Shortly after their abandonment, Hardee’s, the franchisor, terminated the franchise agreement and subsequently started a lawsuit seeking damages in the form of the royalties that the franchisees would have paid had they completed the term of their agreement. Hardee’s submitted two reports from an expert who estimated that such damages would total around $50,000.
The franchisees moved for summary judgment on Hardee’s claim, arguing that lost future royalties were not recoverable because their franchise agreement did not contain a provision that allowed for liquidated or other prospective damages. They claimed that awarding lost future royalties was contrary to public policy and that such damages would be too speculative to be recoverable.
The Court denied the franchisees’ motion. It noted that ‘[u]nder Missouri law, generally, ‘lost profits related to a breach preventing performance are recoverable provided the loss is the natural and proximate result of the breach, is ascertainable with reasonable certainty, is not speculative or conjectural, and was within the contemplation of the parties when the contract was made.”
The Court decided that the franchisees’ closure of the franchise could be a proximate cause of Hardee’s loss, and noted that the amount of revenue that might have been derived was a fact issue that could not properly be decided on a motion for summary judgment. The Court relied on Meineke Car Care Ctrs., Inc. v. RLB Holdings, LLC, 423 Fed. App’x. 274, 284 (4th Cir. 2011), a recent case from the United States Court of Appeals for the Fourth Circuit which also decided that lost future royalties could be recovered for a franchisee’s midterm breach of its franchise agreement, even in the absence of an explicit contractual provision allowing for their recovery.
The Fourth Circuit and Missouri courts both noted that basic contract principles allow a nonbreaching party to recover damages in the form of lost future royalties. The Court also stated that the franchisor’s expert report provided an adequate basis for estimating its damages with ‘reasonable certainty.’
The authors’ firm, Gray Plant Mooty, represented Hardee’s in this case.
Carl Zwisler, IDI franchising Country Expert for U.S.A. and Maisa Jean Frank Gray Plant Mooty.
