The U.S. Sixth Circuit Court of Appeals upheld summary judgment for franchisor Buffalo Wild Wings (“BWW”) rejecting a restaurant operator’s counterclaims for wrongful termination, malicious prosecution, and breach of contract. The operator, BW-3 Akron (“Akron”), operated under a license agreement signed in 1990. It was the sole location of more than 1,200 Buffalo Wild Wings that was not operated under a franchise agreement or owned by BWW.
BWW wanted Akron to comply with the agreement’s remodeling provisions. Akron refused. Following a default notice, BWW sued, seeking a declaration that it could terminate the license agreement due to Akron’s default. The same day, BWW notified Akron that it had the right to immediately terminate the license agreement, but would hold the termination in abeyance pending a declaratory judgment that termination was proper. In response, Akron closed and de-branded the restaurant, then re-opened under the name “Gridiron Grill.”
One of Akron’s counterclaims was for wrongful termination of the license agreement, pointing to BWW’s filing of the lawsuit. The Court disagreed. The evidence showed Akron intended to abandon the license agreement by re-branding the restaurant. Another counterclaim asserted that BWW’s declaratory relief claim was malicious because the license agreement, in contrast to BWW’s franchise agreement, did not expressly mandate periodic remodels. BWW relied on a provision stating Akron would be in breach if it failed “to operate its stores using the system” developed by BWW or failed “in any other material way” to maintain BWW’s standard of quality and appearance. In the Sixth Circuit’s view, BWW’s interpretation of what the “system” comprised gave it a reasonable basis to bring the declaratory judgment action.
It is not uncommon for a large, experienced franchisor to have older, trademark license agreements in place that predate the franchisor’s formal launch of a franchise system. This case shows complexities that can arise from older licensing arrangements. Though BWW defeated Akron’s counterclaims, it incurred expenses because a pre-franchise license agreement was in play, and BWW had to rely on its terms to force a longtime licensee to comply with system requirements. If feasible, a franchisor should try to negotiate with pre-franchise licensees to sign the updated version of the franchisor’s franchise agreement to avoid ambiguities in older license agreements.
Read: Buffalo Wild Wings, Inc. v. BW-3 of Akron, Inc.
