Franchisee 101: Transaction Totaled | Lewitt Hackman

Franchisee Cipercen, LLC operated a number of Meineke Car or truck Care Centers. By 2017, Cipercen owed $550,000 in unpaid franchise expenses to Meineke and determined to offer the franchises. Cipercen thought Meineke available to waive the unpaid fees if Cipercen offered to a preferred consumer, Morningside. Cipercen and Morningside entered into an Asset Acquire Arrangement (APA). Cipercen transferred manage of the franchises to Morningside, with the comprehension that Morningside would pay the buy price into an escrow.

Morningside did not pay and the sale unsuccessful to shut. Cipercen and Morningside sued just about every other in point out court docket. Cipercen also sued Meineke, proclaiming Meineke fraudulently induced it to enter into the APA and for interference. Meineke counterclaimed for payment of the $550,000.

The fraudulent inducement declare against Meineke unsuccessful for deficiency of any phony statement. Cipercen alleged a Meineke consultant reported Meineke would compose-off the fantastic service fees if Cipercen marketed to Morningside. But the compose-off was conditioned on a series of events that did not occur, such as closing of the APA.

The franchisee and franchisor designed claims that the court held were time-barred. Cipercen sued Meineke in March 2021. Meineke contended the interference claim accrued no afterwards than Oct 2017 when all its claimed misconduct was finish. Cipercen argued the statute of constraints period of a few several years, started to run later, when Morningside failed to execute the APA. The court docket sided with Meineke. By Oct 2017, Cipercen declined other features for the franchises and stopped soliciting new provides, because of to Meineke’s alleged inducement to sign the APA. Consequently, the courtroom discovered the day of the alleged harm was October 2017. That designed October 2020 the time limit to provide a assert.

On Meineke’s counterclaim for breach of franchise agreements, Cipercen argued the declare accrued no afterwards than the APA closing day. Meineke conceded that mutual releases established the exact date for payment of the excellent franchise service fees. The court docket established Cipercen was in breach when the closing date arrived and disorders of Meineke’s launch of Cipercen unsuccessful to materialize. That was the latest day the claim could have accrued and Meineke submitted its counterclaim additional than a few a long time later on.

Favored customers arranged by franchisors can be a franchisee’s solution when financial pressure forces a franchisee to obtain a way out. Franchisees and their counsel must perform because of diligence into the buyer’s capacity to total a obtain and overview the transaction paperwork for satisfactory protections and pathways for recourse in situation the consumer are not able to accomplish.

Cipercen, LLC v. Morningside Texas Holdings, LLC, Del. Tremendous., No. N19C-12-074 EMD CCLD (Sept. 14, 2022)