Franchisee Cipercen, LLC operated several Meineke Car Care Centers. By 2017, Cipercen owed $550,000 in unpaid franchise fees to Meineke and decided to sell the franchises. Cipercen believed Meineke offered to waive the unpaid fees if Cipercen sold to a preferred buyer, Morningside. Cipercen and Morningside entered into an Asset Purchase Agreement (APA). Cipercen transferred control of the franchises to Morningside, with the understanding that Morningside would pay the purchase price into an escrow.
Morningside did not pay and the sale failed to close. Cipercen and Morningside sued each other in state court. Cipercen also sued Meineke, claiming Meineke fraudulently induced it to enter into the APA and for interference. Meineke counterclaimed for payment of the $550,000.
The fraudulent inducement claim against Meineke failed for lack of any false statement. Cipercen alleged a Meineke representative said Meineke would write-off the outstanding fees if Cipercen sold to Morningside. But the write-off was conditioned on a series of events that did not occur, including closing of the APA.
The franchisee and franchisor made claims that the court held were time-barred. Cipercen sued Meineke in March 2021. Meineke contended the interference claim accrued no later than October 2017 when all its claimed misconduct was complete. Cipercen argued the statute of limitations period of three years, began to run later, when Morningside failed to perform the APA. The court sided with Meineke. By October 2017, Cipercen declined other offers for the franchises and stopped soliciting new offers, due to Meineke’s alleged inducement to sign the APA. Therefore, the court found the date of the alleged injury was October 2017. That made October 2020 the time limit to bring a claim.
On Meineke’s counterclaim for breach of franchise agreements, Cipercen argued the claim accrued no later than the APA closing date. Meineke conceded that mutual releases set the same date for payment of the outstanding franchise fees. The court determined Cipercen was in breach when the closing date arrived and conditions of Meineke’s release of Cipercen failed to materialize. That was the latest date the claim could have accrued and Meineke filed its counterclaim more than three years later.
Preferred buyers arranged by franchisors can be a franchisee’s solution when financial strain forces a franchisee to find a way out. Franchisees and their counsel should perform due diligence into the buyer’s ability to complete a purchase and review the transaction documents for adequate protections and pathways for recourse in case the buyer cannot perform.
Cipercen, LLC v. Morningside Texas Holdings, LLC, Del. Super., No. N19C-12-074 EMD CCLD (Sept. 14, 2022)
