Recent Guidance on Franchisors Recovering Future Damages from Franchisees

June 16, 2011, 11:51 AM

The United States Court of Appeals for the 4th Circuit (which includes Virginia), recently held in Meineke Car Care Centers, Incorporated v. RLB Holdings, LLC, et al., Bus. Franchise Guide (CCH) 14,586, that a franchisor could recover future damages, including future royalties and future advertising contributions, after termination of franchise agreements, even though the franchise agreements at issue were completely silent on that issue. The Court held that in the absence of an express contractual provision barring future damages, the [franchise agreements] did not prohibit the recovery of those damages if otherwise permitted under [applicable] law.

Accordingly, prospective franchisees should always attempt to bargain for an express contractual addendum to the franchise agreement barring future damages. Conversely, franchisors who may desire to pursue claims for future damages from terminated franchisees may want to consider including an express provision allowing such future damages in their franchise agreements.

For further information, contact Steve Story at sestory@kaufcan.com. --Stephen E. Story