A New Jersey federal court granted in part a hotel franchisor’s motion for summary judgment against its franchisee and the guarantor of the personal guaranty, for breach of the parties’ franchise agreement. The franchisee did not dispute liability to the franchisor’s claim for breach of the franchise agreement. However, the court found genuine issues of material fact on some of the franchisor’s liability theories, due to the franchisor’s failure to present admissible evidence that the franchisee did not perform.
Wingate Inns Int’l, Inc., a franchisor of hotels, and a franchisee entered into a franchise agreement, with an individual guarantying the franchisee’s obligations, including the obligation to pay monthly fees, maintain franchise standards, and pass quality inspections. The franchisor sued the franchisee and the guarantor, claiming that the franchisee breached these obligations.
The franchisor moved for summary judgment on all claims based on several theories of liability. The court noted that the franchisee did not appear to resist liability or the entry of summary judgment. The court proceeded to determine for itself whether there was a genuine dispute of material fact.
The franchisor asserted three theories of the franchisee’s nonperformance. The court agreed with the franchisor on its first theory that the franchisee breached the franchise agreement when the franchisee stopped paying monthly fees. The franchisor’s other two theories were the franchisee’s failure to (i) follow system standards and (ii) pass quality inspections. On these theories, the court concluded genuine issues of material fact existed. The court found that the franchisor failed to present admissible evidence of nonperformance. The court noted that “an accusation that someone has broken a rule is not admissible proof that they broke it” and “a letter telling someone to follow the rules is not admissible proof that they were flouting them.”
Prior to filing suit, franchisors should consult with their litigation counsel to anticipate theories of a franchisee’s breach(es) of the franchise agreement and the evidence needed to support such claims. Even if a franchisor chooses to plead all theories, franchisors must consider what supporting evidence, if any, exists to support summary judgment on all theories pursued. Meaningful evaluation will result in less legal fees and costs in the long run should the franchisor and counsel determine not all theories are viable.
Wingate Inns Int'l, Inc. v. Universal Hosp. Sols., Ltd. Liab. Co., No. 2:21-cv-19809, 2024 U.S. Dist. LEXIS 171024, at *2 (D.N.J. Sep. 23, 2024)
