January 23, 2025|Franchise Frontlines
January 23, 2025 | Supreme Court of New York, Westchester County | Unreported Opinion
Executive Summary
In an unreported opinion, Justice Linda Jamieson of the Supreme Court of New York, Westchester County, ruled on three motions arising out of Allstate’s termination of an Exclusive Agency Agreement with Old Slip Benefits & Insurance Services, LLC. Plaintiff argued that the agreement was an illegal franchise under the New York Franchise Sales Act (NYFSA). Allstate countered that the contract permitted termination “with or without cause” and that it had complied with the agreement’s express terms. The court dismissed claims for breach of contract and other equitable theories but allowed the NYFSA claim and the implied covenant of good faith and fair dealing claim against Allstate to proceed. The court also dismissed claims against individual employees and a Virginia-based Allstate representative for lack of personal jurisdiction. A temporary restraining order remains in effect while the parties litigate the request for a preliminary injunction.
Relevant Background
Old Slip Benefits, a financial services and investment advisory business, entered into an Exclusive Agency Agreement with Allstate on March 1, 2024. Plaintiff alleged that the purpose of the agreement was to operate a franchised insurance agency in White Plains, New York, while continuing to run its separate financial services business. Plaintiff contended that its principal, James Lukezic, made this understanding clear during negotiations with several Allstate employees.
On June 25, 2024, Allstate issued a termination letter citing “unauthorized brokering” and “outside business interests” as reasons for termination, effective September 30, 2024. Plaintiff claimed the termination was unlawful and sought injunctive relief. On September 19, 2024, the court issued a temporary restraining order preventing termination pending further proceedings. Plaintiff later amended its complaint to add a claim under the NYFSA, arguing that Allstate had unlawfully sold an unregistered franchise without providing required disclosures.
The amended complaint asserted seven causes of action: breach of contract, breach of the implied covenant of good faith and fair dealing, violation of the NYFSA, unconscionability, reformation, equitable estoppel, and tortious interference. Defendants moved to dismiss various claims, and the plaintiff sought a preliminary injunction.
Decision
The court first addressed Allstate’s motion to dismiss. It dismissed the breach of contract claim, holding that Section XVII(B)(2) of the Exclusive Agency Agreement expressly permitted termination “with or without cause” on 90 days’ notice, and that Allstate complied by providing written notice on June 25 for a September 30 termination date. The court relied on precedent enforcing similar clauses. See Rahman v. Allstate Ins. Co., 644 F. Supp. 3d 231, 237 (E.D. La. 2022) (holding no breach where Allstate terminated on 90 days’ written notice); Baldo v. Patton, 65 A.D.3d 765, 766–67 (3d Dep’t 2009) (finding termination clause enforceable as written).
However, the court allowed the implied covenant of good faith and fair dealing claim to survive. Quoting JLO Dev. Corp. v. Amalgamated Bank, 232 A.D.3d 705, 705 (2d Dep’t 2024), the court emphasized that “[e]ven an explicitly discretionary contract right may not be exercised in bad faith so as to frustrate the other party’s right to the benefit under the agreement.” Plaintiff alleged that Allstate exercised its termination right to deprive it of the benefit of the bargain, which was sufficient to withstand dismissal.
Most importantly, the court sustained the NYFSA claim against Allstate. Plaintiff alleged that the Exclusive Agency Agreement required payment of fees and granted Allstate significant control, rendering it an unregistered franchise agreement under N.Y. Gen. Bus. Law §§ 680–695. While the court dismissed the claim as to individual employees for lack of factual support, it held that plaintiff stated a viable claim against Allstate, noting that the Franchise Sales Act is designed to protect investors in franchise-like relationships regardless of the label used.
Other claims were dismissed. The unconscionability count was barred as a matter of law, since that doctrine provides a defense, not an affirmative claim. The reformation claim failed for lack of allegations of mutual mistake or fraud. Equitable estoppel was unavailable given the integration clause and explicit termination language. The tortious interference claim against Allstate employees Napoleon and McMahon failed because there was no underlying breach, and because employees acting within the scope of employment cannot be held liable for inducing their employer’s breach.
The court also granted the motion of Marc Stevenson, an Allstate employee based in Virginia, to dismiss for lack of personal jurisdiction. It found that Stevenson’s limited email and phone contacts, all in his capacity as Allstate’s Candidate Concierge, did not constitute transacting business in New York under CPLR §§ 301 or 302, and that requiring him to defend the suit in New York would not comport with due process.
Finally, the court deferred ruling on plaintiff’s motion for a preliminary injunction, holding that discovery was needed on the surviving claims. The temporary restraining order preventing Allstate from terminating the agreement remains in place.
Looking Forward
This decision highlights how franchise law claims can penetrate relationships that companies style as exclusive agency or distribution arrangements. Even where a contract grants an unqualified right to terminate without cause, courts may allow NYFSA claims to proceed if the structure resembles a franchise. For franchisors and brands, this underscores the risk of structuring arrangements that involve fees and operational control without complying with franchise registration and disclosure requirements.
The case also illustrates that termination provisions, while generally enforced, do not insulate franchisors or insurers from claims of bad faith. Courts continue to treat the implied covenant of good faith and fair dealing as a meaningful limitation on unfettered termination rights.
For corporate employees, the decision reinforces the protection of jurisdictional limits: plaintiffs cannot simply name out-of-state personnel to gain leverage in franchise disputes. And finally, the preliminary injunction proceedings show the practical pressure points—franchisees and agents often seek injunctive relief to keep operations running during litigation, leaving franchisors exposed to prolonged interim relationships despite contractual rights.
Taken together, the ruling in Old Slip Benefits v. Allstate illustrates the multi-pronged exposure franchisors and brand systems face: franchise law liability even where agreements are not styled as franchises, continued litigation risk despite broad termination clauses, and the practical costs of defending injunctions while disputes proceed.
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 or constitute, nor does it create or constitute, an attorney-client or any other legal relationship. No statement in this communication constitutes legal advice nor should any communication herein be construed, relied upon, or interpreted as legal advice. This communication is for general information purposes only regarding recent legal developments of interest, and is not a substitute for legal counsel on any subject matter. No reader should act or refrain from acting on the basis of any information included herein without seeking appropriate legal advice on the particular facts and circumstances affecting that reader. For more information, visit www.buchalter.com.
