July 03, 2025|Franchise Frontlines
July 3, 2025 | U.S. District Court for the District of New Jersey | Unpublished Opinion
Executive Summary
In an unpublished decision, Judge Michael Farbiarz of the District of New Jersey denied a franchisee’s motion for partial summary judgment seeking to avoid liquidated damages under a La Quinta Franchise Agreement. The defendants argued that Minnesota franchise law—which prohibits liquidated damages provisions in franchise agreements—should override the contract’s New Jersey choice-of-law clause. La Quinta opposed the motion and asserted that the parties’ choice-of-law provision must be enforced. Based on the allegations and procedural posture before it, the court held that the contractual choice of New Jersey law governed and that Minnesota law did not apply. As a result, the liquidated damages claim remains viable.
Relevant Background
According to the allegations and summary judgment submissions, the parties entered into a Franchise Agreement governing the operation of a La Quinta-branded hotel. The defendants allegedly operated the hotel as a franchise for just under two years before sending letters stating they wished to end the relationship. La Quinta asserts that the defendants then continued to operate the hotel independently, while still owing obligations under the Franchise Agreement, including recurring fees and liquidated damages tied to an early termination. The defendants contest the timing and manner of termination and argue that Minnesota franchise law prohibits enforcement of liquidated damages, rendering La Quinta’s claim unsustainable under Minnesota’s statutory framework. La Quinta disputes that Minnesota law applies and relies instead on the agreement’s explicit New Jersey choice-of-law clause.
La Quinta filed suit for breach of contract against the franchisee and two guarantors. Among its claims, La Quinta sought liquidated damages for early termination. The defendants moved for summary judgment on that claim alone, asserting that Minnesota law bars liquidated damages in franchise relationships and should govern. La Quinta opposed and argued that the agreement expressly selects New Jersey law, which permits enforcement of liquidated damages provisions.
Decision
Judge Farbiarz denied the defendants’ motion and enforced the parties’ choice-of-law clause. The court found a true conflict between Minnesota and New Jersey law because Minnesota precludes franchisors from requiring franchisees to consent to liquidated damages, while New Jersey does not impose such restrictions. Because this conflict could alter the outcome of the case, the court undertook a full choice-of-law analysis under New Jersey’s framework.
The court first addressed whether New Jersey, the chosen state, had a substantial relationship to the dispute. It held that it did. The franchisor’s principal place of business is in New Jersey, which the court found sufficient to establish a substantial relationship between the chosen law and the parties. Accordingly, the first exception to enforcing a choice-of-law clause—lack of substantial relationship—did not apply.
The court then examined whether applying New Jersey law would violate a fundamental policy of another state with a materially greater interest in the issue. The court concluded that Minnesota did not hold a materially greater interest because the relevant contacts were divided among multiple states. The defendants are Minnesota citizens who signed the Franchise Agreement in Minnesota, while La Quinta is headquartered in New Jersey and negotiated aspects of the agreement from that state. The hotel itself is located in Indiana. Because the contacts did not significantly favor Minnesota over New Jersey, the court found no basis to override the contract’s choice-of-law clause. The court also observed that both states have policy interests at stake—New Jersey in honoring party expectations and Minnesota in protecting franchisees—but those interests did not meaningfully outweigh one another in this case.
Having found that neither of New Jersey’s exceptions applied, the court enforced the contract’s requirement that New Jersey law govern. Under New Jersey law, liquidated damages provisions in franchise agreements are routinely enforced when reasonably related to anticipated damages. The court therefore held that La Quinta’s liquidated damages claim could proceed and denied the defendants’ motion. The court noted that the defendants’ arguments concerning actual damages were not ripe for review given that liquidated damages remained available.
Looking Forward
This ruling reinforces several principles important to franchisors operating across multiple states. Courts may enforce internal choice-of-law clauses even when franchisees invoke protective franchise statutes from their home states, particularly when the chosen law bears a substantial relationship to the franchisor’s operations, as with a principal place of business. The decision also highlights that liquidated damages provisions remain enforceable under New Jersey law, making them a meaningful contractual remedy when franchisees unilaterally terminate or de-brand outside the contractual structure. The court’s analysis demonstrates that franchisees cannot avoid bargained-for contractual remedies simply by reframing the dispute under another state’s franchise laws; overriding a choice-of-law clause requires satisfying a demanding standard that this court concluded was not met. Although the ruling is specific to the allegations and procedural posture of this case, the decision underscores the value of carefully drafted choice-of-law clauses for franchisors with nationwide systems and the importance of clear contractual remedies in franchise enforcement.
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.
