November 19, 2025|Franchise Frontlines
November 19, 2025 | U.S. Bankruptcy Court for the Southern District of Ohio, Eastern Division | Unpublished Opinion
Executive Summary
In an unpublished opinion, Judge Mina Khorrami denied Hilton Franchise Holdings LLC’s motion for relief from the automatic stay and granted the debtor’s motion to assume a Hampton Inn franchise agreement. According to the opinion, the debtor, Hilliard Hotels, LLC, filed for chapter 11 protection after failing to complete a multi-year Property Improvement Plan (“PIP”) required under the franchise agreement. Hilton argued that the missed PIP deadlines constituted an incurable default that prevented assumption under 11 U.S.C. § 365 and justified stay relief so it could terminate the agreement. The debtor asserted that the PIP work was well underway, that Hilton had extended deadlines and continued collaborating for years without issuing a termination notice, and that the hotel remained highly rated. The Court concluded that, on the specific record presented, the missed PIP deadlines did not constitute a material default and had not caused substantial economic harm to Hilton. The Court further found the debtor provided adequate assurance of a prompt cure of both monetary and nonmonetary obligations and adequate assurance of future performance. The Court therefore denied stay relief and authorized assumption.
Relevant Background
According to the opinion, Hilliard Hotels entered into a Hampton Inn franchise agreement with Hilton in 2017. As part of the agreement, the debtor was obligated to complete a PIP aimed at modernizing guest rooms, public spaces, and hotel systems within thirty-six months. Hilton and the debtor later agreed to revised deadlines, including extensions to 2023. The opinion states that although the debtor invested more than $1.5 million toward PIP work and completed many components, the debtor did not satisfy all items by the deadlines. Hilton did not issue a notice of termination but instead continued approving design proposals and communicating with the debtor about completed work through January 2024.
After the debtor filed for chapter 11 protection in September 2023, Hilton moved for stay relief, arguing the PIP default barred assumption under § 365. Hilton maintained that the failure to complete PIP milestones by the stated deadlines was a historical fact that could not be undone through future performance. The debtor responded that the PIP requirements remained achievable, that Hilton had worked with it for years without electing to terminate, and that customer satisfaction remained strong despite the incomplete PIP.
The Court described the debtor’s proposed cure structure. The debtor stipulated it would pay Hilton’s prepetition arrears of approximately $133,700 within thirty days of confirmation of a reorganization plan. For the nonmonetary default, the debtor proposed completing the remaining PIP work within fourteen to twenty-four months. The debtor testified that it had between $360,000 and $410,000 in liquid funds available and anticipated more than $1 million in new capital contributions dedicated to completing the renovations. The opinion states the Hampton Inn was current on postpetition franchise fees, remained highly rated on Tripadvisor, and achieved a 4.5 out of 5 score on Hilton’s own rating platform.
Decision
The Court applied the requirements of 11 U.S.C. § 365(b), which requires a debtor assuming a contract to cure defaults, compensate the franchisor for any proven pecuniary loss, and provide adequate assurance of future performance. The central dispute was whether the missed PIP deadlines constituted an incurable default that barred assumption.
The Court explained that some courts treat any incurable default as barring assumption, but others ask whether the default was material or caused substantial economic harm. After reviewing the record, the Court concluded that the PIP default was neither material nor economically harmful to Hilton on the specific facts presented. The Court emphasized that Hilton had allowed the debtor to operate out of compliance for multiple years, granted extensions, continued approving renovation plans, invited the hotel to participate in Hilton’s RFP process, and never issued a termination notice. The Court also cited the hotel’s consistently high customer ratings, reasoning that the evidence did not show substantial brand harm tied to the incomplete PIP.
Having determined the PIP default did not bar assumption, the Court evaluated whether the debtor provided adequate assurance of a prompt cure. The Court found credible the testimony regarding available funds, ongoing capital investment, and the debtor’s history of expending more than $1.5 million on PIP items prepetition. The Court further noted that cure periods of up to twenty-four months have been found prompt under § 365 when substantial nonmonetary work must be completed, particularly where a contract has several remaining years of useful life.
The Court next considered Hilton’s request for compensation for pecuniary losses but found inadequate evidence in the record to determine whether such losses existed or whether contractual provisions would authorize such compensation. Because the record lacked specific evidence, the Court permitted assumption without requiring additional payments beyond the monetary arrearages.
Finally, the Court concluded that the debtor demonstrated adequate assurance of future performance. The Court emphasized the debtor’s cash reserves, committed investor funding, experience managing multiple hotels, and substantial progress on PIP items. Based on these findings, the Court held that the debtor’s performance under the agreement was “more probable than not,” satisfying the adequate-assurance requirement under § 365(b)(1)(C). The Court therefore denied Hilton’s request for stay relief and authorized assumption.
Looking Forward
This decision provides several observations for franchisors in hospitality and other industries that rely on brand standards and periodic property improvement obligations, while remaining tied to the unique factual record and posture presented. The Court’s analysis illustrates that a franchisor’s long-term course of conduct—particularly continued collaboration, acceptance of performance, and lack of termination notices—may inform whether a historical default is treated as material in the bankruptcy context. Under different circumstances, including cases with documented brand harm or consistent enforcement of PIP deadlines, courts may weigh the materiality of missed improvement milestones differently.
The opinion also highlights the importance of documenting the impact of brand noncompliance. Hilton argued that PIP delays damaged its brand, but the Court found that the existing record did not establish substantial harm because the hotel maintained high customer ratings and Hilton continued to engage with the debtor about PIP work post-deadline. Franchisors may consider maintaining clear, contemporaneous records of quality-assurance concerns, brand-impact analyses, or guest-experience metrics when addressing substantial PIP noncompliance. Such documentation, if developed outside a bankruptcy setting and within the ordinary course of brand management, may be relevant if the franchisor later must address assumption or termination issues in a chapter 11 case.
This decision further demonstrates the weight courts may place on the debtor’s ability to fund future compliance. Here, detailed testimony regarding available cash, approved budgets, and anticipated capital contributions supported adequate assurance findings. Franchisors may wish to review whether their franchise agreements and related documentation allow them to evaluate the financial viability of proposed cure plans, particularly in distressed situations.
Finally, the Court’s analysis underscores that the Bankruptcy Code’s purpose—to maximize a debtor’s ability to reorganize—can influence how franchise agreements are treated when defaults arise. While this opinion does not diminish franchisors’ contractual rights outside bankruptcy or dictate how PIP compliance must be evaluated in non-bankruptcy settings, it serves as a reminder that assumptions under § 365 occur within a distinct statutory framework. When disputes arise in bankruptcy, franchisors may benefit from presenting clear evidence of brand impact, documented enforcement of standards, and the business rationale for insisting on strict compliance.
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.
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