September 23, 2025|Franchise Frontlines
September 23, 2025 | U.S. District Court for the Eastern District of New York | Unpublished Opinion
Executive Summary
In an unpublished opinion, Judge Nicholas G. Garaufis of the Eastern District of New York granted in part and denied in part McDonald’s motion to dismiss a wide-ranging lawsuit brought by longtime franchisee George Michell. Michell alleged that McDonald’s engaged in race-based discrimination, interfered with his airport-venue business relationships, breached duties under the Franchise Agreement, committed fraud, made false promises about renewal processes, and retaliated against him. McDonald’s sought dismissal of six counts. The court dismissed the franchise-based contract, fraud, promissory estoppel, and retaliation claims, but allowed Michell’s tortious-interference and § 1981 disparate-treatment claims to proceed. The ruling contains detailed analysis of renewal discretion, the enforceability of no-renewal clauses, the franchisor’s right to modify standards, and the limits of implied-covenant and fraud theories—issues of significant importance to franchisors nationwide.
Relevant Background
According to the allegations, Michell has operated McDonald’s restaurants since 1990 and, through several LLCs, owns dozens of franchised locations across multiple states. He is also a long-standing participant in the Hispanic Owner/Operators Association and has been featured publicly as a successful Hispanic franchisee. Separate from his McDonald’s units, he operated eight non-McDonald’s “Special Venues” at Bradley International Airport as a subtenant under a master concessionaire arrangement.
The complaint alleged that Michell’s restaurants came under heightened scrutiny beginning in 2022 following labor-related enforcement actions by municipal agencies. Michell further alleged that McDonald’s unfairly applied its 2023 Owner/Operator Involvement Standard, which impacted his eligibility for renewal, and that certain McDonald’s executives urged him to sell all of his restaurants at what he viewed as below-market prices. He also alleged that decisions affecting his daughter’s progress in the Next Gen succession program were tied to these disputes.
McDonald’s denied these allegations and contended that the Franchise Agreement expressly disclaimed any promise of renewal, reserved broad discretion to update standards, and did not obligate the company to grant new terms. McDonald’s moved to dismiss the franchisee’s contract-based claims and several of his tort and civil-rights claims, arguing that the complaint failed to state a claim under the applicable federal and state standards.
Decision
The court granted McDonald’s motion in part and denied it in part. Four claims were dismissed, and two claims survived. The court’s holdings reflect a careful reliance on the express franchise-agreement terms while allowing limited claims to move forward at the pleading stage.
Contract-Based Claims Dismissed
The court dismissed Michell’s breach-of-contract claim with prejudice. It held that the Franchise Agreement unambiguously stated that McDonald’s made no promise or representation regarding renewal or the grant of new franchises. The agreement required adherence to McDonald’s standards as they existed at signing and as revised over time. Because these provisions were clear, the court concluded that the implied covenant of good faith and fair dealing could not be invoked to override the franchisor’s contractual renewal discretion or its ability to update standards such as the 2023 Owner/Operator Involvement Standard.
The court further rejected the contract claim because the implied covenant under Illinois law cannot modify or limit express contractual rights. The agreement clearly vested McDonald’s with discretion over renewal. Because the contract terms were unambiguous, the court held that neither the construction-aid version of the implied covenant nor the “reasonable discretion” variant applied. Based on these findings, Count III was dismissed with prejudice.
Fraud and Promissory Estoppel Claims Dismissed
The court dismissed Michell’s fraud claims for lack of particularity. The complaint alleged that McDonald’s failed to disclose an intent to change its renewal “course of dealing” and misrepresented that renewal decisions would be based on “objective criteria,” but the court held that the complaint did not meet Rule 9(b)’s specificity requirements. The allegations did not identify concrete statements, speakers, timing, or supporting facts that could constitute fraud by omission or affirmative fraud. The court also held that generalized assurances regarding “objective criteria” were non-actionable corporate puffery.
The promissory-estoppel claim failed because it contradicted the explicit no-renewal provisions of the Franchise Agreement. Under Connecticut law, promissory estoppel cannot be used to graft new obligations onto an existing, enforceable contract. The court also found no clear or definite promise by McDonald’s to renew Michell’s franchises, and no circumstances under which McDonald’s should reasonably have expected reliance given the contract’s express reservation of renewal discretion. The court dismissed the promissory-estoppel claim with prejudice.
Tortious Interference Claim Survives
The court allowed Michell’s tortious-interference claim to proceed. The claim concerns Michell’s “Special Venue” restaurants at Bradley Airport, which are not McDonald’s-branded units but instead fall under an airport concessionaire structure. According to the allegations, when McDonald’s chose not to renew its own master concessionaire lease, Michell attempted to apply directly for that lease. The complaint alleges that, after learning of his bid, McDonald’s opposed his efforts and supported competing bidders.
The court found these allegations sufficient to plead a legitimate expectancy with the airport authority, McDonald’s knowledge of that expectancy, intentional interference, and resulting harm. Because these business relationships were governed by arrangements distinct from the Franchise Agreement, the court held that Michell plausibly alleged wrongful interference at this early stage.
§ 1981 Disparate-Treatment Claim Survives
The court held that Michell plausibly alleged a § 1981 disparate-treatment claim. According to the complaint, McDonald’s treated him less favorably than several similarly situated white franchisees facing comparable labor-law issues. The court emphasized that Michell identified specific comparator operators, alleged parallel regulatory issues, and contended that the comparators were treated differently during renewal evaluations and compliance assessments. Although McDonald’s disputed these allegations, the court concluded that Michell’s comparator-based allegations were sufficient to state a claim at the pleading stage.
The court did not find direct evidence of discriminatory remarks but held that circumstantial comparator evidence may allow a claim to proceed. Count VII therefore survived.
§ 1981 Retaliation Claim Dismissed
The court dismissed the retaliation claim. It concluded that many of the alleged retaliatory acts occurred before Michell engaged in any protected activity, meaning they could not serve as the basis of a retaliation claim. The court also found that McDonald’s counterclaim was not “baseless” and therefore could not be considered retaliatory as a matter of law. Because the counterclaim was grounded in contractual provisions and factual allegations, the court held that it was not plausibly alleged to be a retaliatory act. Count VIII was dismissed without prejudice.
Looking Forward
This decision may provide franchisors with meaningful guidance about the enforceability of renewal-related provisions and the use of system-standards modifications. The court’s strict enforcement of the Franchise Agreement’s no-renewal language illustrates how clear drafting may limit franchisee efforts to challenge renewal decisions through implied-covenant, fraud, or promissory-estoppel theories. The ruling also highlights that courts may treat standards-modification clauses as authorizing franchisors to evolve operational, personnel, or Owner/Operator requirements over time without triggering contractual claims.
The decision further illustrates that tort claims relating to business relationships outside the Franchise Agreement—such as airport concessions, stadium locations, or other multi-entity arrangements—may involve different legal considerations and may proceed independently of franchise-agreement terms. Franchise systems with nontraditional units or ancillary operations may wish to ensure clear documentation of roles, rights, and expectations within such structures.
Finally, the court’s treatment of the § 1981 disparate-treatment claim underscores the importance of consistent compliance practices and clear recordkeeping. Because courts may permit comparator-based allegations to proceed at the pleading stage, franchisors may benefit from maintaining detailed documentation of renewal decisions, compliance actions, and the bases for discretionary decisions. Outcomes will ultimately depend on the factual record, the governing jurisdiction, and the specific allegations at issue, but this decision reflects how courts may approach early-stage challenges to renewal-related determinations.
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.
