nj-franchise-attorneyThe Franchisor, Tilted Kilt, filed a complaint seeking to terminate an area development agreement. The action commenced following receipt of a letter demand from the Franchisee seeking the return of its fees. The Franchisee had been recruited by the defendant developers, whom had allegedly misrepresented the annual revenues of the three affected properties. These franchise restaurants were located in Illinois, Indiana and Wisconsin. In addition, the developers presented the Franchisee with misleading revenue projections and expenses, which were not contained in [FTC’s] Item 19. The Franchisor alleged that these properties had sustained significant losses, rather than profits, as falsely represented by its developer’s to the Franchisee.

The developers responded by filing a motion to dismiss, a counterclaim and a separate complaint. The heart of the developers’ defense was that the Franchisor had failed to give them notice of breach and time in which to cure the breach. The Franchisor countered by arguing that defendants’ actions amounted to crimes, which were not curable regardless of the applicable state statute: Sec. 19 of the Illinois Franchise Disclosure Act. Further, the area development agreement permitted termination without notice or the right to cure. The Federal Court agreed with the Franchisor and denied the developers’ motion to dismiss.

Interestingly, the only precedence the Court could find, in which an incurable breach was the basis for immediate termination, was from New Jersey’s U.S. District Court in Dunkin’ Donuts Franchise Restaurants LLC v. Strategic Venture, No. 07 C 1923, 2010 U.S. Dist. LEXIS 119417, 2010 WL 4687838 (D.N.J. Nov. 10, 2010).

Citation: 2016 U.S. Dist. LEXIS 99250

BE ADVISED that these comments are not intended as legal opinions and are not to be relied upon as legal advice. If you need legal advice please contact us to discuss the specifics of your franchise business.
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