June 05, 2026|Franchise Frontlines
June 5, 2026 | United States District Court for the Eastern District of Pennsylvania | Slip Copy — Not Yet Reported (2026 WL 1658522)
Executive Summary
In a memorandum available only by its Westlaw citation (2026 WL 1658522), Judge Kelley B. Hodge of the United States District Court for the Eastern District of Pennsylvania granted in part and denied in part franchisor MDR United, LLC’s motion to dismiss counterclaims brought by Backporch Partners, Inc., a Mighty Dog Roofing franchisee, applying Rules 12(b)(6), 12(b)(1), and 9(b). Backporch, as assignee of the Warners’ franchise agreements, counterclaimed for fraudulent and negligent misrepresentation tied to allegedly selective Item 19 financial-performance figures and other franchise-disclosure-document (FDD) representations, breach of contract, breach of the implied covenant of good faith and fair dealing, and violations of the Tennessee Consumer Protection Act (TCPA) and Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (UTPCPL). MDR argued that the counterclaims were barred by contractual releases and a fraud-release/exculpatory clause, the statute of limitations, lack of standing, the parol-evidence and gist-of-the-action doctrines, and the inapplicability of the consumer statutes to a franchise purchase. The court allowed the fraudulent-misrepresentation (Count I) and breach-of-contract (Count III) counterclaims to proceed, but dismissed negligent misrepresentation (Count II) under the franchise agreement’s fraud-release provision, the implied-covenant count (Count IV) as subsumed in the contract claim, the TCPA count (Count V) without prejudice, and the UTPCPL count (Count VI) with prejudice.
Relevant Background
In 2020, Brock and Janelle Warner learned of the Mighty Dog Roofing franchise system and became interested in operating a franchise in the Nashville, Tennessee area. In connection with a prospective franchise agreement, MDR provided the Warners an “MDR Unit Economics Excel Worksheet” (the “Workbook”) reflecting the financial performance of Mighty Dog Roofing franchises, and subsequently furnished its FDD dated April 29, 2021, which the counterclaim alleged contained information identical to the Workbook. According to the counterclaim, these materials displayed financial data drawn from two franchises operating under grandfathered terms — reduced royalty rates and reduced operational costs unavailable to any new franchisee — without disclosing that fact, even though eight franchises were then operating. The counterclaim further alleged that Item 6 failed to disclose a mandatory requirement to employ a roof qualifier and that Item 11 contained false statements about the training MDR provides.
In reliance on that information, the Warners acquired four territories on or about May 27, 2021 by executing four franchise agreements, and on July 28, 2021 assigned their interests to Backporch with MDR’s consent under a “Consent to Transfer Agreement.” The Warners also executed a Multi-Unit Addendum and paid a $159,000 multi-unit initial franchise fee. Backporch alleged that after it opened, it became clear MDR lacked the personnel, infrastructure, and resources to meet its obligations, and it identified specific breaches involving local SEO optimization, national advertising and brand promotion, an operational call center, and local advertising and promotion. On or about July 10, 2025, the Warners sent MDR a letter rescinding the franchise agreements.
On August 9, 2025, MDR sued Backporch, the Warners, Bisonworks, LLC, and Justin Morris, asserting breach-of-contract claims. Defendants answered, and Backporch filed a six-count counterclaim asserting fraudulent misrepresentation, negligent misrepresentation, breach of contract, breach of the implied covenant of good faith and fair dealing, violation of the TCPA, and violation of the UTPCPL. MDR moved to dismiss under Rules 12(b)(6), 12(b)(1), and 9(b), and requested attorneys’ fees and costs under the franchise agreements.
Decision
The court first addressed standing and MDR’s release defenses. It held that because the assignment to Backporch was effective and undisputed, Backporch, as assignee, “stands in the shoes of the assignor and assumes all of his rights,” giving it standing to pursue the pre-sale claims. On the general releases contained in the assignment and a 2022 negotiated amendment, the court declined to dismiss: those releases barred only claims the franchisee “have, had, or might claim to have” through the agreement date and, unlike the releases in the authorities MDR cited, did not expressly reach “future” or “unaccrued” claims. Reasoning that “an unknown claim is distinct from an unaccrued claim,” and because the counterclaim did not establish when the claims accrued, the court held the general releases could not be applied at the pleading stage.
The franchise agreements’ separate fraud-release provision (18.9.1), which waived any remedy “based on alleged fraud, misrepresentation, or deceit,” fared differently across the counts. Applying Pennsylvania’s rule that exculpatory clauses cannot release “intentional or reckless tortious conduct” but may release ordinary negligence, the court held the provision barred only the negligent-misrepresentation count (Count II), while the intentional-fraud count (Count I) and the statutory counts pled as “willing and knowing” (Counts V and VI) were not released. Under the agreements’ severability provision, the clause was “deemed modified to the extent necessary to make it valid or operative.”
The court’s justifiable-reliance analysis produced the decision’s sharpest franchise-specific holding. The integration clause stated that “[n]othing in this Agreement or any related agreement is intended to disclaim the representations Franchisor made in the franchise disclosure document furnished to Franchisee.” The court rejected MDR’s characterization of that clause as a reliance disclaimer, holding it “expressly does not disclaim representations made in the FDD” and therefore did not defeat a fraud claim premised on the FDD. The Workbook, by contrast, was “not carved out,” so under the Third Circuit’s decision in SodexoMAGIC, LLC v. Drexel University the integration clause barred reliance on it. The court found the Item 19 allegations adequately pled under Rule 9(b) and not barred by the gist-of-the-action or economic-loss doctrines, reasoning that a “precontractual duty not to deceive through misrepresentation or concealment exists independently of a later-created contract.”
The court then dismissed the remaining counts on distinct grounds. It dismissed the implied-covenant count (Count IV) with prejudice as “subsumed in a breach of contract claim,” while sustaining the breach-of-contract count (Count III) except as to a paragraph that imposed obligations only on the franchisee. It dismissed the TCPA count (Count V) without prejudice: although the TCPA’s anti-waiver provision meant Pennsylvania’s contractual choice of law could not govern that claim, the counterclaim failed to allege conduct “predominantly intrastate in character.” And it dismissed the UTPCPL count (Count VI) with prejudice, agreeing with Schaefer v. HPB Foam LLC that “the purchase of five [ ] franchises” is not a purchase “primarily for personal, family, or household purposes.” Separately, the court found MDR had waived the agreements’ mediation precondition by filing suit rather than electing mediation, and denied MDR’s request for attorneys’ fees as premature.
Looking Forward
The most actionable lesson here is a drafting one, and it can cut in the franchisor’s favor if heeded. On this record, MDR’s integration clause expressly preserved — rather than disclaimed — the representations in its FDD, and that carve-out is precisely why the court allowed an FDD-based fraud theory to proceed while barring reliance on the un-carved-out Workbook. The court’s reasoning suggests that a fraud-insulating or integration clause that affirmatively exempts the FDD may leave a franchisor exposed on the very representations most likely to be litigated, while extrinsic sales materials kept outside the four corners of the disclosed documents may be shielded by the parol-evidence rule. Franchisors and their counsel may wish to review integration, disclaimer, and reliance language with that asymmetry in mind, and to ensure that Item 19 financial-performance representations — and any informal “unit economics” worksheets circulated in the sales process — are accurate, complete, and internally consistent, since here the alleged defect was that the displayed figures came from two grandfathered franchises out of eight, on terms unavailable to new franchisees.
The decision also illustrates, on this record, the limits of contractual releases at the pleading stage. The court declined to enforce the general releases because they reached only accrued claims and the counterclaim did not reveal when the claims accrued, and it enforced the fraud-release clause only against the negligence count, not the intentional-fraud or statutory counts. The cautionary point is that broadly worded releases may not resolve a franchise dispute on a motion to dismiss unless the release language expressly reaches future or unaccrued claims and the timing of accrual is apparent from the pleading, and that releases aimed at intentional conduct may run into Pennsylvania’s public-policy bar. None of this reflects any finding that MDR did anything wrong — the surviving counts remain allegations only — but it counsels drafting releases with explicit future- and unaccrued-claim language where enforceable, and treating them as a supplement to, not a substitute for, disciplined disclosure practices.
On the defense-favorable side, the ruling supplies two portable arguments. First, the court confirmed that a standalone claim for breach of the implied covenant of good faith and fair dealing is subsumed within the breach-of-contract claim, a point franchisors facing duplicative counts may raise to streamline a case. Second, and more broadly, the court held that acquiring a franchise is a business rather than a personal, family, or household transaction, placing it outside Pennsylvania’s UTPCPL — reasoning that may inform how other courts approach attempts to layer consumer-protection statutes onto franchise-relationship disputes, though each state’s statute has its own scope and anti-waiver features, as the TCPA’s own anti-waiver provision here illustrates. Read together, the decision suggests that compliance-first disclosure practices, paired with precisely drafted contract defenses, may leave franchisors in a stronger position than contract language alone.
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 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. It was drafted with the assistance of an artificial intelligence system. AI systems can make mistakes, including in describing legal authority. Readers should independently confirm any legal authority before relying on it.
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