M&N Luxury AV, LLC v. Bang & Olufsen America, Inc.: Court Upholds Termination Procedure Despite Reconsideration Motion

Citation:

M&N Luxury AV, LLC v. Bang & Olufsen America, Inc., 2024 WL 4869161 (C.D. Cal. 2024)

Executive Summary:

In this unpublished decision, Judge Dale S. Fischer of the United States District Court for the Central District of California denied M&N Luxury AV, LLC’s (Plaintiff) motion for reconsideration of the court’s earlier order denying a preliminary injunction. The Plaintiff argued that the court failed to consider material facts and that newly discovered evidence justified reconsideration. The court rejected these arguments, finding that the Plaintiff had not demonstrated grounds for reconsideration under Rule 59(e) or Local Rule 7-18.

Relevant Background:

M&N Luxury AV, LLC operates retail stores in California under the Bang & Olufsen brand. The Plaintiff sought to enjoin Bang & Olufsen America, Inc. (Defendant) from terminating their franchise relationship under a Framework Agreement. The Defendant had issued two termination notices, one in February 2024 and another in May 2024, citing recurring late payments as the basis for termination. While the Plaintiff argued that these late payments were a characteristic of their relationship and did not constitute a breach, the court previously found that repeated nonpayment justified termination under Cal. Bus. & Prof. Code § 20021(g).

In its motion for reconsideration, the Plaintiff presented two arguments: first, that the court failed to address whether § 20021 was “self-executing” and if valid termination required adequate notice, and second, that a material fact had come to light—the Framework Agreement’s Schedule 24 had been amended, allegedly limiting the grounds for termination.

Decision:

The court denied the motion for reconsideration, basing its ruling on the following:

• The court held that reconsideration is appropriate only under limited circumstances, such as newly discovered evidence, clear error, or a change in controlling law. The Plaintiff failed to satisfy these criteria.

• The court rejected the Plaintiff’s argument regarding notice requirements, noting that the February 14, 2024, and May 8, 2024, termination notices were sufficient under both the Framework Agreement and California franchise law. The May 8 letter explicitly cited recurring nonpayment as grounds for termination, and the Plaintiff conceded its adequacy during earlier proceedings.

• The Plaintiff claimed that the amendment to Schedule 24 rendered nonpayment an invalid basis for termination. However, the court found that the Plaintiff was or should have been aware of the amendment earlier, and thus it did not constitute “new evidence.” Moreover, the revised Schedule 24 allowed for termination “for convenience” with six months’ notice, negating the Plaintiff’s argument.

• The court acknowledged that the Defendant might not have complied with the six-month notice requirement from the May 8 letter but concluded that any resulting damages could be remedied through monetary relief, not injunctive relief.

Looking Forward:

While this case does not introduce novel interpretations of the California Franchise Investment Law (CFIL), it provides key reminders for franchisors regarding termination procedures and compliance with franchise agreements. Two important takeaways emerge from the court’s decision:

• Under the CFIL, proper termination requires valid and detailed notice. Here, the court found the Defendant’s May 8, 2024, letter sufficient for compliance with both California law and the Framework Agreement. However, the court also highlighted that any premature termination could expose franchisors to monetary liability, even if procedural errors do not justify injunctive relief.

• The court’s rejection of the Plaintiff’s argument about the amendment to Schedule 24 underscores the importance of ensuring that franchisees are aware of any changes to agreements. Franchisors should document and communicate amendments clearly to avoid later disputes over their applicability.

As California law often favors franchisees, franchisors must remain diligent in adhering to statutory requirements and contractual provisions. This decision serves as a reminder that procedural missteps, even minor ones, can result in monetary liability and complicate franchise terminations. Franchisors should regularly review their agreements and processes to mitigate such risks.