July 14, 2025|Publications
July 14, 2025 | United States District Court for the District of New Jersey | Published Opinion
Executive Summary
In a published opinion, Judge Michael E. Farbiarz of the District of New Jersey denied Days Inn Worldwide’s motion for summary judgment against its Missouri franchisee, Shri Ganesai LLC, and guarantor, Mayuri Patel. After a 2019 fire destroyed the franchisee’s hotel, Days Inn sued for unpaid fees, breach of guaranty, and trademark infringement based on signage that remained on the closed property. Days Inn argued the fire was arson caused by the franchisee’s agent, making the force majeure clause inapplicable, and that keeping the Days Inn sign up constituted trademark use in commerce. The court rejected summary judgment, finding that (1) a jury must decide whether insurance litigation qualified as a “diligent remedy” under the Franchise Agreement’s fire clause, (2) the guarantor could not be liable without a proven breach, and (3) trademark law requires commercial use, which was absent when the sign hung outside an abandoned hotel.
Relevant Background
Days Inn and Shri Ganesai LLC entered into a 2017 Franchise Agreement, personally guaranteed by Patel. The Agreement required monthly fees and contained a force majeure clause excusing performance if a fire prevented operations “so long as a remedy is continuously and diligently sought.”
In October 2019, a fire destroyed the property. The hotel never reopened and fees went unpaid. Days Inn terminated the Agreement in 2022 and sued. Days Inn argued the fire was arson set by an agent of the franchisee, and that the force majeure clause could not apply because it covered only causes “beyond the franchisee’s control.” The franchisee responded that it pursued insurance recovery diligently, ultimately winning a verdict against its insurer after years of litigation.
The franchisor also alleged trademark infringement and dilution because the Days Inn sign remained on the closed hotel until 2023, when it was removed pursuant to a consent injunction.
Decision
The court denied summary judgment across all claims.
On the breach of contract claim, the court held that a jury could find the franchisee excused from paying fees if it acted diligently to remedy the fire’s effects. The record showed that the franchisee submitted an insurance claim, litigated against its insurer when coverage was denied, and prevailed at trial and on appeal. A jury could conclude that these steps satisfied the diligence requirement, even though the hotel remained closed.
As to Days Inn’s argument that the fire was arson caused by the franchisee’s manager, the court noted conflicting evidence. A hotel manager entered an Alford plea in state court, but the plea did not include an explicit admission of arson, and a later civil jury verdict in related insurance litigation did not establish the manager’s culpability. The court emphasized that weighing the arson evidence was for a jury, not for summary judgment.
The court also rejected Days Inn’s reading of the force majeure clause. Days Inn argued that the clause excused performance only when causes were “beyond the franchisee’s control.” Applying the last antecedent rule, the court concluded that the phrase “beyond the control of the party affected” modified only the final catchall category of events, not the specifically listed causes like “fire.” Thus, the provision could apply to any fire, regardless of fault, subject to proof of diligence.
On the guaranty claim, the court explained that Patel’s liability depended on an established breach of the Franchise Agreement. Because a jury could excuse the franchisee’s nonpayment, the guarantor could not be liable at this stage.
On the trademark claims, the court denied summary judgment because the Lanham Act requires “use in commerce.” The Days Inn sign remained outside the hotel for four years, but the hotel was closed and provided no goods or services. The court stressed that frustration experienced by the public did not establish a Lanham Act violation.
Importantly, this was a published opinion. While the Third Circuit has not directly addressed what constitutes “use in commerce” under the Lanham Act in this setting, this decision now stands as precedential authority in the District of New Jersey. Other circuits, including the Second and Ninth, have held that internal or non-commercial use of a mark does not violate trademark law, and this opinion brings that reasoning firmly into New Jersey law. It is likely to be cited in future cases involving franchisor efforts to enforce trademark rights against closed or abandoned locations.
Looking Forward
This case may have several implications for franchisors. Allegations of arson by a franchisee or its agents can create factual disputes that prevent early resolution. Unless force majeure clauses are drafted to explicitly exclude causes within the franchisee’s control, franchisees may argue that even questionable circumstances fall within the scope of “fire.”
Guaranty enforcement may also be affected, as franchisors may need to establish liability against the franchisee before pursuing recovery from a guarantor.
On the trademark side, franchisors should be aware that this published opinion may become the go-to authority in New Jersey for the principle that passive signage at a closed location does not constitute “use in commerce.” Although this does not prevent franchisors from obtaining injunctive relief or relying on contract remedies, it suggests that Lanham Act claims may not be the most effective tool in such situations.
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.
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