Franchisee 101: A Franchisor Without Urgency

A federal court in Alabama denied an urgent care franchisee’s motion to dismiss a suit brought by its franchisor. The franchisee argued the franchise agreement required suits to be brought within a one-year period. But the court found the franchisor’s suit was timely.

The franchise agreement was to operate an urgent care facility using the name “Doctors Express.” The original franchisor was “Doctors Express Franchising.” Later, Doctors Express sold the franchise system to AFC Franchising, LLC. Under the franchise agreement, the franchisee was obligated to comply with the franchisor’s directions to modify or stop use of certain trademarks. After acquiring the franchise system, AFC directed franchisees to change the name to “American Family Care” or “AFC Urgent Care.” The franchisee refused and continued to operate as “Doctors Express.”

AFC sued in Alabama, AFC’s home state, to enforce the brand change. The franchisee moved to dismiss, arguing that AFC waited too long to sue, because the franchise agreement required claims be brought within one year of discovering the facts of the claim. The franchisee also argued that the franchise agreement said it would be governed by Maryland law.

The court noted that while Maryland law would enforce contractual time limits that are shorter than the state’s statute of limitations, Alabama has a six-year limitation period, and the court would not enforce the franchise agreement’s shorter period. Under Alabama choice-of-law rules, Alabama law controls if the contract’s time limit is considered “procedural,” but Maryland law controls if the contractual time limit is considered “substantive.” The court ruled that the contractual limit was procedural. Therefore Alabama’s six-year statute of limitations applied to AFC’s claims, and the suit was timely.

State law may modify franchise agreement provisions. If involved in a lawsuit, franchisees should consult their franchise counsel to analyze potential conflicts of state law to determine if a contractual provision is enforceable.

AFC Franchising, LLC v. Fabbro, No. 2:18-CV-00743-AKK (N.D. Ala. Dec. 06, 2019)

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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