ABSTRACT
The Court of Appeals of Texas, Tenth District, in Cheyenne Partners, LLC v. Rainbow Int’l, LLC, 2026 Tex. App. LEXIS 2075 (Tex. App.—Waco Mar. 5, 2026), affirmed a trial court judgment enforcing Texas franchise agreements against a Michigan-based franchisee who failed to invoke Michigan’s franchise protections through proper procedural mechanisms. The appellate court held that the franchisee waived any choice-of-law issue by not filing a timely motion under Texas Rule of Evidence 202 requesting judicial notice of Michigan law, despite multiple alleged defaults under the franchise agreements. The court further found legally and factually sufficient evidence supporting breach of contract based on the franchisee’s failure to submit required reports, pay license fees, provide audited financial statements, and maintain the franchisor’s goodwill. The decision underscores the critical importance of procedural compliance when seeking application of foreign state law in Texas courts and clarifies that franchise agreement termination provisions permitting termination without notice for specific defaults will be enforced when those defaults are proven.
CASE IDENTIFICATION AND PARTIES
This case, Cheyenne Partners, LLC v. Rainbow Int’l, LLC, 2026 Tex. App. LEXIS 2075, was decided by the Court of Appeals of Texas, Tenth District, on March 5, 2026, on appeal from the 170th District Court of McLennan County, Texas. Rainbow International, LLC and The Grounds Guys, LLC served as appellees and franchisors, having sued to enforce franchise agreements governing two Rainbow restoration franchises in Monroe and Oakland, Michigan, and a Grounds Guys landscaping franchise. Cheyenne Partners, LLC, the franchisee entity, and Jason Alan Kitts, the individual franchisee and personal guarantor, served as appellants. The case was tried before Judge Jim Meyer in a bench trial in June 2024. The Tenth District affirmed the trial court’s judgment in favor of the franchisors, holding that Kitts and Cheyenne Partners waived application of Michigan franchise law by failing to comply with Texas’s procedural requirements for invoking foreign law and that sufficient evidence supported the trial court’s breach-of-contract findings.
FACTUAL BACKGROUND
Jason Kitts acquired his first Rainbow International franchise in Monroe, Michigan in 2009, operating a restoration and cleaning services franchise under Rainbow’s brand and system. In 2014, Kitts expanded his franchise portfolio by acquiring a second Rainbow franchise in Oakland, Michigan, and separately acquired a Grounds Guys franchise for landscaping services. Kitts subsequently assigned ownership of all three franchises to his company, Cheyenne Partners, LLC, though he remained personally liable as guarantor under the franchise agreements. Throughout the operational period, the franchises were financially successful, generating substantial revenue for both the franchisee and the franchisors through royalty payments and license fees.
Despite the financial success, Kitts developed a contentious relationship with Rainbow International marked by disputes over operational requirements and compliance with reporting obligations. The relationship deteriorated through months of unproductive communications between Kitts and Rainbow’s corporate representatives. On September 5, 2017, Rainbow and The Grounds Guys filed their original petition in the 170th District Court of McLennan County, Texas, initiating litigation to enforce the franchise agreements. Three days later, on September 8, 2017, Rainbow sent Kitts a formal Notice of Default and Intent to Terminate Franchise Agreements, specifying multiple contractual defaults and providing Appellants thirty days to remedy the identified breaches. When Appellants failed to cure the defaults within the prescribed period, Rainbow issued a Notice of Final Termination of Franchise Agreement dated November 16, 2017, formally ending the franchise relationships.
Between May 2016 and December 2016, Kitts failed to submit the weekly sales reports and royalty reports required under the franchise agreements. In 2017, Kitts failed to submit reports on time on twenty-three separate occasions, and he stopped reporting altogether in March 2017. As of the termination date, Kitts owed eighteen weeks of reports for 2017 for the Monroe territory and thirty-five weeks of reports for the Oakland territory. The failure to submit reports was accompanied by failure to remit the corresponding license fees owed to Rainbow. Rainbow sent email notifications to Kitts in July 2017 identifying the missing reports and requesting compliance.
Kitts also failed to provide required audited financial statements despite demands from Rainbow’s Chief Operating Officer, Mary Thompson. The franchise agreement required franchisees to submit income and expense statements, balance sheets, and upon demand, financial statements audited by an independent certified public accountant. Additionally, Kitts participated in Rainbow’s optional program with Liberty Mutual Insurance Company, under which Rainbow franchisees provided restoration services for Liberty Mutual insureds. Although participation was optional, franchisees who opted in were required to comply with Liberty Mutual’s operational and quality standards. Kitts failed to meet Liberty Mutual’s requirements, resulting in Liberty Mutual suspending both Kitts and Rainbow from the program. Thompson testified that this suspension caused Rainbow to lose substantial business and materially damaged Rainbow’s goodwill and reputation with a major insurance partner.
In April 2018, Appellants filed a Notice of Removal attempting to transfer the case to the United States District Court for the Western District of Texas, Waco Division. However, in December 2018, the federal court remanded the case back to the 170th District Court of McLennan County. After years of procedural maneuvering, a bench trial was held in June 2024. The trial court found that Appellants breached their franchise agreements with both Rainbow and The Grounds Guys, and that Appellants abandoned their Grounds Guys franchise. The court awarded damages to the franchisors and entered judgment in their favor.
PARTIES’ POSITIONS
Appellants contended that Michigan law should apply to this dispute because the franchise agreements involved Michigan-based franchise territories and Michigan provides statutory protections to franchisees under the Michigan Franchise Investment Law. They argued they adequately apprised the trial court of the choice-of-law dispute by raising the issue in various documents filed during the litigation, citing Michigan statutory provisions, and pointing out differing legal standards between Texas and Michigan law. Specifically, Appellants relied on documents filed in federal court and in state court, including their original answer and counterclaims filed in federal court, their supplemental response to the motion to remand in federal court, their response to the franchisors’ no-evidence motion for summary judgment, their objections to the proposed judgment, and their motion for new trial.
Appellants further argued that many of the alleged breaches cited as grounds for termination were legally invalid because Rainbow failed to provide notice and an opportunity to cure as required by the franchise agreements. They characterized this as a Casteel problem, arguing that the trial court’s findings improperly commingled legally valid theories of recovery with legally invalid theories, making it impossible to determine whether the judgment rested on a valid basis. Regarding the sufficiency of the evidence, Appellants asserted that the evidence presented by Rainbow consisted largely of testimony not based on personal knowledge and that Appellants were in substantial compliance with contractual requirements, particularly regarding tax documents. Appellants also contended they established affirmative defenses of fraud, fraudulent nondisclosure, violation of Michigan law, and prior material breach, along with counterclaims for fraud, breach of contract, violations of the Texas Deceptive Trade Practices Act, and violations of Michigan’s Franchise Investment Law.
Rainbow and The Grounds Guys countered that Appellants never properly invoked Michigan law through the procedural mechanism required by Texas courts. They argued that Appellants failed to file a motion under Texas Rule of Evidence 202 requesting the trial court take judicial notice of Michigan law, failed to provide the court with sufficient information to enable application of Michigan law, and raised the choice-of-law issue only in untimely filings made after trial commenced or after judgment was rendered. The franchisors maintained that without proper invocation of foreign law, Texas law applied by default, and under Texas law, the franchise agreements were enforceable as written.
On the merits, the franchisors presented evidence that Appellants materially breached multiple provisions of the franchise agreements, including failure to submit required weekly sales reports, failure to pay license fees, failure to provide audited financial statements, and conduct that materially impaired Rainbow’s goodwill. The franchisors argued that the franchise agreements expressly permitted termination without notice for certain categories of breaches, including failure to comply with reporting requirements, failure to provide required financial statements, and material impairment of goodwill. They contended that the evidence, including testimony from Mary Thompson and documentary evidence of missing reports and unpaid fees, amply supported the trial court’s breach findings.
DISPUTED FRANCHISE AGREEMENT PROVISIONS
The franchise agreements at issue contained detailed reporting, payment, and operational requirements that formed the basis for the franchisors’ breach claims. Section 3.6 of the Rainbow franchise agreement required franchisees to submit sales reports weekly. Section 5.7.1 mandated that license fee payments accompany these weekly reports. Section 5.7.3 required franchisees to timely submit income and expense statements and balance sheets, and further required franchisees to provide, upon demand by the franchisor, financial statements audited by an independent certified public accountant. These provisions established the franchisee’s ongoing obligations to keep the franchisor informed of business operations and financial condition and to remit the royalties and fees that constituted the franchisor’s primary consideration under the agreements.
The franchise agreements also contained termination provisions that distinguished between breaches requiring notice and an opportunity to cure and breaches permitting immediate termination without notice. Section 11.2.1 required the franchisor to provide notice and an opportunity to cure for failure to promptly pay monies owing to the franchisor. However, Section 11.1.11 permitted the franchisor to terminate the agreement without providing notice or an opportunity to cure when the franchisee failed to comply with reporting requirements. Similarly, Section 11.1.10 authorized termination without notice when the franchisee failed to provide required audited financial statements. Section 11.1.8 permitted termination without notice if the franchisee materially impaired Rainbow’s goodwill. Section 11.1.4 of the Grounds Guys franchise agreement allowed termination without notice if the franchisee abandoned the franchised business.
These contractual distinctions were central to the parties’ dispute. Appellants argued that the trial court’s findings impermissibly commingled breaches requiring notice with breaches not requiring notice, creating uncertainty about whether the judgment rested on valid grounds. The franchisors maintained that even if some theories required notice, other established breaches fell squarely within the categories permitting immediate termination, and thus the judgment was sustainable on multiple independent grounds.
CHOICE OF LAW AND APPLICATION OF MICHIGAN FRANCHISE LAW
The court began its analysis by addressing Appellants’ contention that Michigan law should apply to the franchise dispute. The court articulated the governing legal standard under Texas Rule of Evidence 202, which provides that a party may compel a trial court to take judicial notice of another state’s law by filing a motion, giving notice to other parties, and furnishing the court with sufficient information to enable it to properly comply with the request. The court noted that to have foreign law applied, a party must file both a preliminary motion requesting application of foreign law and a separate request for judicial notice. The court further recognized that choice-of-law issues can be waived if not properly invoked, and that preservation for appellate review requires making the complaint known to the trial court through a timely request or objection specific enough for the trial court to be aware of the complaint, followed by a ruling.
Applying these standards, the court examined the documents Appellants cited as evidence they raised the choice-of-law issue: their original answer and counterclaims filed in federal court, their supplemental response to the motion to remand in federal court, their response to the noevidence motion for summary judgment, their objections to the proposed judgment, and their motion for new trial. The court found that two of these documents were filed in federal court and therefore did not provide information to the state trial court. Two other documents were filed after trial commenced or after judgment was rendered, making them untimely for purposes of raising a choice-of-law issue. The final document, Appellants’ response to the no-evidence motion for summary judgment, cited one Michigan statute but did not raise a choice-of-law issue or address differences between Michigan and Texas law.
The court emphasized that Appellants never filed a Rule 202 motion requesting judicial notice of Michigan law. Although Michigan franchise law was mentioned at trial, the court held this was insufficient to constitute a request for judicial notice or to raise a choice-of-law issue. The court noted that when Appellants’ counsel referenced a Michigan statute during crossexamination, opposing counsel objected and stated that Appellants had not followed the proper procedure for informing the court of Michigan law, and Appellants’ counsel did not correct this characterization. The court concluded that nothing in the record demonstrated that Appellants asked the trial court to apply Michigan law and therefore held that Appellants waived their choice-of-law contention.
The court accepted the franchisors’ position because Appellants failed to comply with the mandatory procedural requirements established by Texas Rule of Evidence 202 and Texas appellate preservation rules. Under Texas law, when a party fails to properly invoke foreign law through a timely Rule 202 motion and adequate proof, Texas courts presume the law of the foreign jurisdiction is identical to Texas law. The court rejected Appellants’ argument that scattered references to Michigan law in various filings satisfied the procedural prerequisites, holding instead that the procedural mechanism exists for a reason and must be followed to preserve the issue.
SUFFICIENCY OF EVIDENCE SUPPORTING BREACH OF CONTRACT
The court next addressed whether legally and factually sufficient evidence supported the trial court’s finding that Appellants breached the franchise agreements. The court articulated the applicable standards of review, noting that in an appeal from a bench trial, the trial court’s findings of fact receive the same weight as a jury verdict and are reviewed for legal and factual sufficiency using the same standards applied to jury findings. For legal sufficiency, the court must determine whether the evidence would enable reasonable and fair-minded people to reach the verdict, crediting favorable evidence and disregarding contrary evidence only if no reasonable factfinder could credit it. If any evidence of probative force—more than a scintilla— supports the finding, the court must affirm. For factual sufficiency, the verdict should be set aside only if it is so contrary to the overwhelming weight of the evidence as to be clearly wrong and unjust.
The court stated the essential elements of a breach of contract claim: existence of a valid contract, performance or tendered performance by the plaintiff, breach by the defendant, and damages caused by the breach. The court then examined the evidence presented at trial supporting each category of alleged breach.
Regarding failure to submit required reports, the court found that Mary Thompson, Rainbow’s Chief Operating Officer, testified that between May 2016 and December 2016, Kitts did not submit the weekly sales reports required by Sections 3.6 and 5.7.1 of the franchise agreement. In 2017, Kitts failed to submit reports on time twenty-three times and stopped reporting entirely in March 2017. As of the termination date, he owed eighteen weeks of reports for Monroe and thirty-five weeks for Oakland. The court noted that the franchise agreement permitted termination without notice for failure to comply with reporting requirements under Section 11.1.11.
Regarding failure to pay license fees, the court found Thompson’s testimony established that when Kitts failed to send reports, he also failed to send the required license fees. Rainbow sent email notifications in July 2017 identifying the missing reports. While Section 11.2.1 required notice and an opportunity to cure for failure to pay monies owed, the September 8, 2017 notice of default specifically identified this breach.
Regarding failure to provide financial statements, the court found Thompson testified that Kitts failed to provide the audited financial statements required by Section 5.7.3 upon demand. The franchise agreement permitted termination without notice for this breach under Section 11.1.10.
Regarding impairment of goodwill, the court found Thompson testified that Kitts participated in Rainbow’s optional Liberty Mutual program but failed to comply with Liberty Mutual’s requirements, resulting in Liberty Mutual suspending both Kitts and Rainbow. Thompson testified this suspension caused Rainbow to lose substantial business and damaged Rainbow’s goodwill. Section 11.1.8 permitted termination without notice if the franchisee materially impaired Rainbow’s goodwill.
The court acknowledged that Kitts testified he eventually turned in missing reports along with checks for money due and provided tax returns, and that after receiving the notice of default he believed he cured everything. However, the court found this evidence did not undermine the breach findings because the franchise agreement expressly allowed termination without notice for several categories of breaches, including failure to timely submit reports, failure to provide audited financial statements, and material impairment of goodwill. The court concluded there was more than a scintilla of evidence supporting the breach findings and that the verdict was not so contrary to the overwhelming weight of the evidence as to be clearly wrong and unjust.
The court accepted the franchisors’ position because the evidence established multiple material breaches falling within contractual provisions that permitted termination without notice and opportunity to cure. The court rejected Appellants’ Casteel argument, finding that even if some theories were commingled, other theories with sufficient evidentiary support provided independent grounds for the judgment, and thus any commingling did not cause an improper judgment or prevent Appellants from presenting their case on appeal.
AFFIRMATIVE DEFENSES AND COUNTERCLAIMS
The court addressed Appellants’ third and fourth issues together, both relating to affirmative defenses and counterclaims allegedly established by the evidence. The court noted that Appellants asserted affirmative defenses of fraud, fraudulent nondisclosure, violation of Michigan law, and prior material breach, along with counterclaims for fraud, breach of contract, violations of the Texas Deceptive Trade Practices Act, and violations of Michigan’s Franchise Investment Law.
The court found that Appellants cited to their Original Answer and Counterclaims filed in federal court but did not request that document be included in the clerk’s record filed with the appellate court. The clerk’s record did not contain any document entitled Original Answer and Counterclaims filed in the state district court. The court held that Texas Rule of Appellate Procedure 34.5 requires the clerk’s record to include copies of all pleadings on which the trial was held, and the burden is on the party seeking review to ensure the proper record is before the appellate court. Without the pleading setting forth the affirmative defenses and counterclaims in the record, the court concluded it could not properly review the issues and held that Appellants waived their complaints regarding denial of their affirmative defenses and counterclaims.
The court accepted the franchisors’ implicit position that Appellants failed to preserve these issues for review. The court rejected Appellants’ arguments because Appellants failed to comply with the basic procedural requirement of ensuring the necessary pleadings were included in the appellate record, making meaningful review impossible.
POTENTIAL SIGNIFICANCE FOR FRANCHISEES AND FRANCHISORS
This decision may carry substantial implications for both franchisees and franchisors operating in Texas or litigating franchise disputes in Texas courts. For franchisees, the decision may serve as a stark reminder that procedural compliance is not merely technical but may determine the substantive outcome of franchise litigation. Franchisees who operate in jurisdictions with franchise-protective legislation but face litigation in Texas should affirmatively and timely invoke foreign law through a proper Rule 202 motion, provide the court with sufficient information about the foreign law, and preserve the issue through appropriate objections and rulings. Casual references to foreign statutes scattered through various pleadings, even when combined with arguments about differing legal standards, may not satisfy Texas procedural requirements and could result in waiver of the choice-of-law issue.
The decision also may suggest that franchise agreement termination provisions may be enforced according to their terms when the franchisor proves the specified breaches occurred. Franchisors that draft agreements with tiered termination provisions—distinguishing between defaults requiring notice and opportunity to cure and defaults permitting immediate termination—may be able to enforce those provisions when they present clear evidence of the qualifying breaches. Franchisees may not be able to rely on general equitable arguments or claims of substantial compliance when the agreement expressly permits termination without cure for specific categories of breaches and the evidence establishes those breaches occurred.
For franchisors, the decision may provide assurance that Texas courts can enforce franchise agreements as written when proper evidence is presented and may not impose foreign state franchise protections sua sponte when franchisees fail to properly invoke those protections. However, franchisors should still ensure they comply with any notice and cure provisions that do apply under the franchise agreement. The decision appears to demonstrate the value of provisions permitting termination without notice for breaches that may impair the franchisor’s ability to monitor the franchise system or that damage the franchisor’s business relationships and goodwill.
The decision also seems to highlight the importance of record preservation for appellate review. Both franchisees and franchisors should ensure that all relevant pleadings, particularly those asserting affirmative defenses or counterclaims, are properly included in the clerk’s record when appealing. Failure to do so can result in automatic waiver of issues dependent on those pleadings, regardless of the merits.
COMPARISON WITH SIMILAR CASES IN TEXAS AND OTHER JURISDICTIONS
The Tenth District’s holding on choice of law appears consistent with established Texas appellate precedent applying Rule 202. Texas courts have held that a party seeking application of foreign law should file a timely motion requesting judicial notice, provide sufficient information about the foreign law’s content, and give opposing parties adequate notice and opportunity to respond. When these procedural requirements are not met, Texas courts may presume the foreign law is identical to Texas law and apply Texas law without conducting a choice-of-law analysis.
This approach may differ from some other jurisdictions that take a more flexible view of when choice-of-law issues are preserved or that will conduct choice-of-law analysis sua sponte when contracts contain choice-of-law provisions or when the parties’ briefing alerts the court to potential conflicts. Texas courts seem to have rejected this flexibility, requiring strict compliance with Rule 202’s procedural mechanism. The rule can create certainty and efficiency by establishing a clear procedural pathway, but it also may create traps for unwary litigants who assume general references to foreign law will suffice.
The court’s application of sufficiency-of-the-evidence standards appears to follow standard Texas appellate practice and seems consistent with how Texas courts review bench trial findings. The distinction between legal sufficiency (requiring more than a scintilla of evidence) and factual sufficiency (requiring that the verdict not be clearly wrong and unjust) appears to apply across Texas civil appeals. What is notable in this case is the court’s analysis of the Casteel doctrine in the bench trial context and its conclusion that commingling of valid and invalid theories may not require reversal when other theories with sufficient evidentiary support independently sustain the judgment. This approach seems to align with the Texas Supreme Court’s recent clarification that the relevant question is whether the charge error probably caused an improper judgment, not merely whether valid and invalid theories were combined.
Other jurisdictions with strong franchise-protective statutes, particularly those with franchise relationship laws similar to Michigan’s, often take a more substantive approach to protecting franchisees from termination, sometimes finding contractual waivers of statutory protections unconscionable or void as against public policy. The contrast between Texas’s enforcement of franchise agreements as written and Michigan’s more protective statutory framework may illustrate the critical importance of forum selection and choice-of-law provisions in franchise agreements.
LAW AND ECONOMICS PERSPECTIVE
From a law-and-economics perspective, this decision may reduce transaction costs and may promote efficient contract enforcement by establishing clear procedural rules and enforcing contractual allocation of risk. The Rule 202 requirement can create a bright-line procedural standard that minimizes litigation uncertainty and enables parties to predict when foreign law will apply, thereby reducing the costs of legal research, motion practice, and appellate litigation over choice-of-law issues. By enforcing tiered termination provisions that distinguish between curable and non-curable defaults, the decision seems to respect the parties’ ex ante allocation of monitoring costs and remedies and seems to create appropriate incentives for franchisee compliance with reporting and payment obligations.
The franchise relationship may involve information asymmetries. Reporting requirements and audited financial statement provisions reduce information asymmetry by creating contractual mechanisms for information flow from franchisee to franchisor. When franchisees breach these obligations, the franchisor might face increased monitoring costs, uncertainty about system performance, and potential reputational harm with third parties such as insurance companies and lenders. Termination provisions that permit immediate termination without notice for reporting failures efficiently allocate the risk of information breakdown to the party that controls the information flow and can prevent the breach at lowest cost.
The court’s enforcement of these provisions may create incentives for franchisees to comply with reporting obligations and may discourage strategic behavior such as withholding information to gain bargaining leverage in disputes. The decision could also reduce moral hazard by suggesting that franchisees who fail to meet core contractual obligations may not be able to avoid consequences by relying on foreign protective statutes they failed to properly invoke, thereby preventing opportunistic behavior that would undermine the enforceability of franchise agreements generally.
From the franchisee’s perspective, this efficiency rationale carries less force where the franchisee, rather than the franchisor, controls fewer resources to navigate cross-jurisdictional procedural requirements, meaning the burden of strict compliance with Rule 202 may fall disproportionately on parties least equipped to absorb the cost of getting it wrong. The same reporting and disclosure obligations that reduce the franchisor’s monitoring costs also impose ongoing compliance burdens on the franchisee, and a termination regime that permits immediate, notice-free termination for those failures shifts substantially all of the risk of administrative lapse onto the franchisee notwithstanding the franchise’s underlying operational success. A more balanced efficiency account would weigh the franchisor’s interest in low-cost monitoring against the franchisee’s interest in retaining a substantial, going-concern investment, particularly where, as here, the alleged defaults are administrative rather than indicative of the kind of fundamental operational failure the termination-without-cure provisions appear designed to address.
FINAL DISPOSITION
The Court of Appeals of Texas, Tenth District, affirmed the trial court’s judgment in favor of Rainbow International, LLC and The Grounds Guys, LLC. The court held that Cheyenne Partners and Kitts waived their choice-of-law contention by failing to file a timely motion under Texas Rule of Evidence 202 requesting judicial notice of Michigan law, and that legally and factually sufficient evidence supported the trial court’s findings that Cheyenne Partners and Kitts breached the franchise agreements by failing to submit required reports, pay license fees, provide audited financial statements, and avoid impairing Rainbow’s goodwill. The court further held that Appellants failed to preserve their affirmative defenses and counterclaims for appellate review because the pleadings asserting them were not included in the clerk’s record.
