A federal court in New Jersey granted the franchisor of the Holiday Inn and Holiday Inn Express brands (Holiday Hospitality) summary judgment on former franchisee Scion Hotels’ complaint alleging violations of the New Jersey Franchise Practices Act (NJFPA). Scion Hotels LLC v. Holiday Hospitality Franchising, LLC, 2024 WL 4224580 (D.N.J. Sept. 18, 2024). In 2019, Scion Hotels and Holiday Hospitality executed a change of ownership licensing agreement granting the Scion Hotels the right to operate the Holiday Inn near the Newark Airport for the remaining 22-month term of that licensing agreement. Before the Newark License Agreement expired, Scion Hotels rejected Holiday Hospitality’s proposal to convert the Newark hotel to another brand in Holiday Hospitality’s portfolio. In November 2020, before the term of the Newark License Agreement expired, Scion Hotels executed a different franchise agreement for the Newark hotel with a competing hotel brand. Prior to that time, the franchisee had requested, but was denied, an extension of the Newark License Agreement. In April 2021, Holiday Hospitality terminated the Newark License Agreement after it expired by its terms. Scion Hotels subsequently sued Holiday Hospitality alleging wrongful refusal to renew its franchise, constructive termination of the franchise, and unreasonable standards of performance.
With respect to the refusal to renew claim, the court concluded Scion Hotel’s execution of a franchise agreement with a competitor “after entering, and before concluding” the Newark License Agreement demonstrated lack of substantial compliance with the agreement and constituted good cause for non-renewal of that agreement, disposing of Scion Hotels’ wrongful refusal to renew claim. The court also concluded that the same conduct foreclosed Scion Hotels’ constructive termination claim, finding that “the record does not show [Holiday Hospitality] intended to [force out the franchisee or] cease doing business with [Scion Hotels] or to undermine the [Newark hotel] to the benefit of another potential operator.” The court likewise disposed of Scion Hotels’ unreasonable standards of performance claim. The court found that the record contained no evidence that Holiday Hospitality acted arbitrarily, in bad faith, and with an intent to impose economic ruin upon the franchisee, all which are requisite elements of the franchisee’s claim. Finally, the court rejected Holiday Hospitality’s argument that Scion Hotels’ damages under the NJFPA are “limited to the difference between the reasonable value of the franchised business at the time of the nonrenewal less the reasonable value of the business without the wrongfully nonrenewed franchise.” However, because the court disposed of all Scion Hotels’ claims, Scion Hotels could not establish any damages.
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