May 05, 2026|Franchise Frontlines
May 5, 2026 | United States District Court for the District of New Jersey | Not for Publication
Executive Summary
In a not-for-publication opinion, Judge Georgette Castner of the United States District Court for the District of New Jersey granted in part and denied in part C.E. Mendez Foundation, Inc.’s motion to dismiss claims brought by L.E.A.D., Inc., t/a Law Enforcement Against Drugs and Violence, arising from a long-running preferred-seller relationship involving educational curricula and training materials. Plaintiff alleged that the parties’ Preferred Seller Agreement and related course of dealing created a franchise under the New Jersey Franchise Practices Act (“NJFPA”), that defendant wrongfully attempted to terminate the relationship without satisfying the NJFPA’s good-cause and notice requirements, and that defendant used plaintiff’s customer information to solicit law enforcement customers directly. Defendant argued that the NJFPA did not apply because plaintiff failed to allege the statutory requirements for a franchise, including a place of business, a license, and a community of interest. The court held that plaintiff plausibly alleged all three NJFPA elements at the pleading stage, declined to enforce a Florida forum-selection clause in light of New Jersey’s public policy regarding NJFPA claims, allowed several claims to proceed, and dismissed others. The opinion does not hold that the relationship was a franchise as a matter of law; rather, it confirms that courts may look beyond contract labels when the pleadings allege a franchise-like relationship involving brand association, required training, system-specific investment, pricing constraints, customer-facing promotion, and alleged dependence on the supplier’s materials.
Relevant Background
L.E.A.D. is a New Jersey nonprofit that provides training, primarily to law enforcement officers, on how to teach children about the dangers of drugs and violence in school and after-school programs. C.E. Mendez Foundation is a Florida nonprofit that develops curricula related to substance abuse and violence prevention. In December 2015, the parties entered into a Preferred Seller Agreement under which L.E.A.D. purchased Mendez’s curricula materials and resold them to law enforcement agencies.
The agreement authorized L.E.A.D., as an independent contractor, to market and sell Mendez’s curricula and trainings to law enforcement agencies in approved areas within the United States. It also provided that, if L.E.A.D. did not use competing educational programs, Mendez would not authorize another reseller to sell or distribute the curricula materials to law enforcement agencies anywhere in the United States during the agreement’s term. The agreement contained confidentiality provisions, a Florida choice-of-law clause, and a forum-selection clause stating that actions arising out of a conflict of law would be heard in Hillsborough County, Florida.
The relationship allegedly grew over time. Mendez trained approximately 50 L.E.A.D. instructors and certified them as “Leaders.” L.E.A.D. selected approximately 15 of those Leaders to become “Master Trainers,” who trained new L.E.A.D. instructors to teach Mendez’s curricula. L.E.A.D. alleged that it became one of the largest organizations of its kind in the United States, promoted Mendez’s curricula at training sessions, on its website, at conferences and tradeshows, and in other promotional materials, and became Mendez’s largest source of law-enforcement-related revenue.
The parties later entered into an alleged oral “Logistics Agreement.” Under that arrangement, Mendez would ship curricula materials directly to L.E.A.D.’s customers, including police departments and law enforcement agencies, as a cost-saving measure. L.E.A.D. alleged that it provided customer information to Mendez for shipping purposes with the expectation that Mendez would use the information only to fulfill orders for L.E.A.D.’s customers.
The dispute arose when L.E.A.D. alleged that Mendez began taking steps to usurp its business. L.E.A.D. alleged that Mendez hired a former L.E.A.D. executive who had been involved in developing a national after-school initiative and who allegedly had confidentiality and non-compete obligations to L.E.A.D. L.E.A.D. further alleged that Mendez used customer information obtained through the parties’ relationship to solicit L.E.A.D.’s customers directly, including by sending solicitations inside packages shipped under the alleged Logistics Agreement. L.E.A.D. also alleged that Mendez limited the number and role of Master Trainers, sought to take over instructor training, demanded that L.E.A.D. pay for Mendez-provided training, and then issued a default notice claiming that L.E.A.D. had breached the Preferred Seller Agreement.
L.E.A.D. filed suit in New Jersey before the cure period expired. Mendez later filed suit in Florida, but the Middle District of Florida dismissed that action under the first-to-file rule. L.E.A.D. then filed an amended complaint in New Jersey asserting claims under the NJFPA, the Declaratory Judgment Act, breach of the Preferred Seller Agreement, breach of the Logistics Agreement, breach of the covenant of good faith and fair dealing, tortious interference with contractual relations, and promissory estoppel. Mendez moved to dismiss.
Decision
The court began with the NJFPA claim. The NJFPA protects franchisees from termination without good cause and defines a franchise to include a written arrangement in which one party grants another a license to use a trade name, trademark, service mark, or related characteristics, and in which there is a community of interest in the marketing of goods or services. The court explained that a franchise exists under the NJFPA when the plaintiff alleges a place of business in New Jersey, a license, and a community of interest.
On the “place of business” requirement, the court rejected Mendez’s argument that L.E.A.D. failed to plead NJFPA coverage. The statute generally requires a fixed geographical location where the franchisee displays and sells the franchisor’s goods or services, but it contains a broader definition for persons who do not make a majority of sales directly to consumers. For those businesses, a place of business can include an office or warehouse from which franchisee personnel visit or call upon customers or from which goods are delivered to customers. The court found that L.E.A.D. plausibly alleged this requirement because it sold primarily to law enforcement agencies, not directly to schoolchildren, and alleged that it trained law enforcement customers from its Allentown, New Jersey headquarters. The court also found it plausible that the parties reasonably anticipated a New Jersey place of business because L.E.A.D. allegedly operated from New Jersey when the parties signed the agreement and the agreement authorized sales in New Jersey and other approved geographic areas.
The court next addressed whether L.E.A.D. plausibly alleged a license. Not every permission to sell a branded product creates a license under the NJFPA. The court emphasized that the relevant question is whether the alleged franchisee used the alleged franchisor’s name, marks, or related characteristics in a way that could create a reasonable belief among the consuming public that the licensor vouched for the licensee’s activities. Looking to the agreement and the parties’ alleged relationship, the court found the license element plausibly pleaded. The agreement authorized L.E.A.D. to market and sell Mendez’s curricula and trainings and allowed L.E.A.D. to use Mendez’s proprietary names, marks, and logos in certain merchandise. L.E.A.D. also alleged that, over a decade, it promoted Mendez’s curricula through trainings, its website, conferences, tradeshows, and other channels.
The court’s license analysis turned partly on the nature of the product and the parties’ relationship. The court reasoned that Mendez’s curricula were not ordinary “off-the-shelf” products. They involved a training-based educational program in which L.E.A.D.’s instructors taught law enforcement customers to use Mendez’s curricula in a specified manner. At the pleading stage, those allegations plausibly suggested a relationship that could create a public association between Mendez and L.E.A.D.
The court then found that L.E.A.D. plausibly alleged a community of interest. The court considered several factors, including the licensor’s control, the licensee’s economic dependence, disparity in bargaining power, and franchise-specific investment. L.E.A.D. alleged that Mendez exerted control through marketing and promotional obligations, fixed resale prices, trainer certification requirements, and control over the curricula and training system. L.E.A.D. also alleged that more than 20% of its annual gross sales were attributable to Mendez’s curricula materials. Although the court described the economic-dependence allegations as “not overwhelming,” it found them sufficient at the motion-to-dismiss stage when considered with the other alleged facts.
The court found the franchise-specific-investment allegations especially relevant. L.E.A.D. alleged that, over approximately ten years, its trainers learned Mendez’s curricula and built specialized knowledge around those materials. The court reasoned that those skills could be of limited value outside the alleged franchise relationship because L.E.A.D. would need to teach its instructors an entirely new curriculum if the relationship ended. Those allegations supported a plausible inference that L.E.A.D. had made system-specific investments that could create vulnerability and bargaining disparity. Because L.E.A.D. plausibly alleged a New Jersey place of business, a license, and a community of interest, the court allowed the NJFPA claim to proceed.
The court also allowed L.E.A.D.’s declaratory judgment claim to proceed because Mendez’s challenge to that claim rose and fell with its NJFPA argument. Since the NJFPA claim survived, so did the related declaratory judgment claim.
The court then addressed Mendez’s request to dismiss or transfer the remaining claims under the forum-selection clause. The clause selected Hillsborough County, Florida for actions arising out of a conflict of law. The court declined to enforce the clause at this stage. Under New Jersey law, forum-selection clauses in contracts subject to the NJFPA are presumptively invalid because they conflict with the statute’s policy of protecting franchisees and providing effective judicial relief. Because L.E.A.D. plausibly alleged NJFPA coverage and Mendez did not argue why that presumption should be overcome, the court declined to dismiss or transfer the common-law claims based on the forum clause.
The court did, however, apply Florida law to the common-law claims because the Preferred Seller Agreement contained a broad Florida choice-of-law provision. The court distinguished between the NJFPA claim, governed by New Jersey law regardless of the choice-of-law provision, and the non-NJFPA claims, which the court analyzed under Florida law.
The court dismissed the breach of Logistics Agreement claim. Whether treated as a modification of the Preferred Seller Agreement or as a separate oral contract, the court found that L.E.A.D. failed to plead consideration. The alleged benefit to Mendez from receiving customer information was insufficient because the Preferred Seller Agreement already required L.E.A.D. to provide customer information. The court also found that L.E.A.D. failed to allege a breach of the Logistics Agreement because the alleged agreement required Mendez to ship materials directly to customers, and L.E.A.D. did not allege that Mendez failed to ship. L.E.A.D. alleged that Mendez improperly solicited customers, but the court found that the pleaded terms of the oral Logistics Agreement did not prohibit solicitation.
The court also dismissed the implied covenant claim. To the extent the claim rested on the Logistics Agreement, it failed because L.E.A.D. had not alleged a valid breach of that agreement. To the extent the claim rested on the Preferred Seller Agreement, the court found it duplicative of the breach-of-contract claim because the same alleged conduct—soliciting L.E.A.D.’s customers, imposing requirements not found in the agreement, changing training guidelines, and limiting Master Trainers—also formed the basis for L.E.A.D.’s express breach claim.
The tortious interference claim survived in part. L.E.A.D. alleged that Mendez hired a former L.E.A.D. executive despite knowing that she had non-compete and confidentiality obligations, and then used her knowledge to develop after-school programs while refusing to sell updated materials to L.E.A.D. The court found those allegations sufficient to plead tortious interference with the former employee’s contract. But the court dismissed, with leave to replead, the portion of the claim based on Mendez’s alleged solicitation of L.E.A.D.’s customers because L.E.A.D. did not allege that those customers breached their contracts by purchasing from Mendez.
Finally, the court allowed the promissory estoppel claim to proceed. L.E.A.D. alleged that Mendez promised not to solicit law enforcement agencies with whom L.E.A.D. did business, that L.E.A.D. reasonably relied on that promise by continuing to provide confidential customer information, and that Mendez later used that information to solicit L.E.A.D.’s customers. The court held that dismissal was premature even though L.E.A.D. also asserted a contract claim, because a plaintiff may plead promissory estoppel in the alternative at the motion-to-dismiss stage.
Looking Forward
This decision offers a practical reminder that labels do not control franchise classification. The parties called their agreement a Preferred Seller Agreement, and the agreement described L.E.A.D. as an independent contractor. Those labels mattered, but they did not end the analysis. The court looked at the pleaded relationship, including brand association, marketing rights, customer-facing promotion, training obligations, certification requirements, pricing controls, alleged exclusivity, system-specific investment, and economic dependence.
For franchisors, suppliers, licensors, manufacturers, distributors, and nonprofit or education-based systems, the decision illustrates how a relationship that appears to be a reseller or preferred-seller arrangement may still draw franchise-law scrutiny if the operational facts resemble a franchise. The court did not hold that every reseller relationship is a franchise. It did not even hold that this relationship was a franchise. It held only that the plaintiff pleaded enough facts to proceed under the NJFPA. That procedural posture is critical. But the allegations that survived provide a useful checklist for structuring relationships that should not become unintended franchises.
The license analysis deserves particular attention. A supplier that merely allows resale of a branded product may not create an NJFPA license. The risk increases, however, when the reseller markets the supplier’s system, promotes the supplier’s marks, trains customers on the supplier’s materials, uses the supplier’s proprietary names or logos, or becomes publicly associated with the supplier’s program. Systems that want to preserve reseller status should carefully limit trademark permissions, public-facing affiliation language, and any suggestion that the supplier vouches for the reseller’s overall business.
The community-of-interest analysis also carries important drafting and operational lessons. Courts may look for control, dependence, bargaining disparity, and franchise-specific investment. In this case, the court identified allegations involving fixed pricing, trainer certification, marketing obligations, product exclusivity, training requirements, and a decade of specialized investment in the supplier’s curriculum. Franchisors and franchise-adjacent businesses should assess whether their agreements require counterparties to invest heavily in system-specific knowledge, personnel, or infrastructure that has limited value outside the relationship. The more relationship-specific the investment, the easier it may be for a plaintiff to argue statutory vulnerability.
The “place of business” discussion is especially relevant for modern and nontraditional franchise systems. The court applied the NJFPA’s broader definition for businesses that do not sell primarily to consumers. That allowed the plaintiff to rely on a New Jersey office from which it trained and served law enforcement customers. Companies that sell through business-to-business, nonprofit, educational, government, or institutional channels should not assume that the absence of a traditional retail storefront eliminates NJFPA risk. Where the alleged franchisee operates from a New Jersey location and serves customers from that location, the statute may receive careful attention.
The forum-selection ruling reinforces the importance of state franchise relationship statutes. Mendez relied on a Florida forum-selection clause, but the court declined to enforce it at the pleading stage because L.E.A.D. plausibly alleged NJFPA coverage. New Jersey’s policy under Kubis treats forum clauses in NJFPA-covered contracts as presumptively invalid. For franchisors and suppliers, the lesson is not that forum clauses lack value. They remain important. But parties should not assume that a forum clause will defeat an NJFPA claim at the outset if the plaintiff plausibly alleges that the agreement is subject to the statute.
The decision also underscores the distinction between forum-selection and choice-of-law provisions. The court declined to enforce the forum clause but applied Florida law to the non-NJFPA common-law claims under the parties’ choice-of-law provision. That split result is useful. It shows that a franchisor may preserve governing-law arguments for non-statutory claims even when the statutory franchise claim proceeds in New Jersey. Contract drafters should treat forum, venue, governing law, waiver, and statutory compliance provisions as separate tools rather than assuming that one clause does all the work.
For relationship management, the allegations about customer information are a cautionary point. L.E.A.D. alleged that it provided customer contact information for shipping purposes and that Mendez later used that information to solicit customers directly. The court dismissed the Logistics Agreement claim as pleaded, but allowed promissory estoppel to proceed and allowed part of the tortious interference claim to survive. Suppliers, franchisors, and licensors that receive downstream customer information should define permitted uses clearly. Agreements should specify whether customer information may be used for fulfillment only, direct sales, support, warranty service, marketing, renewal notices, regulatory compliance, or other purposes.
The case also suggests that training and certification systems can cut both ways. They help preserve quality and consistency, and they often serve legitimate brand or program needs. But where the alleged licensor controls trainer certification, limits trainer access, changes training requirements, or uses certification as leverage in a termination dispute, those facts may support arguments about control and dependence. Companies should document legitimate quality-control reasons for training standards and apply them consistently.
This decision should be framed as a pleading-stage warning, not a broad expansion of franchise law. A later factual record may show that the parties’ relationship was not a franchise, that the alleged license was too limited, that the investments were not franchise-specific, or that the plaintiff lacked the vulnerability required for a community of interest. But the opinion shows that courts may allow NJFPA claims to proceed where a plaintiff alleges a long-term, integrated, brand-associated relationship with relationship-specific investment and termination-related vulnerability.
Taken together, L.E.A.D. v. C.E. Mendez Foundation is a useful reminder for franchisors and franchise-adjacent systems: avoid relying on contract labels alone. If a relationship is intended to be a reseller, distributor, preferred seller, licensee, logistics partner, or contractor relationship, the agreement and actual operations should reflect that structure. Clear trademark limits, careful customer-data provisions, consistent forum and choice-of-law clauses, defined training standards, and disciplined termination practices may help reduce the risk that a court views the relationship as a statutory franchise.
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.
