April 22, 2026|Franchise Frontlines
April 22, 2026 | North Carolina Business Court | Unpublished Opinion
Executive Summary
In an unpublished decision, the North Carolina Business Court granted in part and denied in part a motion to dismiss in a dispute between franchisees and Maaco Franchisor SPV LLC arising from alleged misuse of advertising funds. The franchisees alleged that the franchisor diverted marketing fees for non-advertising purposes and failed to provide required financial disclosures. The franchisor argued that its actions fell within its contractual discretion and that the claims were conclusory. The court rejected that argument at the pleading stage, allowing breach of contract and related claims to proceed, while dismissing statutory unfair trade practices and certain claims against parent entities. The decision underscores both the relatively low bar for franchisees to advance contract-based claims and the limits of expanding those claims into broader statutory liability.
Relevant Background
The plaintiffs are multi-unit franchisees operating dozens of locations across multiple states under the Maaco system. Their franchise agreements required payment of recurring marketing or advertising fees, which the franchisor was obligated to use for system-wide promotional efforts intended to enhance brand recognition and customer traffic.
The dispute emerged following a series of changes to the franchisor’s advertising practices. According to the complaint, the franchisor reduced traditional advertising expenditures, shifted away from internal marketing operations, increased administrative costs, and declined to provide detailed financial reporting regarding the use of collected fees. Franchisees alleged that these actions coincided with declining customer volume and raised concerns that advertising funds were being used for purposes unrelated to system-wide marketing.
After repeated requests for financial transparency, the franchisor provided data that plaintiffs characterized as incomplete and unresponsive. Plaintiffs then filed suit asserting claims for breach of contract, breach of the implied covenant of good faith and fair dealing, declaratory relief, unfair or deceptive trade practices, and accounting. They also sought to impose liability on affiliated parent entities based on guaranty language in the franchise disclosures.
Decision
The court denied the motion to dismiss as to the core contract-based claims against the franchisor, holding that the plaintiffs sufficiently alleged both the existence of valid franchise agreements and plausible breaches of those agreements.
The court rejected the franchisor’s argument that the dispute merely reflected disagreement over business judgment in administering the advertising fund. Instead, it emphasized that plaintiffs alleged not only dissatisfaction with marketing strategy, but also misuse of funds for purposes unrelated to advertising and a failure to provide contractually required financial disclosures. Taking the allegations as true, the court found these claims sufficient to proceed past the pleading stage .
The court further allowed claims for breach of the implied covenant of good faith and fair dealing and declaratory judgment to proceed, treating them as closely tied to the underlying contract claim. The court reiterated that North Carolina’s notice pleading standard imposes a relatively low threshold at the motion to dismiss stage.
At the same time, the court dismissed claims against the franchisor’s parent and affiliated entities. Although the complaint alleged that those entities guaranteed the franchisor’s obligations, it did not allege specific facts establishing a breach of those guarantees or otherwise supporting independent liability. The court characterized the allegations as too conclusory to sustain claims against those entities at this stage.
The court also dismissed the unfair or deceptive trade practices claim under N.C.G.S. § 75-1.1. It held that the alleged conduct—while potentially constituting a breach of contract—did not rise to the level of “substantial aggravating circumstances” required to convert a contractual dispute into a statutory violation. The court emphasized that disputes over performance, even if intentional, generally do not support such claims absent additional deceptive or egregious conduct.
Finally, the court dismissed the standalone accounting claim, explaining that accounting is a remedy rather than an independent cause of action, though it may remain available depending on the outcome of the underlying claims.
Looking Forward
This decision highlights the continued scrutiny courts apply to franchisor administration of advertising and marketing funds. Franchise agreements often grant franchisors broad discretion in how such funds are deployed, but that discretion is not unlimited. Allegations that funds are diverted to purposes unrelated to system-wide marketing—or that required financial disclosures are withheld—may be sufficient to sustain contract-based claims at the pleading stage.
At the same time, the ruling reinforces important limits on franchisee claims. Courts remain reluctant to elevate ordinary contractual disputes into statutory unfair trade practice claims absent clear allegations of deceptive or egregious conduct. This distinction provides a meaningful boundary for franchisors facing claims that attempt to expand liability beyond the contractual framework.
The dismissal of claims against affiliated entities also underscores the importance of maintaining corporate separateness and carefully structuring guaranty obligations. Conclusory allegations of control or financial backing are unlikely to suffice without specific facts demonstrating a breach or independent basis for liability.
More broadly, the case illustrates how disputes over system-wide programs—particularly those involving pooled funds such as advertising contributions—can become focal points for franchise litigation. For franchisors, clear documentation, consistent reporting practices, and alignment between contractual obligations and operational practices remain critical to mitigating risk in this area.
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 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 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.
