising, LLC (the franchisor) owed a duty of care to Hagman, a customer who was sexually assaulted by a massage therapist employed by MH Alden Bridge, a franchisee. The court examined whether the franchisor had sufficient control—either contractually or through actual exercise—over the hiring process of the franchisee to give rise to such a duty.

• Control Over Franchisee’s Operations:

The court analyzed whether the franchisor’s franchise agreement and operations manual gave it the right or actual control over the specific activity (hiring of employees) that led to the injury. It was determined that the franchisee was designated as an independent contractor with sole responsibility for employment decisions, including hiring, firing, training, and supervision. The franchisor’s role was limited to providing guidance and advice, which was deemed insufficient to establish a duty of care.

• Negligent Undertaking:

The issue of whether Massage Heights undertook a duty to protect customers by providing training and operational standards was considered. The court found no evidence that any failure by the franchisor to train or investigate the franchisee’s operations proximately caused the injury, nor that the franchisor undertook to make the premises safe for customers.

• Vicarious Liability and Proximate Cause:

The court addressed whether the franchisor could be held vicariously liable for the acts of the franchisee or its employees. It was held that, absent control over the injury-causing conduct, such liability could not be imposed. The only plausible proximate cause of the assault was the franchisee’s decision to hire the therapist, which the franchisor did not control.

• Existing Duty Rules and Precedent:

The court applied established Texas law, holding that a general contractor or franchisor does not owe a duty to ensure an independent contractor safely performs work unless there is control over the specific activity that caused the injury. The court distinguished this case from prior precedent (e.g.,  Read v. Scott Fetzer Co., 990 S.W.2d 732), where the franchisor retained control over the injury-causing activity.

• Procedural Outcome:

The Supreme Court of Texas reversed the lower court’s judgment in part, holding that Massage Heights did not owe a duty of care to Hagman regarding the hiring of the massage therapist and that there was no legally sufficient evidence to support liability under a negligent undertaking theory. Judgment was rendered that Hagman take nothing from Massage Heights on her claims.

Letip World Franchise LLC v. Long Island Soc. Media Grp. LLC_2025 U.S. Dist. LEXIS 95666 (July 2025)

LeTip World Franchise LLC (“LeTip Franchise”), a business leads networking organization with over 250 franchises, filed a lawsuit against Long Island Social Media Group LLC (“LISMG”), BxB Professionals LLC, Clifford Pfleger, Heather Pfleger, and Saranto Calamas. The dispute centered around allegations that LISMG, operated by Clifford Pfleger and Saranto Calamas, breached their franchise agreement with LeTip Franchise by modifying the franchise’s logo and improperly competing through BxB Professionals LLC.

LeTip Franchise, based in Arizona, entered into a franchise agreement with LISMG on April 10, 2020, granting them the right to operate a LeTip franchise in Suffolk County, New York, for five years. The agreement prohibited LISMG and its operators from running a competing business in the same area during the agreement’s term and for two years after its termination. The agreement also allowed the use of LeTip trademarks and logos but prohibited any modifications to them.

In 2021, Clifford Pfleger modified the LeTip logo by adding the word “Just” above it on his boat, claiming he had permission from LeTip International’s CFO, John Pokorny, via a text message. The boat was drydocked until April 2023, when Pfleger moved it to a private marina and posted a picture on social media. Upon seeing the modified logo, LeTip’s owner, Summer Middleton, and an officer, Paul Della Valle, requested its removal, both in person and through a letter from LeTip’s trademark counsel, threatening termination of the franchise agreement.

Pfleger claimed Middleton orally gave him 30 business days to remove the logo, which she disputed. Although Pfleger began removing the logo, he did not complete the task until after receiving a termination notice on June 12, 2023, which cited the failure to remove the logo by June 2 as the reason for termination. The notice stated that the altered logo could harm LeTip Franchise’s reputation, allowing termination without a cure period.

In December 2023 or January 2024, Pfleger announced a new role as Regional Director at BxB, a networking organization with the same address as LISMG and Calamas’s CPA license. Pfleger planned a launch party for BxB at the same venue used by LeTip’s Suffolk County chapters, prompting LeTip Franchise to seek a temporary restraining order to prevent the operation of BxB. The court granted the order, prohibiting the defendants from engaging in any competitive business activities.

On December 13, 2024, LISMG, Pfleger, and Calamas filed counterclaims against LeTip Franchise, LeTip International, Middleton, and Della Valle, alleging breach of the franchise agreement, wrongful termination, and defamation. They claimed the LeTip parties created a competing chapter and defamed them by labeling the modified logo as “sexually suggestive” and “vulgar.” The counterclaimants sought injunctive relief to prevent enforcement of the non-compete clause.

The court dismissed the breach of contract and defamation claims with leave to amend, and the claim for injunctive relief was dismissed without leave to amend. The court ordered that any amended counterclaims be filed by June 3, 2025.

In TKG Assocs., LLC v. MBG Monmouth, LLC, No. 24A-PL-1270, 2025 Ind. App. LEXIS 121 (Ct. App. Apr. 16, 2025), TKG Associates, LLC (“Buyer”) appealed the trial court’s judgment in favor of MBG Monmouth, LLC and other related entities (“Seller”) regarding a dispute over the purchase of four Sky Zone franchises. The disagreement arose during the due diligence period concerning the accuracy of financial information provided by Seller. The trial court ruled in favor of Seller, allowing them to retain Buyer’s deposit, but the appellate court found this judgment to be clearly erroneous due to Seller’s material breach of the agreement.

Facts

Buyer, operated by Ajay Keshap and his family, and Seller, consisting of several LLCs operated by Barbara and Mark Glazer, entered into an Asset Purchase Agreement on January 19, 2022, for $6,500,000. The purchase price was based on Seller’s EBITDA, which was later found to be inflated due to undisclosed rent abatements and deferments. Buyer discovered these discrepancies during a site visit from February 22 to February 24, 2022.

Due Diligence and Breach

The Agreement required Seller to provide all due diligence materials within ten days of execution, but Seller failed to disclose certain lease amendments and rent abatements until February 28, 2022. Buyer did not receive the required thirty days to review these documents, which constituted a material breach by Seller. Despite this, the trial court initially found that Buyer breached the Agreement by not providing written notice of conditions satisfied or waived by March 5, 2022.

Court’s Decision

The appellate court determined that Seller’s failure to provide accurate financial data and due diligence materials constituted a material breach, which precluded Seller from enforcing the contract against Buyer. The court reversed the trial court’s judgment, ruling that Buyer was entitled to judgment on its breach of contract counterclaim. The case was remanded for a hearing to determine Buyer’s damages and attorney fees.

Conclusion

The appellate court concluded that Seller was the first to materially breach the Agreement, and thus, the trial court’s findings were clearly erroneous. The judgment for Seller was vacated, and the case was remanded for further proceedings consistent with the appellate court’s opinion.

Little Caesar Enterprises, Inc. v. S&S Pizza Enterprises, Inc., 2024 U.S. Dist. LEXIS 89645 (E.D. Mich. May 17, 2024)

Prior ruling challenged by the Franchisee Defendants:

In the original Judgment, the Court:

• granted Plaintiffs’ request for declaratory relief that S & S committed material breaches of the franchise agreements between the parties, giving Plaintiffs good cause to terminate the agreements;
• ordered Defendants and anyone acting in active concert or participation with them to immediately and fully comply with the post-termination obligations in the franchise agreements;
• entered Judgment in favor of Plaintiffs and against Defendants S & S, Claeys, and Matthews, jointly and severally, in the amount of $128,818.56, plus interest, representing the liquidated damages due under the franchise agreements.

After the ruling against them, the Franchisee Defendants challenged the initial ruling arguing the following:

Defendants, through counsel, now seek to alter or amend the judgment pursuant to Federal Rule of Civil Procedure 59(e) or request relief from judgment pursuant to Federal Rule of Civil Procedure 60(b)(1) or (2). (ECF No. 37.) In support of their motion, Defendants assert that Claeys and Matthews discovered previously misplaced documents during the past several weeks suggesting that Matthews was released and discharged from any obligation as a personal guarantor. Defendants attach these three documents to their motion: two franchise agreements and a document terminating a franchise located in Troy, Michigan. (ECF Nos. 37-2, 37-3, and 37-4.) They attach no evidence, however, supporting their assertion that these documents were only recently discovered.

Defendants further state that “Claeys has suffered from various physical and mental health setbacks over the past several years which made it difficult or impossible to present defenses to Plaintiffs’ claims for liquidated damages.” (Id. at PageID. 392.) These alleged setbacks include anxiety and depression, failed suicide attempts, mild restrictive lung disease, a fall from a bicycle due to dizziness, trace leakage of her mitral, tricuspid, [*5]  and pulmonic valves, scoliosis, osteoarthritis, white matter changes to her brain, complications from physical therapy causing dizziness, vertigo, and ears ringing, adult onset inattentive ADHD, and sleep apnea. (Id. at 398.) Defendants offer no documentation supporting Claeys’ asserted mental and physical issues or their assertion that these conditions interfered with their ability to defend this action. Defendants indicate that Claeys’ affidavit will be forthcoming (see ECF No. 37 at PageID. 398 n.1); however, a month after their motion was filed, no such affidavit has been presented.

1. Parties InvolvedA. Plaintiff: Little Caesar Enterprises, Inc. B. Defendants: S&S Pizza Enterprises, Inc., Sheryl Claeys, and Suzanne L. Matthews
2. JurisdictionA. United States District Court for the Eastern District of Michigan, Southern Division B. Case Number: 21-cv-11776

III. Franchisees’ Alleged Conduct Defendants, including S&S Pizza Enterprises, were accused of the following misconduct:

1. Breach of the franchise agreements: The defendants were contractually obligated under agreements with Little Caesar Enterprises and were accused of not fulfilling these obligations.
2. Trademark infringement: The defendants allegedly used Little Caesar Enterprises’ trademark unlawfully.
3. Unfair competition: The conduct of the defendants was alleged to be unlawful or deceptive, negatively affecting Little Caesar Enterprises’ competitive advantage.
4. Trade dress infringement: The defendants were accused of using product design or packaging that was too similar to that of Little Caesar Enterprises, causing confusion among consumers as to the source of the products.
5. BackgroundA. Involvement of two Little Caesar franchise locations in Michigan B. Allegations by the plaintiff include: 1. Breach of contract 2. Trademark infringement 3. Unfair competition 4. Trade dress infringement
6. Procedural HistoryA. Defendants’ failure to respond to the motion for partial summary judgment B. Court’s grant of summary judgment due to no genuine issue of material fact C. Awarding of liquidated damages, costs, and attorneys’ fees to plaintiffs
7. Plaintiff’s MotionA. To remove all claims but breach of contract from the complaint B. Granted by the court

VII. Court Judgment A. In favor of the plaintiffs, with post-termination obligations and damages imposed on the defendants

VIII. Defendants’ Motion for Alteration or Amendment of Judgment

1. Based on “newly discovered” evidence suggesting release from personal guarantor obligations
2. Setbacks including mental and physical health issues claimed by the defendants
3. Evidence and Standard of LawA. Lack of “newly discovered” evidence as per court’s finding B. Applicable standards for Rule 59(e) (alteration/amendment due to error, new evidence, change in law, or to prevent injustice) C. Rule 60(b) allows for relief from a judgment for mistake or new evidence, which was not adequately demonstrated
4. Court’s Ruling
5. Defendants’ documents do not suggest release from guarantees or contracts
6. Assertions regarding Claeys’ health challenges are unsupported by evidence
7. Defendants fail to demonstrate grounds for relief
8. The motion to amend or correct the judgment is denied
9. Conclusion
10. Defendants do not meet the legal threshold for post-judgment relief
11. The court maintains the original judgment in favor of Little Caesar Enterprises, Inc.