July 14, 2025|Franchise Frontlines
July 14, 2025 | U.S. District Court for the District of New Jersey | Published Opinion
Executive Summary
In a published opinion, Judge Michael Farbiarz denied Days Inn Worldwide’s motion for summary judgment in a dispute arising from a 2019 fire that rendered a franchised hotel inoperable. Days Inn alleges that the operator stopped paying monthly fees and continued to display the brand’s signage for years after the hotel closed. The operator counters that Section 17 of the Franchise Agreement excused performance because the failure to perform “resulted from a fire” and because it “continuously and diligently” sought a remedy through a multi-year insurance claim and subsequent litigation. The court concluded that key factual questions—including whether the operator’s efforts satisfied the contractual diligence requirement and whether the fire was accidental—must be decided by a jury. The court also rejected Days Inn’s trademark and dilution claims, holding that a sign on a shuttered, non-operational hotel is not “use in commerce” under the Lanham Act.
Relevant Background
According to the allegations and the summary judgment record, the parties entered into a Franchise Agreement in 2017 that required the hotel operator to pay recurring fees and maintain compliance with brand standards. Section 17 of that agreement contained a force-majeure clause stating that neither party is liable for failure to perform if the failure “results from a fire,” provided the party “continuously and diligently” seeks a remedy. Those contract terms became central after a 2019 fire forced the hotel to close. Days Inn alleges the operator was already delinquent on fees before the fire and then stopped all payments afterward. The operator disputes that the alleged nonpayment constitutes breach because it contends the fire triggered Section 17, and it further asserts that it pursued insurance recovery as its remedy.
The operator alleges that it submitted an insurance claim shortly after the fire and, when the claim was denied, filed a separate federal lawsuit against its insurer. That litigation proceeded through a jury trial and appeal, ultimately concluding in 2024. Days Inn disputes whether these efforts were directed at reopening the hotel or satisfying amounts owed under the Franchise Agreement. Days Inn also alleges that the Days Inn sign and trademarked branding remained on the closed hotel from 2019 until 2023, even though the hotel never reopened and the Franchise Agreement was terminated in 2022.
Days Inn sued the operator for breach of contract based on recurring fees and sued both the operator and the guarantor for breach of guaranty. It also asserted trademark infringement and dilution based on the sign. Days Inn moved for summary judgment on all claims, arguing that the force-majeure clause did not apply, that the operator failed to pay required fees, that the guarantor was obligated to step in, and that the continued display of the sign violated the Lanham Act. The operator opposed, arguing that factual disputes precluded summary judgment.
Decision
The court denied Days Inn’s summary judgment motion on every claim. As to the breach of contract claims, the court found that the text of Section 17 of the Franchise Agreement requires two elements for excusing performance: the failure to perform must “result from a fire,” and the operator must “continuously and diligently” seek a remedy. Judge Farbiarz held that a reasonable jury could conclude the operator met that standard by pursuing its insurance claim and litigating for recovery over multiple years. While Days Inn argued the operator’s efforts were insufficient or misdirected, the court emphasized that evaluating those competing interpretations of the record requires credibility findings inappropriate for summary judgment.
The court also determined that factual disputes surrounding the cause of the fire prevent summary judgment. Days Inn argued that the fire was arson committed by an agent of the operator, which, if true, would undermine any claim of excuse. The operator disputed that allegation and pointed to a jury verdict in federal insurance litigation that did not find arson. Because the parties presented conflicting evidence—an Alford plea on one hand and a civil verdict on the other—the court held that only a jury can resolve those factual disputes.
On the interpretation of the force-majeure clause, Days Inn argued that all excusable events— including fires—must be “beyond the control of the party affected,” citing language in subsection (d) of Section 17. The court rejected that interpretation based on the last antecedent rule, explaining that the phrase “beyond the control of the party affected” naturally modifies only “any other similar event or cause” in subsection (d), not the earlier listed events in subsections (a), (b), and (c). The court stressed that interpreting the provision otherwise would create redundancy and grammatical inconsistency.
With no underlying breach established as a matter of law, the guarantor had no triggered obligation, and the guaranty claim also failed at this stage. The court explained that a guarantor’s liability depends on a finding of default under the principal contract, which has not yet occurred.
Finally, the court rejected Days Inn’s trademark infringement and dilution claims. Although the operator allegedly left the Days Inn sign up at the closed hotel until compelled to remove it, the court held that the Lanham Act requires “use in commerce.” Because the hotel had no operations and offered no services during the relevant period, the sign was not being used commercially. A sign on an abandoned, nonoperational building was insufficient to establish actionable use, and Days Inn’s trademark claims could not proceed on summary judgment.
Looking Forward
This decision underscores the need for franchisors to draft force-majeure provisions with precision and clarity. Courts may closely scrutinize whether an operator’s actions—particularly insurance claims or litigation—can constitute “continuous and diligent” efforts to remedy a loss. When contracts do not define those terms, franchisors risk facing jury trials even where substantial post-default nonpayment has occurred. The ruling also highlights the operational challenges that arise when natural disasters or casualty events disrupt franchise locations and demonstrates the importance of specifying post-casualty obligations, insurance-related duties, and timeframes for remediation or reopening.
The decision further illustrates that franchisors should ensure their Franchise Agreements and guaranties clearly identify when guarantor obligations arise, especially when excused performance provisions come into play. The court’s analysis suggests that guarantors may avoid liability at early stages if underlying default has not been conclusively established.
Finally, the trademark portion of the opinion reinforces that the Lanham Act applies only to commercial uses of a mark. Franchisors experiencing delayed sign removal after closure or catastrophe may need to rely on contractual debranding provisions or equitable relief rather than federal trademark law. Although the court’s analysis is tied to the allegations and posture of this case, franchisors may view the decision as a reminder to strengthen contractual remedies, clarify obligations following casualty events, and ensure that debranding responsibilities are enforceable even when a location is not operational.
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 Shareholder at Buchalter APC 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.
