A North Carolina federal court dismissed a complaint brought by a franchisee against its franchisor. The franchisee alleged the franchisor fraudulently induced the franchisee to enter into a franchise agreement, but the court found that the claim was time barred.

After executing a franchise agreement with Hounds Town USA, a pet daycare franchisor, the franchisee contracted with a third-party construction contractor that Hounds Town recommended. The contractor encountered numerous setbacks with the construction of the franchised location. The franchisee did not open their franchised business for two years after signing the franchise agreement. The franchisee entered into a second construction contract with a subcontractor of the original general contractor. The franchisee later terminated that second construction contract and Hounds Town terminated the franchise agreement. The franchisee then filed suit.

Hounds Town moved to dismiss the compliant. The franchisor argued the terms of the franchise agreement barred the franchisee’s claims because the agreement provided for a one-year statute of limitations period. The franchisee alleged the one-year limitation clause was unenforceable because the franchise agreement was induced by fraud and therefore void.

The court found the franchisee failed to allege any essential element of a fraud claim. The court determined that Hounds Town’s recommendation of a contractor prior to the franchise sale was stated as a matter of opinion. The franchisee did not allege Hounds Town made the franchise agreement contingent on the engagement of that contractor. The court found the franchise agreement was not void for fraud-in-the-inducement.

The court also found the one-year limitation clause in the franchise agreement was enforceable. No law prohibited the parties from shortening the usual statutory limitations periods by contractual agreement, and the shortened limitations period was not unreasonable under North Carolina law.

Franchisees considering filing suit against their franchisor should consult with franchise counsel to review the franchise agreement and determine the applicable contractual and statutory limitations periods, including potential law to be applied. Planning in advance will help franchisees avoid time-barred claims.

Bigelow Corp. v. Hounds Town USA, LLC, 2023 U.S. Dist. LEXIS 134352 (W.D.N.C. Aug. 2, 2023)