April 02, 2026|Franchise Frontlines
April 2, 2026 | United States District Court for the Eastern District of Pennsylvania | Unpublished Opinion
Executive Summary
In an unpublished decision, Judge Gerald J. Pappert of the United States District Court for the Eastern District of Pennsylvania denied a motion to disqualify counsel representing both a franchisor and its franchisee and granted the franchisee’s motion to set aside default. The case arose after plaintiffs sued both the franchisor and franchisee following a vehicle theft at a franchised hotel property. The franchisor initially asserted crossclaims seeking defense and indemnity under the Franchise Agreement, and the franchisee ultimately agreed to defend and indemnify the franchisor. Plaintiffs argued that joint representation created a conflict of interest, particularly in light of the earlier crossclaims. The defendants countered that their interests were aligned due to the franchisee’s contractual obligations. The court agreed with the defendants, holding that no conflict existed where the franchisee’s duty to defend and indemnify aligned the parties’ interests, and allowed the unified defense to proceed. The court also set aside the franchisee’s default, emphasizing the preference for resolving cases on the merits.
Relevant Background
The dispute arose from the theft of plaintiffs’ vehicle from a WoodSpring Suites hotel in Philadelphia, a property operated by a franchisee of Choice Hotels International. The plaintiffs asserted a range of claims under Pennsylvania law, including negligence, fraudulent misrepresentation, and breach of contract, alleging that the defendants failed to provide a reasonably secure environment.
Under the Franchise Agreement, the franchisee agreed to defend and indemnify the franchisor for claims arising from operations at the franchised location. After the lawsuit was filed, the franchisor asserted crossclaims to enforce those obligations. The franchisee subsequently agreed to defend and indemnify the franchisor, and the franchisor dismissed its crossclaims.
The plaintiffs moved to disqualify defense counsel, arguing that counsel could not represent both the franchisor and franchisee due to an alleged conflict of interest. At the same time, the franchisee moved to set aside an entry of default that had been entered earlier in the case.
Decision
The court denied the motion to disqualify counsel and allowed joint representation to continue. In doing so, the court emphasized that disqualification is a disfavored remedy and should be imposed only where a true conflict of interest exists. The court analyzed the issue under Pennsylvania’s Rules of Professional Conduct governing concurrent conflicts.
The court concluded that no direct adversity existed between the franchisor and franchisee. Both defendants faced the same claims asserted by the plaintiffs, and the franchisee’s contractual obligation to defend and indemnify the franchisor aligned their interests in defeating liability. The court further observed that the franchisor’s earlier crossclaims were asserted solely to enforce those obligations and were voluntarily dismissed once the franchisee agreed to perform.
The court also found no significant risk that counsel’s representation of one defendant would materially limit the representation of the other. Given the alignment of interests, the court determined that joint representation did not create a conflict under the applicable rules.
Turning to the default, the court granted the franchisee’s motion to set it aside. Applying the Third Circuit’s standard, the court found that the plaintiffs would not suffer prejudice, that the franchisee had asserted potentially meritorious defenses, and that the default did not result from willful or bad-faith conduct. The court emphasized that requiring plaintiffs to litigate their claims on the merits does not constitute prejudice and reiterated the strong preference for resolving cases on substantive grounds rather than procedural defaults.
Looking Forward
This decision reinforces the practical importance of defense and indemnification provisions in franchise systems. Where properly structured and enforced, those provisions may allow franchisors to align litigation interests with their franchisees and present a unified defense in third-party actions arising from operations at franchised locations.
The case also highlights how plaintiffs may attempt to disrupt that alignment by challenging joint representation. Courts, however, may look closely at the underlying contractual framework and the actual posture of the parties when evaluating whether a true conflict exists. Where the franchisee has accepted its defense and indemnity obligations and no active adversity remains, courts may be reluctant to interfere with a coordinated defense strategy.
From an operational perspective, this decision illustrates the importance of ensuring that Franchise Agreements clearly address defense and indemnity obligations and that those provisions are implemented promptly when disputes arise. Early alignment between franchisor and franchisee may help avoid unnecessary motion practice and preserve strategic consistency in defending claims tied to system operations.
More broadly, the case reflects a recurring dynamic in franchise litigation involving third-party claims. Plaintiffs frequently name both franchisors and franchisees in an effort to expand potential recovery. In those circumstances, the ability to rely on contractual risk allocation mechanisms—and to maintain a unified defense—may play a significant role in managing exposure while maintaining the integrity of the brand.
This article is based solely on the opinion of the Court in this matter. The author has not conducted any independent investigation into the facts. For the avoidance of doubt, each statement related to the law and facts in this article is drawn from the Court’s opinion in this case.
Thomas O’Connell is a Partner at Buchalter LLP and Chair of the firm’s Franchise Practice Group. For questions about this article or media inquiries, you can contact Tom at toconnell@buchalter.com.
This communication is not intended to create, and does not create, an attorney-client relationship or any other legal relationship. No statement herein constitutes legal advice, nor should it be relied upon or interpreted as such. This communication is for general informational purposes only and is not a substitute for legal counsel. Readers should not act or refrain from acting based on any information provided without seeking appropriate legal advice specific to their situation. For more information, visit www.buchalter.com.
