September 29, 2025|Franchise Frontlines
September 29, 2025 | U.S. District Court for the District of New Jersey | Unpublished Opinion
Executive Summary
In an unpublished decision, Judge Jamel K. Semper of the District of New Jersey granted summary judgment in full to La Quinta Franchising LLC (LQF) and denied the franchisee’s competing motion. The case involved a terminated La Quinta franchise in Merrillville, Indiana, and a guaranty executed by two individuals. LQF alleged unpaid Recurring Fees, liquidated damages, and other contractual relief. The franchisee argued the Franchise Disclosure Document (FDD) was deficient, claimed LQF first breached the Franchise Agreement, and asserted violations of the Minnesota Franchise Act. The court rejected every defense, enforced the Franchise Agreement’s New Jersey choice-of-law clause, held the franchisee’s unilateral termination triggered contractual remedies, and granted summary judgment on all damages categories, leaving only the mechanical calculation of amounts due for a later order.
Relevant Background
According to the allegations and summary-judgment record, Shin Hospitality sought to convert the Merrillville property to a La Quinta in 2020. After applying for the franchise, Shin and its principals received and signed an FDD dated March 31, 2020 and amended October 9, 2020. In February 2021, the parties executed a Franchise Agreement and a personal Guaranty binding Shin’s principals to all of Shin’s contractual obligations.
The franchise opened as a La Quinta shortly thereafter. In June 2022, Shin sent a letter stating that the franchisor–franchisee relationship should “terminate immediately” because the property allegedly needed to “survive by opening its reservation system independently.” Ten days later, Shin’s counsel sent a second letter asserting claims against LQF and again asking to terminate the Franchise Agreement. On August 23, 2022, LQF formally acknowledged termination and demanded compliance with post-termination obligations.
That same day, LQF filed this action seeking Recurring Fees, liquidated damages, interest, attorneys’ fees, and injunctive and declaratory relief. Shin responded by asserting counterclaims—primarily based on alleged FDD omissions, alleged bad-faith system decisions, and alleged violations of Minnesota franchise law—and also filed third-party claims against LQF’s affiliate, LQ Management LLC (LQM), and Travel & Leisure LLC. After discovery and two unsuccessful mediation attempts, the parties filed cross-motions for summary judgment.
Decision
The court granted LQF’s motion for summary judgment and denied the defendants’ cross-motion. The ruling is notable for how thoroughly it rejects FDD-based defenses and interprets choice-of-law clauses, liquidated-damages provisions, and recurring-fee obligations in favor of the franchisor.
The court first addressed choice-of-law. The Franchise Agreement designated New Jersey law and expressly stated that the New Jersey Franchise Practices Act would not apply to facilities outside New Jersey. The franchisee argued that Minnesota law should govern because the franchisee and its principals resided in Minnesota and the FDD had been registered there. The court rejected this argument, holding that New Jersey retained a substantial relationship to the transaction because LQF’s principal place of business was in New Jersey. The court also held that defendants failed to show that Minnesota had a materially greater interest or that applying New Jersey law would violate any fundamental Minnesota policy. Thus, under the Restatement (Second) of Conflicts of Laws § 187(2), the contractual choice-of-law provision controlled.
The court then rejected the franchisee’s argument that the Minnesota Franchise Act barred enforcement of liquidated damages. Because New Jersey law governed, and New Jersey routinely enforces liquidated-damages clauses in Wyndham-family contracts when they are reasonable and represent a fair estimate of future losses, the court held that the liquidated-damages formula here—three years of average Recurring Fees—was enforceable. The court noted that multiple prior decisions in the District of New Jersey had enforced materially identical provisions.
Turning to actual damages, the court held that LQF had submitted adequate evidence of Recurring Fees based on revenue data reported by Shin during the twelve months preceding termination. The court rejected the franchisee’s argument that LQF had not provided sufficient “calculation,” explaining that LQF’s documentation aligned with the contract’s methodology and that similar calculations had previously been accepted by the District of New Jersey. Moreover, because the liquidated-damages clause was enforceable, the court noted that actual damages were not necessary to proceed.
The court next addressed the franchisee’s affirmative defenses and counterclaims, all of which it rejected. The franchisee argued that LQF breached the Franchise Agreement first by providing a deficient FDD. The court held that the franchisee did not identify any contractual provision breached by alleged FDD omissions and that the FDD itself is not an operative contract. The court emphasized that unsupported assertions about supposed omissions cannot create a genuine dispute of material fact. It also rejected the argument that LQF breached a duty of good faith by approving another La Quinta within ten miles or by allegedly removing the property from the reservation system. The record showed that Shin was suspended from the reservation system because it failed to pay Recurring Fees, which the Franchise Agreement expressly permitted.
The court further held that termination was unilateral because Shin itself sent letters demanding immediate termination. The court rejected defendants’ argument that LQF’s later acknowledgment of that termination transformed it into a mutual termination. Because the termination was unilateral, the post-termination remedies, including liquidated damages, were enforceable.
The court also rejected all counterclaims and third-party claims. Claims against LQM and Travel & Leisure failed because neither entity was in privity of contract with Shin. Claims under the Minnesota Franchise Act were dismissed because Minnesota law did not apply. Misrepresentation and good-faith claims were dismissed for failure to present evidence supporting required elements. Travel & Leisure was dismissed for lack of service. With liability established, the court granted summary judgment to LQF on all substantive counts. The court reserved only the final damages arithmetic for a later accounting.
Looking Forward
This decision may offer franchisors a detailed illustration of how courts analyze enforcement actions involving Recurring Fees, liquidated damages, guaranties, and post-termination obligations. The ruling shows that courts may strictly enforce choice-of-law provisions when the franchisor has a substantial relationship with its chosen jurisdiction and when the franchisee cannot demonstrate a conflicting fundamental policy in another state. For franchisors operating in systems where multi-state franchisees invoke local franchise statutes, this case may demonstrate that courts may respect the parties’ contractual bargain absent clear overriding policy concerns.
The court’s decision also highlights the challenge franchisees may face when attempting to use FDD-based allegations as a defense to contractual nonperformance. Courts may view the FDD as an important regulatory disclosure document, but not one that creates independent contractual duties unless expressly incorporated. For franchisors, this case underscores the importance of clear drafting that separates FDD disclosures from contractual commitments and of maintaining documentation showing compliance with fee provisions and termination procedures.
The ruling further illustrates that summary judgment may be appropriate when the franchisor presents clear evidence of unpaid fees, contractual interest, and liquidated damages based on formulaic calculations. Franchisees who wish to raise good-faith or misrepresentation claims may need to provide more than speculation or generalized assertions to avoid summary judgment.
Although individual jurisdictions may vary and future outcomes may depend on specific agreements and records developed in discovery, this case provides one example of how courts may enforce franchise agreements when franchisees unilaterally terminate and withhold required payments. It also reinforces that guarantors can remain fully liable when the franchisee entity breaches its obligations. Franchisors may consider reviewing their agreements, recordkeeping practices, and choice-of-law clauses in light of decisions like this one to ensure that their contractual remedies remain enforceable in similar disputes.
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.
