A federal district court in New Jersey denied Travelodge Hotels’ motion for partial summary judgment against a former franchisee, holding there are genuine issues of fact as to Travelodge’s breach of contract claims.
Travelodge entered into a franchise agreement for its franchisee to operate a Travelodge hotel in Ohio for a fifteen-year term. The franchise agreement required the franchisee make certain recurring payments, and provided that Travelodge could terminate the franchise agreement before expiration if the franchisee discontinued operating the hotel as a Travelodge branded hotel and/or if the franchisee lost the right to possess the hotel’s premises. The franchisee was obligated to pay liquidated damages and reimburse Travelodge for any outstanding recurring fees and costs if the franchise agreement was terminated under one of these two circumstances.
The franchisee ceased operating the hotel as a Travelodge branded hotel. Travelodge informed the franchisee it was terminating the franchise agreement and demanded payment of liquidated damages and all outstanding recurring fees and costs. Travelodge sued for payment of recurring fees, liquidated damages, interest, and attorneys’ fees and costs after the franchisee did not pay.
In a motion for partial summary judgment, Travelodge argued it was undisputed the franchisee breached the franchise agreement because the franchisee admitted that it failed to operate the hotel as a Travelodge. However, the franchisee contended the franchise agreement was voidable because of fraudulent inducement: that Travelodge’s representatives made promises that, despite franchise agreement terms to the contrary, the franchisee could rebrand its existing Travelodge hotel into a different brand within Travelodge’s parent company’s group of hotels. The franchisee also argued that it was excused from paying some or all of its outstanding recurring fees because the franchisee was not provided access to the Travelodge reservation system until approximately three months after signing the franchise agreement.
The court found the franchisee’s assertions could support a finding that the franchise agreement was voidable as fraudulently induced. The court determined that, despite the presence of an integrated contract, evidence outside the written contract is admissible to demonstrate that a party was fraudulently induced to enter into a contract. The court also held Travelodge’s delay in providing the franchisee access to the reservation system could excuse the franchisee from paying some portion of its outstanding fees.
Promises or agreements outside of the franchise documents are risky. Franchisors should make sure their sales representatives have sufficient training in what they are permitted to say, or agree to, with prospective franchisees. All agreements should be memorialized in writing. Unauthorized oral agreements can come back to haunt unsuspecting franchisors.
Travelodge Hotels, Inc. v. Durga, LLC, 2023 U.S. Dist. LEXIS 9272 (D.N.J. Jan. 19, 2023)
