Franchise 101: Total Vacancy; and Double Parked

Franchisor 101: Total Vacancy

The federal district court in New Jersey denied franchisor Days Inn Worldwide, LLC’s motion for summary judgment for breach of contract, where the terms of the franchise agreement did not make clear that a franchisee would be expected to continue performance, despite its hotel being destroyed by fire.

Days Inn and a franchisee entered into a franchise agreement for the operation of a Days Inn hotel. The franchise agreement required the franchisee to pay Days Inn monthly fees. In 2019, a fire destroyed the hotel. Subsequently, the franchisee did not reopen the hotel and stopped paying Days Inn’s required monthly fees. Instead, the franchisee devoted its efforts to insurance claims and pursuing litigation against the insurer. In 2022, Days Inn terminated the franchise agreement and sued the franchisee for breach of contract and trademark infringement.

The franchise agreement contained a force majeure clause, which excused the franchisee’s nonpayment of fees if the failure to pay results from a fire, but only “so long as a remedy is continuously and diligently sought by the affected party.” Days Inn argued that the standard was not met. The court found a reasonable jury could conclude the franchisee met this standard by pursuing insurance claims and related litigation.

Days Inn also argued the fire was arson committed by an agent of the franchisee, and that the force majeure clause did not apply because it excused performance only when the force majeure events were “beyond the control of the party affected.” The court found it was not clear that Days Inn correctly interpreted the force majeure clause because the limiting phrase “beyond the control of the party affected” modified only the last item in the force majeure clause – “(d) any other similar event or cause beyond the control of the party affected,” not all other previous listed items, like “(b) fires.”

Days Inn also alleged trademark infringement and dilution because the branded Days Inn sign remained on the closed hotel until 2023, four years after the fire. The court found the continued display of the Days Inn sign on the outside of the non-operational hotel did not support Days Inn’s trademark infringement claims because the sign was not being used in commerce. The court held that the passive display of a trademark without commercial activity does not constitute trademark infringement or dilution.

Franchisors should carefully review their force majeure clauses to understand what conditions excuse performance. Franchisors should also be aware that passive signage use at a closed location may not constitute “use in commerce” for Lanham Act claims.

Days Inn Worldwide, Inc. v. Shri Ganesai LLC, 791 F. Supp. 3d 540 (D.N.J. 2025)

Franchisee 101: Double Parked

The federal district court in Maryland granted in part and denied in part franchisor Spiffy Franchising, LLC’s motion to compel arbitration in a lawsuit brought by a franchisee. The court compelled arbitration for the majority of the franchisee’s claims but denied the motion as to the Maryland franchise law claim. The court stayed the entire action pending arbitration of the compelled claims.

Spiffy, the franchisor of an app-based car service, and a franchisee entered into a franchise agreement for the operation of a Spiffy franchise in Maryland that included an arbitration clause requiring disputes to be arbitrated in North Carolina. The franchise agreement included a Maryland addendum stating the franchisee may bring claims under the Maryland Franchise Registration and Disclosure Act in Maryland.

The franchisee ceased operations after experiencing various operational difficulties. The parties engaged in unsuccessful mediation, and the franchisee served Spiffy with written notice of intent to file arbitration, but did not initiate arbitration proceedings. Instead, the franchisee filed a complaint in federal court against Spiffy, alleging fraudulent inducement, breach of contract and violation of the Maryland Franchise Law and Registration, among other claims. Spiffy moved to compel arbitration.

The franchisee argued that there was no valid agreement to arbitrate because the Maryland addendum disrupted any mutual assent regarding arbitration. The court disagreed, finding the parties formed a valid agreement to arbitrate all claims except those arising under Maryland franchise law. The court determined the Maryland addendum created a narrow carve-out for Maryland franchise law claims while preserving the parties’ agreement to arbitrate all other claims.

The franchisee also argued the arbitration clause was unconscionable and not enforceable because it was presented as a contract of adhesion, and the franchisee lacked any meaningful opportunity to negotiate its terms. The court found the arbitration clause was not procedurally unconscionable because the franchisee had twenty days to review the franchise agreement, was invited to discuss any questions, and presented no evidence that the franchisee attempted to negotiate its terms or was rebuffed in doing so.

Finally, the franchisee asserted that Spiffy waived its right to arbitration by failing to timely respond to the franchisee’s arbitration demand. The court determined that Spiffy did not waive its right to arbitration because the party providing notice of intent to arbitrate (the franchisee) had the burden to initiate the arbitration proceedings, which it did not.

Franchisees should review any state-specific addenda to their franchise agreement prior to commencing any adversarial proceedings against their franchisor. State-specific addenda can control the type of proceeding and venue. Prior review and understanding of where and how a proceeding should be brought are often paramount for a franchisee at the outset of a dispute with the franchisor.

MJ Enterprise Holdings, Inc. v. Spiffy Franchising, LLC, No. 1:24-cv-03194-RDB (D. Md. July 30, 2025)