December 30, 2025|Franchise Frontlines
December 30, 2025 | United States District Court for the Eastern District of Michigan | Unpublished Opinion
Executive Summary
In an unpublished decision, Judge Robert J. White of the U.S. District Court for the Eastern District of Michigan granted Holiday Hospitality Franchising, LLC’s motion to dismiss in its entirety, rejecting franchisee claims arising from alleged intra-brand competition between Holiday Inn and Holiday Inn Express hotels. The plaintiffs—operator of a Holiday Inn hotel and its guarantors—argued that the franchisor breached the License Agreement, rendered the contract illusory through excessive discretion, failed to differentiate brands in marketing, violated the Michigan Franchise Investment Law (“MFIL”), and engaged in unfair competition by permitting nearby Holiday Inn Express locations to operate. The franchisor contended that the License Agreement expressly disclaimed territorial exclusivity, preserved its right to license additional locations, and foreclosed fiduciary obligations. The court agreed, enforcing the agreement’s plain terms, dismissing all claims under Rule 12(b)(6), and denying the franchisor’s alternative motion to transfer venue as moot.
Relevant Background
Plaintiff Laurel Investments, LLC entered into a License Agreement with Holiday Hospitality Franchising, LLC (“HHF”) in September 2014 to operate a Holiday Inn hotel in Livonia, Michigan. The individual plaintiffs signed guaranties. The License Agreement granted Laurel access to HHF’s proprietary “System,” including use of the Holiday Inn and Holiday Inn Express trademarks, reservation systems, marketing programs, and related brand benefits.
At the time of execution, two Holiday Inn Express hotels already operated in the area. A third Holiday Inn Express later opened nearby. Plaintiffs alleged that HHF failed to sufficiently distinguish Holiday Inn from Holiday Inn Express in its marketing, resulting in customer confusion and unfair price competition from the lower-cost Express brand. Plaintiffs brought eight counts, including frustration of purpose, illusory contract, breach of contract, unfair competition, violation of the MFIL, and declaratory relief.
HHF removed the case to federal court and moved to dismiss.
Decision
The court first addressed the License Agreement’s choice-of-law provision, which required that “any and all disputes … whether sounding in contract, tort or otherwise” be governed by Georgia law. Applying Michigan conflict-of-law principles, the court enforced the provision for all claims except the MFIL count. The court relied on Sixth Circuit precedent holding that Georgia law does not offend Michigan public policy in similar franchise disputes.
The court then turned to plaintiffs’ contract-based claims.
Illusory Contract. Plaintiffs alleged the License Agreement was unenforceable because HHF retained “absolute discretion” to modify the System and Marks. The court rejected that argument, explaining that Georgia law requires a “total failure of consideration” to invalidate a contract. The complaint itself established that Laurel received substantial bargained-for benefits, including access to HHF’s proprietary System and trademarks. The court further noted that a franchisor’s discretion to modify brand standards does not negate mutual consideration where obligations remain in place for the contract’s duration.
Breach of Contract and Encroachment. Plaintiffs argued HHF breached the License Agreement by licensing nearby Holiday Inn Express locations. The court found no contractual provision granting territorial exclusivity. To the contrary, the License Agreement expressly provided that it did “not limit Licensor’s right … to use or license the System … at any other location.”
The Franchise Disclosure Document similarly warned that Holiday did “not grant franchises for exclusive areas or territories” and that franchisees “may face competition” from other branded locations. Because plaintiffs failed to identify a specific contractual provision prohibiting nearby licensing, the breach claim failed as a matter of law.
The court also rejected any implied fiduciary duty theory. Under Georgia law, “a franchisor does not generally owe a fiduciary duty to its franchisees.” The License Agreement explicitly disclaimed any partnership, agency, or fiduciary relationship.
Unfair Competition. Plaintiffs’ statutory and common law unfair competition claims failed because Georgia law governed and plaintiffs lacked enforceable trademark rights. By signing the License Agreement, plaintiffs acknowledged HHF’s ownership of the marks.
Michigan Franchise Investment Law. The court dismissed the MFIL claim on multiple grounds. Certain allegations were barred by the four-year statute of limitations. More fundamentally, the License Agreement and FDD repeatedly disclosed that HHF retained the right to license additional hotels without territorial restriction. The court concluded that plaintiffs could not plausibly claim they were misled about potential nearby competition.
The court further held that plaintiffs’ fraud-based allegations failed to satisfy Rule 9(b)’s heightened pleading requirements. Conclusory assertions of marketing confusion and non-enforcement at competing locations were insufficient.
Having dismissed all substantive claims, the court dismissed the request for declaratory relief and denied plaintiffs’ informal request to amend the complaint.
Looking Forward
This decision provides a clear roadmap for franchisors defending encroachment and system-control claims.
First, territorial language matters. Where a franchise agreement and FDD expressly disclaim exclusive territory and reserve the franchisor’s right to license additional locations, courts are unlikely to entertain post hoc encroachment theories.
Second, discretion clauses regarding brand standards, marks, and system modifications do not automatically render a contract illusory. Courts will look to the entire agreement and the exchange of consideration. So long as mutual obligations exist, discretionary authority over brand evolution will not defeat enforceability.
Third, fiduciary duty theories continue to face significant hurdles in franchise litigation. Explicit independent-contractor and no-fiduciary disclaimers remain powerful defensive tools.
Fourth, FDD disclosures can be outcome-determinative. The court relied repeatedly on explicit warnings about competition and territorial non-exclusivity. Well-drafted disclosure language may significantly narrow fraud-based claims under state franchise statutes.
Finally, this case reinforces a broader principle: franchise systems are designed to allow brand growth and strategic positioning. Absent contractual territorial protections, courts are reluctant to convert ordinary system expansion into actionable encroachment.
For franchisors, the decision underscores the importance of consistent integration between franchise agreements and FDD disclosures, careful drafting of territorial provisions, and clear reservation of system-wide discretion. Courts will enforce what the documents say—not what franchisees later wish they had negotiated.
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 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.
