June 25, 2025|Franchise Frontlines
June 25, 2025 | U.S. District Court for the Northern District of Texas | Published Opinion
Executive Summary
In Martin v. Schuck, 2025 WL 1798935 (N.D. Tex. June 25, 2025), the federal court dismissed breach-of-contract and fraud claims filed by the founders of Mexico-based Crazy King Burrito (CKB) against a U.S.-based sub-franchisor representative. The court held that the individual defendant, who signed the Franchise Agreement in his capacity as Director of Franchise Development for the U.S. entity, was not personally liable because he signed on behalf of a disclosed principal. The court also dismissed the fraud claim for failure to plead with particularity under Rule 9(b). The opinion provides important instruction for franchisors navigating international expansion, particularly when appointing sub-franchisors or area developers in foreign markets.
Relevant Background
According to the allegations, CKB is a Mexican restaurant concept operating in Cozumel, owned by Jaime González Martín and Haidee Eleazar Blancas Palomino. Plaintiffs alleged that in late 2018 they met a customer, David Schuck, who later formed Crazy King Burrito North America, LLC (CKB-NA) for the purpose of marketing the brand in the United States. Plaintiffs further alleged that Schuck approached them in early 2020 with a proposal to expand CKB into the U.S. market and that, in November 2020, they entered into a “CRAZY KING BURRITO FRANCHISOR AGREEMENT” identifying CKB as the franchisor and CKB-NA as the sub-franchisor.
The Franchise Agreement set out roles and responsibilities for CKB and CKB-NA. The signature block listed “Crazy King Burrito – Cozumel” as the Franchisor and “Crazy King Burrito North America, LLC” as the Sub-Franchisor, with Schuck signing as Director of Franchise Development on behalf of CKB-NA. Plaintiffs later asserted that Schuck violated several contractual obligations and that, in early 2022, the parties met and hand-wrote a bulleted list of tasks on a page of a spiral notebook labeled “David, Haidee, Jaime.” Plaintiffs alleged this informal page constituted an amendment to the Franchise Agreement. They claimed that Schuck continued to violate the agreement and sued him individually for breach of contract and fraud.
Schuck moved to dismiss, arguing he was not personally a party to the Franchise Agreement and that plaintiffs failed to plead fraud with the specificity required by Rule 9(b). The court accepted all well-pleaded facts as true for purposes of the motion. It then addressed whether the claims were legally viable under Texas law, which governed the dispute.
Decision
The court first examined whether Schuck could be held personally liable for alleged breach of the Franchise Agreement. Under Texas law, “a suit for breach of contract may not be maintained against a person who is not a party to the contract.” Martin, 2025 WL 1798935, at *2 (quoting Mission Grove, L.P. v. Hall, 503 S.W.3d 546, 551–52 (Tex. App.—Houston [14th Dist.] 2016)). Texas also recognizes that an individual who signs a contract “as an agent for a disclosed principal is not a party to the contract and is not obligated on the contract.” Id. (quoting Shank, Irwin, Conant & Williamson v. Durant, Mankoff, Davis, Wolens & Francis, 748 S.W.2d 494, 499 (Tex. App.—Dallas 1988)).
The court analyzed the signature block and body of the Franchise Agreement. It noted that Schuck signed “under ‘Crazy King Burrito North America, LLC,’ and his title is listed as ‘Director of Franchise Development.’ There is no separate line for Schuck to sign as an individual.” Id. The court found this significant, explaining that Schuck’s signature placement “supports that he signed the contract in his representative capacity.” Id. (citing Chaiken v. Boyd, 1996 WL 18810, at *3 (Tex. App.—Dallas 1996)). The body of the contract reinforced the conclusion: “Almost every term… discusses CKB-NA’s rights and obligations… while the terms do not refer to Schuck as an individual.” Id. at *3.
The court rejected plaintiffs’ argument that Schuck could nonetheless be liable because he allegedly used CKB-NA to perpetrate fraud. It noted that Texas Business Organizations Code § 21.223 shields officers from liability unless the plaintiff shows the individual “caused the corporation to be used for the purpose of perpetrating and did perpetrate an actual fraud… for the direct personal benefit” of the individual. Id. Plaintiffs, however, “have not included pleadings… supporting that Schuck used CKB-NA to perpetuate an actual fraud… for his direct personal benefit.” Id. at *3. Accordingly, the contract claim was dismissed.
The court next addressed the fraud claim. Plaintiffs alleged that Schuck made false representations regarding ownership rights and compensation structures, and that they relied on those statements when expanding CKB-NA’s U.S. presence. The court held these allegations fell short of Federal Rule of Civil Procedure 9(b), which requires plaintiffs to plead “the who, what, when, where, and how” of the alleged fraud. Id. at *3 (quoting Dorsey v. Portfolio Equities, Inc., 540 F.3d 333, 339 (5th Cir. 2008)). The court observed that plaintiffs did not allege “the time or place” the statements were made and “do not explain why these representations are fraudulent.” Id. Moreover, they did not identify what benefit Schuck allegedly obtained through the statements.
Because plaintiffs failed to plead any claim with the required specificity, the court dismissed all claims against Schuck but granted leave to amend within thirty days.
Looking Forward
This decision offers important guidance for franchisors and international brands expanding into new markets. The court’s analysis underscores the need for clear delineation of roles and representative capacity in cross-border franchise arrangements. When entering the United States through a sub-franchisor or area developer, franchisors may benefit from ensuring signature blocks and representative titles leave no ambiguity about who is bound to the agreement. The court’s focus on the signature placement, explicit titles, and the contract’s text reinforces the importance of formal execution mechanics as a safeguard against personal liability claims.
The allegations in this case also highlight risks that arise when international franchisors rely on informal communications and handwritten documents to manage disputes. Cross-border expansion often involves multiple languages, cultural expectations, time zones, and business practices. When franchise systems rely on informal assurances or unstructured amendments, misunderstandings may arise about ownership rights, revenue sharing, or development obligations. This decision reinforces the value of requiring that amendments follow a formal written procedure outlined in the Franchise Agreement, and that franchisors and sub-franchisors avoid any appearance of creating individual obligations through casual or hastily prepared documents.
The case further illustrates the importance of fraud-proofing communications with prospective sub-franchisors or regional developers. International franchisors may consider implementing structured onboarding processes, due-diligence declarations, and written disclaimers to ensure all parties understand the limits of representatives’ authority. When disputes arise, courts will examine whether alleged misstatements were tied to specific dates, locations, and actions—a standard not easily satisfied without contemporaneous documentation.
Finally, this ruling reflects the protective value of the corporate form in international franchise systems. By observing corporate formalities, maintaining distinct roles between entities, and using clear representative titles, franchisors may limit the risk that individuals become entangled in personal-capacity claims. Where global expansion requires appointing local sub-franchisors, this case shows how critical it is to preserve corporate separateness and to ensure that contracts, communications, and amendments reflect that structure across borders.
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.
