In a recent decision by the U. S. District Court for the Central District of California, Wetzel's Pretzel's, LLC v. Tito Johnson, the Court upheld the termination of a Franchise Agreement for failure to follow system standards.

The franchisee argued that termination of the Franchise Agreement was wrongful because it was based on "unfounded, inconsistent and arbitrary" grounds and that the issuance of an injunction against the franchisee's continued operation of the store under the franchisor's trademark was improper because the franchisor permitted the franchisee to continue to operate the franchise for one year after the termination date.

The franchisor countered, and the Court concluded, that the termination was proper because the franchisor complied with the notice requirements in the Franchise Agreement, and that the injunction was appropriate despite the one year gap because the franchise agreement called for mediation before litigation and the franchisor and franchisee were involved in good faith settlement discussions during that period of time.

The facts were overwhelmingly favorable for the franchisor. Before termination, the franchisor inspected the store on 4 separate occasions, followed up each inspection with a written notice of deficiencies to the franchisee, granted the franchisee 30 days to cure after the last inspection and gave the franchisee additional warnings, which went unheeded, prior to the termination.

Precision in complying with the notice and dispute resolution requirements of a Franchise Agreement is paramount for the enforcement of a termination of a Franchise Agreement. For the full decision, click here  .

FRANCHISEE 101: POTENTIALLY WEAK FRANCHISORS ALERT