Subtitle: 
Quizno's franchisees brought a claim against Quizno's when their stores failed. They claimed that Quizno's was partly responsible for the stores failing and that Quizno's owed a duty of fair dealing to the franchisees. The court relied upon the franchise agreement to determine that Quizno's owed no duty to the franchisees and did not guarantee business success.

Two Quizno’s franchisees brought suit against Quizno’s to collect damages because their stores failed.

Important Tip Courts will generally follow franchise agreements. Franchisees need to carefully read and negotiate the franchise agreements to address possible future claims against franchisors

The franchisees blamed Quizno's for the failures. They claimed Quizno's should not have approved the sites they chose and by doing so, Quizno's became a guarantor of the success of that restaurant. The franchisees claimed the sites did not meet Quizno's site criteria and should not have been approved by Quizno’s. They also claim that Quizno's representatives told them their chosen locations were viable. They also claimed that Quizno’s approved new sites located near one of the franchisees’ stores and that contributed to that store's failure.

The Court looked to the franchise agreement. The franchise agreement required that Quizno’s provide approval of new sites and assistance in locating and selecting sites. The franchise agreement provided that Quizno's assistance and approval of a site (and the lease between the landlord and the franchisee) was for the franchisee’s own benefit and did not provide any guaranty to the franchisee of the merits of the location. As a result, the court concluded that there was no liability to Quizno’s under the contract.

The Court next considered whether Quizno's had a duty, besides just good business judgment, to disapprove a site selection if a store had the potential to fail or to adversely impact an existing store.

The franchisees claimed Quizno's breached the implied covenant of good faith and fair dealing by approving sites that were not economically viable because of the proximity with another Quizno's restaurant. They also claim that Quizno's approval breached the implied covenant because the site did not meet all of Quizno's site criteria it uses in determining whether to accept a site, which are set forth in a guidebook provided to franchisees.

The Court ruled that franchisees’ claim of breach of implied covenant of good faith and fair dealing must fail because the parties expressly agreed in the franchise agreement that Quizno's owed them no duty with respect to site selection and that the site selection criteria did not form part of the contract. The sole purpose of the implied covenant of good faith and fair dealing is to effectuate the intent and reasonable expectations of the parties, not to rewrite the contract. Adding an implied duty from Quizno's to its franchisees with respect to its acceptance of a site would modify the contract and would be opposite to the parties' intentions and their reasonable expectations under the contract.

Here, according to the Court, the parties entered into a written, comprehensive fully integrated contract that provided all of the duties Quizno's owed to Plaintiffs as franchisees. That contract specifically addressed the relative responsibilities with respect to selecting a site for the restaurant and set forth in certain and clear terms that the responsibility for selecting a site is on the franchisee.

 

Additional Information
Important Tip: 
Courts will generally follow franchise agreements. Franchisees need to carefully read and negotiate the franchise agreements to address possible future claims against franchisors
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Franchise Agreements