July 21, 2025|Franchise Frontlines
July 21, 2025 | U.S. District Court, Central District of California | Unpublished Opinion
Executive Summary
In a detailed post-trial order, Judge Sherilyn Peace Garnett of the U.S. District Court for the Central District of California granted in part and denied in part competing motions for attorneys’ fees following a franchise dispute between Meineke Franchisor SPV LLC, Meineke Realty, Inc., and their former franchisee CJGL, Inc. The jury found that CJGL breached the 2021 Franchise Agreement and Sublease Agreement, but also found that Meineke Franchisor was equitably estopped from enforcing the Franchise Agreement due to fraudulent inducement. Judgment was entered in favor of Meineke Realty on its Sublease claim for $13,796.32, while Meineke Franchisor recovered nothing on its Franchise Agreement claim. Applying California Civil Code § 1717 to the Sublease Agreement and North Carolina law to the Franchise Agreement, the court held that Meineke Realty was the prevailing party under the Sublease but that neither party prevailed under the Franchise Agreement. After calculating a lodestar of $578,695, the court reduced the award by 50% for limited success and awarded $289,347.50 in attorneys’ fees to Meineke Realty.
Relevant Background
The dispute arose from a Meineke franchise in Santa Barbara, California. CJGL entered into a 2014 Franchise Agreement and Sublease Agreement to operate a Meineke Car Care Center. In 2021, the parties executed a renewed Franchise Agreement. Disputes developed concerning lease renewal, repair obligations, and alleged representations regarding securing a direct lease with the landlord.
In January 2023, the Meineke Parties filed suit asserting:
- Breach of the 2021 Franchise Agreement (approximately $200,000 sought);
- Breach of the Sublease Agreement (approximately $65,000 sought);
- Breach of a Personal Guaranty.
CJGL responded with nine counterclaims, including claims for fraudulent inducement, negligent misrepresentation, breach of the implied covenant, interference with prospective economic advantage, California Franchise Investment Law (“CFIL”) violations, and UCL claims seeking $1,000,000 in damages.
In July 2024, the court granted summary judgment for the Meineke Parties on all nine counterclaims. The matter proceeded to trial on the Meineke claims.
The jury found:
- CJGL breached the Franchise Agreement.
- CJGL breached the Sublease Agreement.
- The Doumas breached the Personal Guaranty.
- However, Meineke Franchisor was equitably estopped from recovering on the Franchise Agreement and Guaranty claims due to fraudulent inducement.
- Meineke Realty was awarded $13,796.32 under the Sublease Agreement.
Judgment was entered accordingly. Both sides then sought attorneys’ fees.
Decision
The court addressed fee entitlement separately under the Sublease Agreement and the 2021 Franchise Agreement.
Separate Contracts, Separate Prevailing Party Analysis
CJGL argued the Sublease and Franchise Agreements should be treated as one integrated transaction for prevailing party purposes. The court rejected that argument, relying on California authority holding that where multiple independent contracts contain fee provisions, “the prevailing party … must be determined as to each contract regardless of who prevails in the overall action.”
Because the Franchise Agreement and Sublease Agreement involved different parties and purposes, the court analyzed them independently.
Sublease Agreement — Meineke Realty Prevails
The Sublease incorporated a Master Lease fee provision awarding fees to the party who “substantially obtains or defeats the relief sought.”
Applying California Civil Code § 1717, the court compared the relief sought and obtained. Although Meineke Realty initially sought $65,000 and recovered only $13,796.32 (approximately 21%), it nevertheless recovered affirmative damages, while CJGL recovered nothing on seven Sublease-related counterclaims.
The court rejected CJGL’s argument that its counterclaims were merely “defensive in nature,” noting that the counterclaims sought $1,000,000 and significantly expanded the scope of the litigation. Because Meineke Realty “recovered a greater relief” on the Sublease Agreement, it was the prevailing party.
Franchise Agreement — No Prevailing Party
The 2021 Franchise Agreement contained a reciprocal fee clause governed by North Carolina law. The court applied the contract’s North Carolina choice-of-law provision after determining that no fundamental California policy was violated.
Under North Carolina law, a prevailing party is the one “in whose favor the decision or verdict is rendered and judgment entered.”
Here, the jury found CJGL breached the Franchise Agreement but also found Meineke Franchisor equitably estopped from recovery. As a result:
- Meineke Franchisor recovered nothing.
- CJGL avoided liability but lost all nine counterclaims at summary judgment.
The court declined to find either party prevailed under the Franchise Agreement and denied both sides’ requests for fees on that contract.
Notably, the Franchise Agreement’s fee clause did not include “substantially prevails” language, unlike the Sublease. The court refused to read such language into the contract.
Lodestar Calculation and 50% Reduction
Having determined Meineke Realty was entitled to fees under the Sublease Agreement, the court calculated a lodestar of $578,695 based on 1,121.8 hours at rates between $300 and $550 per hour.
The court then reduced the lodestar by 50% for limited success.
The court reasoned:
- The Franchise Agreement claims represented the bulk of damages sought.
- The Meineke Parties failed entirely on those claims.
- The successful and unsuccessful claims were factually intertwined.
- It was impossible to segregate time spent on specific claims.
However, the court credited Meineke Realty’s success in defeating the counterclaims and declined to impose a greater reduction.
The final fee award: $289,347.50.
Looking Forward
This opinion provides several instructive lessons for franchisors.
First, separate contracts should contain deliberately drafted fee clauses. Here, the Sublease’s “substantially obtains or defeats relief” language supported a fee award even though recovery was limited. The Franchise Agreement’s more traditional “prevailing party” language led to a different result.
Second, equitable defenses can materially alter fee exposure. Although the jury found breach of the Franchise Agreement, the equitable estoppel finding eliminated recovery and defeated prevailing-party status. Franchisors should recognize that renewal negotiations and pre-signing representations can affect post-termination enforcement.
Third, counterclaims matter. Even where a franchisor loses on its primary contract claim, defeating expansive counterclaims may influence fee determinations—particularly under California’s reciprocal fee statute.
Fourth, lodestar reductions are real. Courts will scrutinize overall success and may impose substantial percentage reductions when litigation results are mixed.
Finally, drafting clarity remains paramount. Fee clauses, choice-of-law provisions, and integration language should be carefully harmonized across franchise and real estate agreements to avoid inconsistent prevailing-party outcomes.
For franchisors operating in California, this decision underscores that fee recovery is not automatic—even where breach is established—and that contract architecture meaningfully affects post-litigation economics.
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.
