A federal district court in New Jersey recently found that restaurant franchisor Golden Corral was entitled to nearly $1.2 million in consequential damages after terminating a franchised Golden Corral restaurant.
Golden Corral and a franchisee entered into a franchise agreement for the operation of a Golden Corral restaurant in New Jersey. Prior to expiration of the franchise agreement’s term, the franchisee stopped operating the restaurant and paying royalty and marketing fees to Golden Corral. Golden Corral terminated the franchise agreement.
The franchisee brought suit against Golden Corral alleging multiple claims, including breach of contract and violation of the New Jersey Franchise Practice Act (NJFPA).
Golden Corral filed a counterclaim for breach of contract, alleging the franchisee breached the franchise agreement by ceasing operations and failing to pay damages pursuant to the franchise agreement. Golden Corral moved for summary judgment on the franchisee’s claims for breach of contract, violation of the NJFPA and on Golden Corral’s counterclaim.
The franchisee alleged Golden Corral breached the franchise agreement by failing to (i) provide assistance and training; (ii) allow the franchisee to set its own menu prices; and (iii) conduct restaurant inspections at a reasonable time. The court agreed with Golden Corral and found no genuine dispute of material fact that Golden Corral provided the franchisee with assistance, did not violate the menu pricing clause and allowed the franchisee to set prices for their local market, and did not violate the inspections clause. Accordingly, the court found Golden Corral did not breach the franchise agreement.
The court also dismissed the franchisee’s NJFPA claim because the franchisee failed to establish a genuine dispute of material fact that Golden Corral imposed “unreasonable” performance standards, as required by the Act. The court found the franchisee’s allegations that Golden Corral imposed unreasonable standards of performance either did not implicate performance or were not unreasonable.
As to Golden Corral’s counterclaim, the court concluded the franchisee breached the franchise agreement by ceasing operations prior to the end of the term. Golden Corral was entitled to lost future profits under the franchise agreement’s damages provision, which authorized recovery of “all damages” from a franchisee’s default. The court calculated the damages based on the restaurant’s prior 12 months of sales and applied the agreed royalty and marketing fees over the remaining term of the franchise agreement, totaling $1,168,368.
Clearly delineated obligations of the franchisee under the franchise agreement can be the franchisor’s best defense and offense against a franchisee’s claims that contractual rights or a relationship law was breached. Franchise counsel can assist franchisors facing such claims to determine if the clear terms of the franchise agreement allow for defenses, as well as remedies above and beyond contract damages such as lost future profits.
Bank United, NA. v. GC of Vineland, LLC, No. 18cv12879 (EP) (CLW), 2024 U.S. Dist. LEXIS 55555 (D.N.J. Mar. 27, 2024)
