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.

LeTip World Franchise LLC v. Long Island Soc. Media Grp. LLC, 2024 U.S. Dist. LEXIS 53489 (D.Ariz., March 26, 2024), involved a legal dispute where LeTip World Franchise LLC (LeTip) accused Long Island Social Media Group LLC and others (LISMG) of violating terms of a franchise agreement. The agreement allowed LISMG to operate a LeTip business and use its trademarks in a designated area of Suffolk County, New York, subject to certain operational standards, advertising approvals, and restrictions on the use of LeTip Marks.

Key points from the summary include:

• Alleged Contract Breaches:The defendants are accused of operational failures, improper use of intellectual property, violating advertising approvals, and running a competing business post-termination, contradicting the non-compete clause.
• Preliminary Injunction:LeTip’s motion for a preliminary injunction was granted, restraining the defendants from conducting competing business activities in Suffolk County, in order to prevent loss of business and damage to goodwill pending the trial’s outcome.
• Legal Considerations:The summary highlights the court’s consideration of legal standards for a preliminary injunction, with emphasis on the four elements like the likelihood of success, irreparable harm, balance of hardships, and public interest.
• Defendants’ Counterarguments:The defendants contended that LeTip first breached the agreement by transferring members out of their chapter and that they had permission to modify the LeTip logo. The court, however, found these arguments unconvincing due to inadequate evidence or misinterpretation of permissions involved.
• Enforceability of Contractual Provisions:The court examined the reasonability and enforceability of post-termination restrictive covenants related to time and geographic limitations, ultimately siding with the plaintiff on their reasonableness.

• Legal Arguments and Court Findings:
  • The restrictive covenants are found to be reasonable and legally enforceable.
  • LeTip demonstrated a strong likelihood of success on the merits of their breach of contract and tortious interference claims.
  • LeTip likely to suffer irreparable harm in the absence of an injunction, as it could lose customers and goodwill.
  • The balance of hardships favors LeTip since non-compliance by LISMG mainly leads to loss of unlawfully gained revenue, whereas LeTip could suffer harm to reputation and business stability.
  • The public interest is served better by upholding the Franchise Agreement’s terms as negotiated by the parties.
• Defendants’ Contentions:
  • LISMG claims LeTip first breached the agreement by taking members from LISMG’s chapter, which the court refutes due to insufficient evidence.
  • LISMG asserts they had permission to modify the LeTip logo, a claim dismissed by the court due to lack of proper authorization.
• Contract Terms and Violations:
  • Non-compete clauses prohibit engagement in any competitive business during the agreement and for two years after termination.
  • Sections of the franchise agreement detail the ownership and permissible use of LeTip’s intellectual property.
• Next Actions:
• LeTip’s motion for a preliminary injunction has been granted, which forbids the defendants from engaging in competitive activities within the restricted area and preventing any diversion of LeTip’s business.

Overall, LeTip presented a strong case for contract breaches around trademark misuse and competitive actions forbidden by the non-compete agreement. The decision to grant a preliminary injunction reflects the court’s agreement with LeTip’s argument that their business would suffer irreparable harm without such an order and their likelihood to succeed on the merits of the case.

Tim Hortons Franchisee Association Hits Brick Wall on Case Against Franchisor

In a scathing rejection of a complex case filed by an international franchise association, the US District Court for the Southern District of Florida refused to recognize that the franchisee association of Tim Hortons members had associational standing to sue for myriad alleged unfair acts and practices including supply price-gouging, franchisee equity-stripping, and misuse of the franchise advertising fund; similarly, the court rejected the viability of those same claims on substantive grounds as well.

Great White N. Franchisee Ass’n-USA v. Tim Hortons USA, Inc., No. 20-cv-20878, 2020 U.S. Dist. LEXIS 239160 (S.D. Fla. Dec. 18, 2020)

Excerpts of the Case:

Franchisee Counsel:  

For Great White North Franchisee Association-USA, Inc., Plaintiff: Natalie Marlena Restivo, LEAD ATTORNEY, Adam Gruder Wasch, Wasch Raines, LLP, Boca Raton, FL; Gerald A. Marks, PRO HAC VICE, Marks & Klein, LLP, Red Bank, NJ.

Franchisor Counsel:

For Tim Hortons USA, Inc., Defendant: Michael D Joblove, LEAD ATTORNEY, Aaron Seth Blynn, Genovese Joblove & Battista, Miami, FL; Adam Acosta, John Mark Gidley, PRO HAC VICE, White & Case LLP, Washington, DC.
For Jose E. Cil, Defendant: Aaron Seth Blynn, Genovese Joblove & Battista, Miami, FL.

Judges: BETH BLOOM, UNITED STATES DISTRICT JUDGE.
Opinion by: BETH BLOOM
Opinion

1. BACKGROUND

This case involves an allegedly illegal and predatory business scheme implemented by THUSA’s holding company to convert the Tim Hortons franchise system into a supply chain business resulting in large profits at the expense of Plaintiff’s franchisee members.

Tim Hortons restaurants are quick service restaurants with a convenience store element that includes, coffee, tea, espresso-based hot and cold drinks, baked goods, and items typically found at a convenience store. See Second Amended Complaint (“SAC”), ECF No. [62] ¶ 12. Plaintiff is a not-for-profit franchisee association that was formed as a direct result of its members’ common grievances with respect to certain practices and operations of Defendants. Id. ¶¶ 8-9. Plaintiff was organized and exists for the purpose of protecting and preserving the rights of Tim Hortons U.S. franchisees and was created to serve as an official voice of the Tim Hortons U.S. franchisee community. Id. ¶ 10. As stated in the Association’s [*3]  Articles of Incorporation, the Association’s purpose is “[t]o provide a common interest organization for Tim Hortons franchisees, creating a forum for discussion, education and advocacy for franchise owners.” Id. ¶ 74.

In the SAC, Plaintiff alleges that non-party Restaurant Brand International, Inc. (“RBI”), THUSA’s holding company, was formed upon purchasing the Tim Hortons franchise system in 2014. Id. ¶¶ 1-2. In an apparent attempt to off-set the brand growth in the U.S. and stagnant sales in both the U.S. and Canada, RBI commenced its predatory strategy to convert the Tim Hortons franchise system into a supply chain business disguised as a franchise system and reaped outrageous profits through its supply chain. Id. ¶ 3 This was done by price-gouging U.S. franchisees on all essential goods necessary to operate their Tim Hortons restaurants. Id. Cil operated and managed RBI, THUSA, and its affiliates in the implementation of the business practices at issue in this case and had substantial operational control over THUSA operations. Id. ¶¶ 54, 84.

Plaintiff alleges that RBI set up a vertically integrated supply chain for its Tim Hortons business, through which RBI manufactures, warehouses, [*4]  and distributes most of the food and restaurant supplies to Plaintiff’s franchisee members. Id. ¶ 25. For example, TDL Group Corp. (“TDL”), THUSA’s Canadian affiliate and primary supplier under RBI, imports and sells certain essentials (“Selected Goods”) for everyday operations to THUSA, which in turn either directly or through a distributor re-sells those items to a U.S. franchisee for a profit. Id. ¶¶ 31-32, 34. Since RBI’s takeover, Tim Hortons franchisees have been forced to purchase more items from THUSA, or a newly designated sole supplier, at substantial mark-up from market rate. Id. ¶ 37. THUSA engages in a similar practice with respect to equipment, which results in sales of equipment to U.S. franchisees at double mark-up. Id. ¶ 39. Similarly, THD, the affiliate utilized by RBI to serve as master coffee supplier to THUSA franchisees, sells coffee to THUSA franchisees for approximately 50% more for the same quality coffee than close competitors. Id. ¶¶ 46, 50.

Plaintiff alleges that RBI has implemented an “equity stripping” strategy that occurs upon franchise renewal, in that THUSA’s franchise agreements contain a right of first refusal requiring existing franchisees to offer [*5]  their store(s) to THUSA for the five-year declining depreciated value of furniture, fixtures, and equipment. Id. ¶ 57.

Plaintiff further alleges that all THUSA franchisees are required to contribute a portion of monthly sales into an “Advertising Fund” referred to in the franchise agreements. Id. ¶ 60. The contributions to the Advertising Fund and any earnings are to be used by THUSA exclusively for costs of maintaining, administering, directing, conducting and developing advertising, marketing, public relations, and/or promotional programs and materials, and any other activities and related investments and/or initiatives. Id. ¶ 62. Since acquisition by RBI, the Advertising Fund has been used in ways not historically or contractually permitted. Id. ¶ 63. For example, Plaintiff alleges that monies from the Advertising Fund were used to improperly pay employees, hire RBI analysts to analyze operational data points, for costs of THUSA franchisee training, for research and development by RBI, for customer service functions and evaluating THUSA franchisees, to private label products and for grocery store listings to allow RBI to sell through non-franchised channels and compete directly with [*6]  THUSA franchisees, and for expenses related to pre-loaded debit cards known as “TimCards.” Id. ¶ 69.

As a result, Plaintiff asserts two claims for declaratory and injunctive relief based upon violations of Florida’s Deceptive and Unfair Trade Practices Act (“FDUTPA”), Florida Statutes §§ 501.201, et seq. In Count 1, Plaintiff asserts per se violations of FDUTPA premised upon violations of the FTC Franchise Rule regarding certain disclosures or omissions in the franchise documents, and in Count 2, Plaintiff’s FDUTPA claim is premised upon THUSA’s and Cil’s alleged predatory business schemes. THUSA and Cil request dismissal with prejudice of the SAC, claiming that Plaintiff lacks standing and fails to state a claim pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure.

1. Standing

One element of the case-or-controversy requirement under Article III of the United States Constitution is that plaintiffs “must establish that they have standing to sue.” Raines v. Byrd, 521 U.S. 811, 818, 117 S. Ct. 2312, 138 L. Ed. 2d 849 (1997). It is a threshold question of “whether the litigant is entitled to have the court decide the merits of the dispute or of particular issues.” Sims v. Fla. Dep’t of Highway Safety & Motor Vehicles, 862 F.2d 1449, 1458 (11th Cir. 1989) (en banc). “‘The law of Article III standing . . . serves to prevent the judicial process from being used to usurp the powers of the political branches,’ and confines the federal courts to a properly judicial [*7]  role.” Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1547, 194 L. Ed. 2d 635 (2016) (citing Clapper v. Amnesty Int’l USA, 568 U.S. 398, 408, 133 S. Ct. 1138, 185 L. Ed. 2d 264 (2013); Warth v. Seldin, 422 U.S. 490, 498, 95 S. Ct. 2197, 45 L. Ed. 2d 343 (1975)). Further, “standing requirements ‘are not mere pleading requirements but rather [are] an indispensable part of the plaintiff’s case.'” Church v. City of Huntsville, 30 F.3d 1332, 1336 (11th Cir. 1994) (quoting Lujan v. Defs. of Wildlife, 504 U.S. 555, 561, 112 S. Ct. 2130, 119 L. Ed. 2d 351 (1992)). “Indeed, standing is a threshold question that must be explored at the outset of any case.” Corbett v. Transp. Sec. Admin., 930 F.3d 1225, 1232 (11th Cir. 2019) (citing Bochese v. Town of Ponce Inlet, 405 F.3d 964, 974 (11th Cir. 2005)), cert. denied, 140 S. Ct. 900, 205 L. Ed. 2d 467 (2020). “In its absence, ‘a court is not free to opine in an advisory capacity about the merits of a plaintiff’s claim.'” Id. (quoting Bochese, 405 F.3d at 974). “In fact, standing is ‘perhaps the most important jurisdictional’ requirement, and without it, [federal courts] have no power to judge the merits.” Id. (footnote omitted) (quoting Bochese, 405 F.3d at 974).

[A]t an irreducible minimum, Art. III requires the party who invokes the court’s authority to “show that he personally has suffered some actual or threatened injury as a result of the putatively illegal conduct of the defendant,” and that the injury “fairly can be traced to the challenged action” and “is likely to be redressed by a favorable decision.”

Valley Forge Christian Coll. v. Ams. United for Separation of Church & State, 454 U.S. 464, 472, 102 S. Ct. 752, 70 L. Ed. 2d 700 (1982) (quoting Gladstone, Realtors v. Vill. of Bellwood, 441 U.S. 91, 99, 99 S. Ct. 1601, 60 L. Ed. 2d 66 (1979)). In other words, to establish standing, a plaintiff must allege that: (1) it “suffered an injury in fact that is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical;” (2) “the injury is fairly traceable [*8]  to conduct of the defendant;” and (3) “it is likely, not just merely speculative, that the injury will be redressed by a favorable decision.” Kelly v. Harris, 331 F.3d 817, 819-20 (11th Cir. 2003).

“The party invoking federal jurisdiction bears the burden of proving standing.” Fla. Pub. Int. Rsch. Grp. Citizen Lobby, Inc. v. E.P.A., 386 F.3d 1070, 1083 (11th Cir. 2004) (quoting Bischoff v. Osceola Cnty., 222 F.3d 874, 878 (11th Cir. 2000)). “Because standing is jurisdictional, a dismissal for lack of standing has the same effect as a dismissal for lack of subject matter jurisdiction under Fed. R. Civ. P. 12(b)(1).” Cone Corp. v. Fla. Dep’t of Transp., 921 F.2d 1190, 1203 n.42 (11th Cir.1991). “If at any point in the litigation the plaintiff ceases to meet all three requirements for constitutional standing, the case no longer presents a live case or controversy, and the federal court must dismiss the case for lack of subject matter jurisdiction.” Fla. Wildlife Fed’n, Inc. v. S. Fla. Water Mgmt. Dist., 647 F.3d 1296, 1302 (11th Cir. 2011) (citing CAMP Legal Def. Fund, Inc. v. City of Atlanta, 451 F.3d 1257, 1277 (11th Cir. 2006)). “In assessing the propriety of a motion for dismissal under Fed. R. Civ. P. 12(b)(1), a district court is not limited to an inquiry into undisputed facts; it may hear conflicting evidence and decide for itself the factual issues that determine jurisdiction.” Colonial Pipeline Co. v. Collins, 921 F.2d 1237, 1243 (11th Cir. 1991). “When a defendant properly challenges subject matter jurisdiction under Rule 12(b)(1) the district court is free to independently weigh facts, and ‘may proceed as it never could under Rule 12(b)(6) or Fed. R. Civ. P. 56.'” Turcios v. Delicias Hispanas Corp., 275 F. App’x 879, 880 (11th Cir. 2008) (quoting Morrison v. Amway Corp., 323 F.3d 920, 925 (11th Cir. 2003)).

III. DISCUSSION

In the Motions, Defendants mount a facial attack on the Court’s subject matter jurisdiction, arguing that Plaintiff lacks associational standing to assert claims on behalf of its members, a group of THUSA franchisees.

1. Associational Standing

“[A]n association has standing to bring suit on behalf of its members when: (a) its members would otherwise have standing to sue in their own right; (b) the interests it seeks to protect are germane to the organization’s purpose; and (c) neither the claim asserted nor the relief requested requires the participation of individual members in the lawsuit.” Hunt v. Wash. State Apple Advert. Comm’n, 432 U.S. 333, 343, 97 S. Ct. 2434, 53 L. Ed. 2d 383 (1977); see also Arcia v. Fla. Sec’y of State, 772 F.3d 1335, 1342 (11th Cir. 2014). “The possibility of such representational standing, however, does not eliminate or attenuate the constitutional requirement of a case or controversy.” Warth, 422 U.S. at 511.

In the SAC, Plaintiff seeks injunctive and declaratory relief under FDUTPA on behalf of its members for Count 1, asserting [*11]  violations of the FTC Franchise Rule; and Count 2, asserting violations of FDUTPA based upon Defendants’ specific deceptive practices. See ECF No. [62], Prayer for Relief ¶¶ 1-2.

1. Count 1 — per se violations of FDUTPA

Defendants argue that Plaintiff lacks standing because (1) the Association’s members do not have standing to seek declaratory and injunctive relief for violations of the FTC Franchise Rule arising from alleged misrepresentations in the current Franchise Disclosure Document (“FDD”), which they will not be provided in the future; (2) the interests sought to be protected in Count 1 are not germane to the Association’s purpose; and (3) the participation of the Association’s individual members will be required.² The Court considers each argument in turn.

According to Defendants, Plaintiff must establish that its members would have standing to maintain the action and Plaintiff’s conclusory allegations are insufficient. In the SAC, Plaintiff alleges in that “[a]t least one of its members (indeed, all its members) will suffer an injury-in-fact by the real and immediate, threatened harm from Defendants’ conduct.” ECF No. [67] at 8 (quoting ECF No. [62] ¶ 72). Defendants argue further [*12]  that because Plaintiff is seeking injunctive relief, it must also satisfy the requirement of showing a threat of future harm, and Plaintiff cannot because its members are existing franchisees who will not be provided a Tim Hortons FDD in the future. In response, Plaintiff argues that it need not allege future harm of its members, and even if required to, the allegations in the SAC are sufficient. Plaintiff argues further THUSA deliberately misconstrues the claim in Count 1. Thus, the Court considers whether Plaintiff’s members have standing to assert Count 1.

1. Plaintiff’s members do not have standing to assert Count 1

In order to establish Article III standing, an individual member must allege that it suffered an injury in fact. Spokeo, 136 S. Ct. at 1547. “Where the plaintiff seeks declaratory or injunctive relief, as opposed to damages for injuries already suffered, . . . the injury-in-fact requirement insists that a plaintiff ‘allege facts from which it appears there is a substantial likelihood that he will suffer injury in the future.'” Strickland v. Alexander, 772 F.3d 876, 883 (11th Cir. 2014) (quoting Malowney v. Fed. Collection Deposit Grp., 193 F.3d 1342, 1346 (11th Cir. 1999)).

The FDUTPA provides that “anyone aggrieved by a violation of this part may bring an action to obtain a declaratory judgment that an act or practice violates this [*13]  part and to enjoin a person who has violated, is violating, or is otherwise likely to violate this part.” Fla. Stat. § 501.211(1). As is evident from the parties’ briefing, courts in this district appear to be split on whether a plaintiff has standing to seek declaratory and injunctive relief under FDUTPA if the plaintiff does not demonstrate a threat of future injury. Compare Gastaldi v. Sunvest Cmtys. USA, LLC, 637 F. Supp. 2d 1045, 1057 (S.D. Fla. 2009) and Dye v. Bodacious Food Co., No. 14-80627-CIV, 2014 U.S. Dist. LEXIS 180826, 2014 WL 12469954, at *3 (S.D. Fla. Sept. 9, 2014) with Dapeer v. Neutrogena Corp., 95 F. Supp. 3d 1366, 1373 (S.D. Fla. 2015) and Seidman v. Snack Factory, LLC, No. 14-62547-CIV, 2015 U.S. Dist. LEXIS 38475, 2015 WL 1411878, at *5 (S.D. Fla. Mar. 26, 2015).

In Gastaldi and Dye, the courts concluded that based upon FDUTPA’s broad wording, plaintiffs need not show an ongoing practice or irreparable harm in order to establish standing for injunctive and declaratory relief under FDUTPA. Gastaldi, 637 F. Supp. 2d at 1057; Dye, 2014 U.S. Dist. LEXIS 180826, 2014 WL 12469954, at *3-4. However, the court in Dye did not specifically address Article III standing, and the court’s discussion in Galstaldi demonstrates that standing under FDUTPA is a separate inquiry from Article III standing. See 637 F. Supp. 2d at 1057-58 (“Any person aggrieved by a violation of the FDUTPA may seek declaratory and/or injunctive relief under the statute. . . . Plaintiffs also satisfy the requirements for threshold standing under Article III.”). This distinction is what the court in Dapeer explicitly recognized and emphasized.

“Although [*14]  the FDUTPA allows a plaintiff to pursue injunctive relief even where the individual plaintiff will not benefit from an injunction, it cannot supplant Constitutional standing requirements. Article III of the Constitution requires that a plaintiff seeking injunctive relief allege a threat of future harm.” Dapeer, 95 F. Supp. 3d at 1373; see also Ohio State Troopers Assoc, Inc. v. Point Blank Enterps., Inc., 347 F. Supp. 3d 1207, 1227 (S.D. Fla. 2018) (where individual plaintiffs failed to show a sufficient likelihood of being affected in the future, association lacked standing). Therefore, Plaintiff’s reliance on language from Gastaldi regarding the broadness of the FDUTPA is misplaced. Plaintiff’s allegations must not only satisfy FDUTPA standing requirements but must also satisfy the threshold requirements for standing under Article III. Upon review, the Court agrees with Defendants that, notwithstanding FDUTPA’s broad application, Plaintiff must allege a plausible threat of future harm based upon the alleged disclosure violations in Count 1.

Defendants argue that because Plaintiff’s members are existing franchisees and will not be provided franchise disclosure documents in the future, none of Plaintiff’s members has standing to seek an injunction to prevent future violations of the FTC Franchise Rule. Plaintiff contends that a violation of the [*15]  FTC Franchise Rule alleges a plausible per se violation of FDUTPA, and that Defendants deliberately misconstrue the claim asserted in Count 1. Thus, the Court looks to the allegations in the SAC.

In Count 1, Plaintiff alleges that its members’ injuries arising from Defendants’ non-disclosure or misrepresentations consist of excess mark-ups for Selected Goods, loss of equity from Defendant’s right of first refusal, and diminished benefits from Defendants’ misuse of monies in the Advertising Fund. ECF No. [62] ¶ 89. Plaintiff alleges further that, as a result of the non-disclosures and misrepresentations, “the Association’s franchisee members have and will continue to sustain damages and irreparable harm to their businesses.” Id. ¶ 90. However, as Plaintiff itself points out, the claim in Count 1 is premised upon per se FDUTPA violations arising from Defendants’ alleged violations of the FTC Franchise Rule, which requires that certain information be provided in a FDD. See 16 C.F.R. § 436.5. Therefore, the relevant injurious act in this case is the failure to comply with the FTC Franchise Rule by making the requisite disclosures or accurate representations, not the three alleged deceptive and unfair practices [*16]  that form the basis of Count 2. As such, Plaintiff’s members’ injuries in Count 1 stem from Defendants’ past non-compliance with disclosure requirements, not any subsequent actions.

Plaintiff alleges that Defendants made several false disclosures and omissions in the FDD, and therefore has stated a claim for per se violations of FDUTPA. However, while the FTC Franchise Rule requires a franchisor to provide a prospective franchisee with a current FDD, see 16 C.F.R. § 436.2, there is no ongoing disclosure requirement or requirement that a franchisor provide FDDs to existing franchisees. As alleged in this case, Plaintiff is a group of the majority of the franchisees in the Tim Hortons restaurant chain in the United States. ECF No. [62] ¶ 1 (emphasis added). Thus, it is not a misreading of the allegations in the SAC to conclude that if Plaintiff’s members are already franchisees, as opposed to prospective franchisees, they have already received FDDs. There is no allegation in the SAC to the contrary, nor does Plaintiff argue otherwise. Rather, Plaintiff alleges that the Association’s express purpose is “[t]o provide a common interest organization for Tim Hortons franchisees, creating a forum for discussion, [*17]  education and advocacy for franchise owners.” Id. ¶ 74 (emphasis added). Taking these allegations as true, Plaintiff’s members are all existing franchisees, and therefore, they will not be provided FDDs again in the future. As such, Plaintiff’s allegations of ongoing injury to its members as a result of Defendants’ per se violations of FDUTPA is a conclusion that is simply not supported by the facts in this case.

Defendants contend that because Plaintiff’s members are existing franchisees who will not receive FDDs, the injury-in-fact—the failure to disclose in compliance with the FTC Franchise Rule—is neither sufficiently actual or imminent to satisfy Article III’s requirements with respect to Plaintiff’s members. The Court agrees. See Nat’l Parks Conservation Ass’n v. Norton, 324 F.3d 1229, 1241 (11th Cir. 2003) (“where a plaintiff seeks prospective injunctive relief, it must demonstrate a ‘real and immediate threat’ of future injury in order to satisfy the ‘injury in fact’ requirement”) (citing City of Los Angeles v. Lyons, 461 U.S. 95, 103-04, 103 S. Ct. 1660, 75 L. Ed. 2d 675 (1983) and Wooden v. Bd. of Regents, 247 F.3d 1262, 1283-84 (11th Cir. 2001)). Because Plaintiff cannot plausible allege that its members likely suffer a real and immediate threat from Defendants’ future non-compliance with the FTC Franchise Rule, Plaintiff’s members lack Article III standing to seek the relief requested. As a result, Plaintiff [*18]  lacks standing to seek either injunctive or declaratory relief as to Count 1.

1. The interests sought to be protected in Count 1 are not germane to Plaintiff’s purpose

Defendants argue next that the interests sought to be protected in Count 1 of the SAC are not germane to the Association’s purpose and, therefore, Plaintiff cannot satisfy the second prong of associational standing. As alleged in the SAC, Plaintiff’s purpose is “[t]o provide a common interest organization for Tim Hortons franchisees, creating a forum for discussion, education and advocacy for franchise owners.” ECF No. [62] ¶ 74. Thus, Defendant argues that because the Association is for the benefit of existing franchisees, as opposed to the general public or prospective franchisees, the interests sought to be protected in Count 1 are not germane to the Association’s purpose. The Court agrees. Since Plaintiff’s members fail to show an injury in fact with respect to Count 1 because they will not receive FDDs in the future, the interests sought to be protected in Count 1 are not the interests of current franchise owners. As a result, Plaintiff fails to satisfy the second prong of associational standing with respect to Count [*19]  1.

1. Participation of individual members

Because the Court finds that Plaintiff fails to satisfy the first two prongs for associational standing with respect to Count 1, alleging per se violations of FDUTPA based upon noncompliance with the FTC Franchise Rule, the Court need not consider whether Plaintiff can satisfy the third prong with respect to Count 1.

As a result, Count 1 is due to be dismissed for lack of standing.

1. Count 2 — unfair and deceptive practices

   a. Plaintiff’s members have standing to assert Count 2

Defendants do not appear to challenge the first prong of associational standing with respect to Count 2 of the SAC. Nevertheless, upon review, the Court finds that with respect to Count 2, Plaintiff’s members do have standing to assert claims for declaratory and injunctive relief. Plaintiff’s claim in Count 2, unlike Count 1, is premised upon several allegedly deceptive and unfair trade practices that Defendants engaged in after Plaintiff’s members had established franchisee relationships with Defendants. According to the SAC, Defendants engage in these practices with respect to franchisees, including marking up prices of Selected Goods, misappropriating Advertising Fund [*20]  monies, and enacting an equity-stripping policy, and therefore the SAC alleges a real or imminent threat of future injury to Plaintiff’s members. As a result, Plaintiff satisfies the first prong of the associational standing inquiry with respect to Count 2.

1. The interests sought to be protected in Count 2 are germane to the Association’s purpose

The Defendant does not appear to challenge the second prong of associational standing with respect to Count 2. Nevertheless, upon review, the Court determines that in contrast to Count 1, Plaintiff satisfies the second prong with respect to Count 2. The SAC alleges that one of the main purposes of the Association is “advocacy for franchise owners.” As previously noted, Count 2 seeks relief for alleged deceptive or unfair practices by Defendants related to the franchise relationship. Accordingly, the allegations in the SAC are sufficient to establish that the interests sought to be protected in Count 2 are germane to Plaintiff’s purpose.

1. Participation of individual members

Defendants argue that many of Plaintiff’s claims of alleged wrongdoing will require the participation of individual franchisees for proof. In response, Plaintiff argues that [*21]  the individual participation limitation to associational standing does not prevent standing where some individual participation may be necessary. Moreover, Plaintiffs contend that the fact that money damages are not being sought in the SAC should be dispositive with respect to this prong of the Court’s inquiry.

“[W]hether an association has standing to invoke the court’s remedial powers on behalf of its members depends in substantial measure on the nature of the relief sought. If in a proper case the association seeks a declaration, injunction, or some other form of prospective relief, it can reasonably be supposed that the remedy, if granted, will inure to the benefit of those members of the association actually injured.” Warth, 422 U.S. at 515; see also Hunt, 432 U.S. at 343. However, when the “individual participation of each injured party [is] indispensable to proper resolution of the cause” an association will lack standing. Id. As Plaintiff points out, the third prong of associational standing is prudential, rather than constitutional. United Food & Com. Workers Union Local 751 v. Brown Grp., Inc., 517 U.S. 544, 555, 116 S. Ct. 1529, 134 L. Ed. 2d 758 (1996). “[P]rudential limitations are rules of ‘judicial self-governance; that ‘Congress may remove . . . by statute.” Id. at 558 (quoting Warth, 422 U.S. at 509).

At the outset, the Court notes that, contrary to Plaintiff’s [*22]  assertion, “[a] court’s inquiry into the extent of individual participation is required does not end . . . simply because a claim seeks declaratory relief.” Nat’l Franchisee Ass’n v. Burger King Corp., 715 F. Supp. 2d 1232, 1239 (S.D. Fla. 2010). Therefore, Plaintiff’s suggestion that the Court’s inquiry ends simply because Plaintiff seeks only declaratory and injunctive relief is incorrect. Indeed, the Court’s determination depends not only on the nature of the relief sought, but also upon the nature of the claims asserted. See Hunt, 432 U.S. at 343. Thus, the Court looks to the nature of Plaintiff’s claim in Count 2.

To state a FDUTPA claim for injunctive relief, a party must allege a deceptive act or unfair practice, and that the party was aggrieved by the act or practice. CareerFairs.com v. United Bus. Media LLC, 838 F. Supp. 2d 1316, 1324 (S.D. Fla. 2011) (citing Kelly v. Palmer, Reifler, & Assoc., P.A., 681 F.Supp.2d 1356, 1366 (S.D. Fla. 2010)). A deceptive practice is one that is “likely to mislead” consumers. Davis v. Powertel, Inc., 776 So. 2d 971, 974 (Fla. 1st DCA 2000). An unfair practice is “one that ‘offends established public policy’ and one that is ‘immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.'” Samuels v. King Motor Co. of Fort Lauderdale, 782 So.2d 489, 499 (Fla. 4th DCA 2001) (quoting Spiegel, Inc. v. Fed. Trade Comm’n, 540 F.2d 287, 293 (7th Cir. 1976)). In the SAC, Plaintiff alleges that Defendants engaged in price gouging and a predatory pricing scheme through their mark-ups on Selected Goods, an equity-stripping policy based upon a right of first refusal, and misappropriation and misuse of Advertising Fund [*23]  monies to the detriment of its franchisee members, and that these practices are deceptive or unfair.

As an example of why individual participation is indispensable in this case, Defendants point to Plaintiff’s price-gouging claim based upon allegations that its members are forced to purchase supplies from a sole supplier at a substantial mark-up from the market rate, and that the mark-up eliminates the ability of franchisees to turn a profit. ECF No. [67] at 11. Defendants contend that at least two individualized inquiries would be required with respect to this claim — what the market rate was at the time the supplies were purchased, and characteristics and circumstances of individual franchisees, such as business management and individual sales practices, with respect to determining the effects on the franchisees’ ability to turn a profit. However, Defendants’ argument misses the mark. Plaintiff’s claim in Count 2 does not seek damages, and as previously noted, to state a claim for injunctive relief under FDUTPA, a plaintiff need only allege that it is a party aggrieved by a deceptive or unfair trade practice. Plaintiff has done so here. Thus, assuming that Count 2 otherwise sufficiently [*24]  states a FDUTPA claim, Defendants fail to persuade the Court that individualized inquiries from each of Plaintiff’s franchisee members would be required. Accordingly, at this juncture, Plaintiff satisfies the third prong for associational standing with respect to Count 2. Therefore, the Court will not dismiss Count 2 for lack of standing.

1. The SAC fails to state a FDUTPA claim in Count 2 against THUSA or Cil

Defendants also challenge the sufficiency of the FDUTPA claim alleged in Count 2 of the SAC, arguing that the allegations in the SAC are simply different versions of the same allegations underlying Plaintiff’s breach of contract claims in previous complaints in this case and two previous lawsuits. Defendants argue further that the practices alleged to be unfair and deceptive are clearly disclosed in the FDD and Franchise Agreements. As such, Plaintiff’s FDUTPA claim based on these practices fails because a FDUTPA claim will not lie when the acts complained of comply with the terms of a contract.³ See Zlotnick v. Premier Sales Grp., 431 F. Supp. 2d 1290, 1295 (S.D. Fla. 2006) (plaintiff failed to state FDUTPA claim where defendant acted in accordance with express terms of contract) aff’d, 480 F.3d 1281 (11th Cir. 2007); [*25]  see also Amar Shakti Enters., LLC v. Wyndham Worldwide, Inc., No. 6:10-cv-1857-Orl-31KRS, 2011 U.S. Dist. LEXIS 93676, 2011 WL 3687855, at *3 (M.D. Fla. Aug. 22, 2011) (FDUTPA claim did not lie where franchise agreement permitted conduct alleged to be unfair or deceptive). Conduct constituting a breach of contract is actionable under FDUTPA if the conduct underlying the breach is, by itself, unfair or deceptive. PNR, Inc. v. Beacon Prop. Mgmt., Inc., 842 So. 2d 773, 777 n.2 (Fla. 2003). Here, Plaintiff has not plausibly alleged conduct that by itself is unfair or deceptive in conjunction with its claims of a price-gouging scheme, equity-stripping policy, or misuse of the Advertising Fund.

1. Price-gouging scheme

As a part of Defendants’ price-gouging scheme, Plaintiff contends that Defendants marked up prices of Selected Goods to effectively eliminate the ability of franchisees to make a profit, collected undisclosed royalties from franchisees through predatory pricing on Selected Goods, and utilized their buying power solely for the benefit of the franchisor and not the Tim Hortons franchise system as a whole. ECF No. [62] ¶ 93(a)-(c).⁴

However, the Franchise Agreement discloses specifically with respect to the provision of Selected Goods that franchisees may be required to purchase directly from the franchisor, and that the franchisor may make a profit. The Agreement, in pertinent [*26]  part, states as follows:

[T]he Franchisee specifically agrees that the Franchisor may require that any and all Items, including ingredients and commodities which may form any part of the Items or the whole product of any food or beverage made, sold or consumed on the Premises or from the Franchised Restaurant . . . be purchased solely from the Franchisor, TH or a third party.

[. . .]

It is hereby acknowledged by the Franchisee, that in purchasing such Items, the Franchisor or TH may make a profit or may receive an allowance, commission, rebate, advantage or other benefit on the price of Items sold to the Franchisee.

ECF No. [67-6] at 4 § 5.07(c). In addition, the Agreement provides that franchisees may seek approval to purchase supplies from sources other than those already designated by the franchisor:

If the Franchisee desires to purchase Items for which the Franchisor has not approved only a single supplier from other than an Approved Supplier, the Franchisee shall submit (or request its proposed supplier to submit) to the Franchisor a written request to approve the proposed supplier . . . .

Id. at 5 § 5.07(h). Plaintiff has not alleged that its members attempted to request alternate suppliers. In addition, the [*27]  mere fact that Defendants obtained a larger profit than Plaintiff’s members would like does not in and of itself constitute a deceptive or unfair practice. See, e.g. Stubblefield v. Follette Higher Educ. Grp., Inc., No. 8:10-CV-824-T-24-AEP, 2010 U.S. Dist. LEXIS 50393, 2010 WL 2025996, at * (M.D. Fla. May 20, 2010) (underlying act of making higher profit margin where agreement specified a profit margin did not constitute unfair and deceptive trade practice).

1. Equity-stripping policy

As part of the equity-stripping policy, Plaintiff alleges that Defendants enacted a policy to strip equity from franchisees including the valuable goodwill of owning a franchise business. ECF No. [62] ¶ 93(g).

However, the Agreement again specifically provides for the allegedly equity-stripping right of first refusal, stating the following:

In the event that the Franchisee wishes to transfer the Franchised Restaurant business carried on at the Premises pursuant to this Agreement, the Franchisee shall do so only by first offering to resell the Franchised Restaurant business to the Franchisor at the depreciated value of the furniture, equipment, signs and improvements.

Id. at 9 § 11.02. The SAC alleges no more than the fact that Defendants may act in accordance with this [*28]  provision in the Agreement, which in and of itself does not plausibly constitute an unfair or deceptive practice.⁵

1. Misuse of the Advertising Fund

Plaintiff alleges that Defendants misused the Advertising fund by failing to provide any benefit to franchisees with regard to marketing, misappropriating Advertising Funds monies for improper uses, and failing to properly account for Advertising Fund monies. ECF No. [62] ¶ 93(d)-(f).

With respect to the Advertising Fund, the Franchise Agreement provides that no benefit is guaranteed to franchisees, as follows:

The Franchisee acknowledges that . . . the Franchisor accordingly undertakes no obligation to ensure that the Franchisee or any individual Tim Hortons franchisee benefits directly or indirectly in its local market or otherwise from the placement of such advertising and, for greater clarity, the Franchisee acknowledges that this Agreement confers no right to benefit directly or indirectly, in a pro-rata manner or otherwise, from the Franchisee’s Advertising Contribution or any general or specific use thereof and/or the Advertising Fund at large.

[. . .]

[T]he Franchisor assumes no direct or indirect liability or obligation to the Franchisee [*29]  with respect to the maintenance, administration or direction of the Advertising Fund . . . .

Id. at 7-8 §§ 8.01, 8.02(f). That Plaintiff’s members allegedly derived no benefit from the Advertising Fund based on Defendants’ alleged misuse of funds alone does not plausibly constitute an unfair or deceptive trade practice.⁶

1. Plaintiff fails to allege actions independent from breaches of contract

Indeed, Plaintiff does not dispute that the language in the Franchise Agreements deals specifically with the practices it alleges are deceptive and unfair, but instead argues that “no reasonable reading of the disclosures would suggest that THUSA would be contractually allowed to engage in the . . . schemes implemented by THUSA to the detriment of the Association’s franchisee members.” ECF No. [71] at 16 (emphasis added). Plaintiff’s reliance upon Kenneth F. Hackett & Associates, Inc. v. GE Capital Information Technology Solutions, Inc., 744 F. Supp. 2d 1305, 1312 (S.D. Fla. 2010) is misplaced because the deceptive and unfair practices alleged there were not specifically encompassed with the parties’ agreement. 744 F. Supp. 2d at 1312-13. Here, by contrast, although Plaintiff attempts to recast its claim as independent from the Franchise Agreements, the alleged practices relate directly to Defendants’ performance pursuant to the terms of those Franchise Agreements. [*30]  Thus, taking Plaintiff’s allegations as true regarding the price-gouging scheme, equity-stripping policy, and misuse of the Advertising Fund, the SAC states claims that amount to no more than breaches of the Franchise Agreements. See Sweeney v. Kimberly-Clark Corp., No. 8:14-CV-3201-T-17EAJ, 2015 U.S. Dist. LEXIS 123080, 2015 WL 5446797, at *7 (M.D. Fla. Sept. 15, 2015) (“a claim under FDUTPA does not arise merely from an alleged breach of warranty or a breach of contract claim.”) (citation omitted). As a result, Count 2 fails to state a plausible claim for violation of FDUTPA. See Hogan v. Praetorian Ins. Co., No. 1:17-cv-21853, 2018 U.S. Dist. LEXIS 232708, 2018 WL 8266803, at *11 (S.D. Fla. Jan. 11, 2018) (dismissing FDUTPA claim where allegations were conclusory and, even if accepted as true, did not create plausible inference of unfair or deceptive acts). Count 2 is due to be dismissed.

Because the Court determines that Count 2 fails to state a plausible claim under FDUTPA based on the alleged practices, the Court does not reach Defendant THUSA’s argument regarding the choice-of-law provision or consider Defendant Cil’s arguments regarding the sufficiency of the allegations against him individually.

² Defendants also argue, regarding the first prong of the standing inquiry, that because the franchise agreements, which all of Plaintiff’s members signed, contain an Ohio choice-of-law provision, Plaintiff’s members are barred from asserting FDUTPA claims in the first instance. However, this argument is more relevant to Plaintiff’s ability to state a claim, rather than to Plaintiff’s standing.

³ THUSA has provided exemplars of the language in the FDDs and Franchise Agreements that refer specifically to these practices, which the Court may properly consider at this juncture. See Harris v. Ivax Corp., 182 F.3d 799, 802 n.2 (11th Cir.1999) (court may properly consider a document attached to a motion to dismiss in a case in which a plaintiff refers to a document in its complaint, the document is central to its claim and its contents are not in dispute); Brooks v. Blue Cross & Blue Shield of Fla., Inc., 116 F.3d 1364, 1368-69 (11th Cir. 1997).

⁴ Plaintiff also claims that Defendants forced renovations and renewals of equipment at prices that are substantially above market rates, ECF No. [62] ¶ 93(h), but other than the SAC stating that equipment is included within the Selected Goods, see id. ¶ 32, there are no factual allegations supporting the forced renovations aspect of Plaintiff’s claim.

⁵ With respect to Plaintiff’s claim regarding equity-stripping, there is the added concern that there are no allegations in the SAC that any of Plaintiff’s members in fact attempted to sell their franchises, and thus, any purported injury based upon Defendants’ alleged policy would be merely conjectural. Thus, Plaintiff has not sufficiently alleged an injury in fact with respect to its claim based upon equity-stripping.

⁶ Moreover, Plaintiff’s Advertising Fund claim suffers from an additional flaw. Plaintiff alleges that non-party RBI manages the advertising funds for each of its brands, ECF No. [62] ¶ 19. RBI has used various strategies to extract more money from the Tim Hortons franchise system by using the Advertising funds in ways never before used or contractually permitted. Id. at ¶ 63. It funnels money to itself, THUSA, and non-party TDL, at the expense of franchisees, ECF No. Id. ¶¶ 63-64. Nevertheless, Plaintiff alleges further that THUSA controls the annual contributions to the Advertising Fund, and immediately following RBI’s takeover, made several changes to the administration of the Fund that included using monies from the fund for items unrelated to marketing and advertising. Id. ¶¶ 67-68. Taken as true, these allegations are inconsistent, and at best, the plausible inference to be drawn from them is that non-party RBI, not Defendants in this case, is the allegedly responsible party. Indeed, the heading in Plaintiff’s SAC on this issue is telling: “RBI Misappropriates Advertising Fund Monies.” See ECF No. [62] at 11.