Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. Md.: Some franchisor proofs lacked declaratory support on summary judgment, franchisee’s breach counterclaims fail, (May 2, 2025)

By Justin Marcus Smith, J.D.

Maryland law calls for objective contract interpretation, and this franchise agreement did not require the “tailored advice and guidance” that the franchisee perceived as a basis for pursuing his breach counterclaims.

The Cleaning Authority Franchising SPE LLE (Cleaning Authority) partly prevailed on its motion for summary judgment in a matter where a franchisee disabled electronic funds transfer (EFT) and breached other terms of the parties’ franchise agreement, held a magistrate judge for the federal district court in Baltimore, Maryland. The court found the franchisee breached the franchise agreement as alleged. That justified compensatory damages, attorney fees and costs, and injunctive relief as a matter of law. However, the franchisor failed to marshal competent evidence about pre-termination and post-termination damages, including any royalties due, where answers to interrogatories or spreadsheets left calculations vague and lacked declaratory or other support. The franchisee, meanwhile, failed to assert effective counterclaims for franchisor breach where the plain, objective meaning of the franchise agreement did not call for the tailored support the franchisee said he was due. The franchisee also could not claim frustration of purpose or impossibility in connection with COVID-19 pandemic where there was no genuine dispute that he continued to have minimum staff and continued operating well after the pandemic. There was no credible basis to conclude that the franchise agreement was unconscionable, against public policy, or the product of fraud, given twenty years of business and three separate franchise agreements with the franchisor (The Cleaning Authority Franchising SPE LLC v. Cavallaro, No. 1:24-cv-00147-EA (D. Md. May. 1, 2025)).

Background. Cleaning business franchisor the Cleaning Authority Franchising SPE LLE (Cleaning Authority) began this action in 2024 claiming breach of contract, Lanham Act trademark infringement, and unfair competition based on the defendant franchisee’s alleged breach of their franchise agreement. Cleaning Authority sought injunctive, monetary, and other relief.

The franchisee answered and asserted two counterclaims seeking declaratory judgment that the Cleaning Authority materially breached the franchise agreement, thereby discharging him from his contractual duties due to impossibility, impracticability of performance, frustration of purpose, unconscionability, and fraud.

Years after a prior dispute, the parties entered into the presently disputed franchise agreement in early 2017 for a 10-year term, as amended. The 2017 agreement was subject to termination with no opportunity to cure if, among other things, franchisee’s bank refused an electronic funds transfer (EFT) withdrawal to pay for agreed royalty, advertising, or other fees. The franchisee gave a personal guaranty and agreed to confidentiality and non-competition for 24 months after cessation as franchisee.

The franchisee countered that the Cleaning Authority never supported him and was not interested in his success. However, the court cited that he did not point, in his deposition, to any specific provision that he believed the Cleaning Authority breached.

The court granted in part and denied in part a Cleaning Authority motion for summary judgment on its breach of contract claims and franchisee’s two counterclaims.

Breach. The court adjudged that the undisputed facts established, as a matter of law, that the franchisee breached the franchise agreement as the Cleaning Authority alleged.

The cleaning authority asserted two breach of contract claims. One was that franchisee breached obligations to pay royalties and other fees. The other was that he breached the confidentiality and non-competition agreement.

The court found the franchisee testified at his deposition that he “shut off” EFT access to his bank account; he knew that was contrary to the franchise agreement; and, he never reestablished EFT access. The court separately found that he admitted receipt of notices of default and termination and that he had agreed not to compete. Turning again to the deposition transcript, the court found he operated another competing business.

Relief granted. The court found the undisputed facts supported the Cleaning Authority’s requested relief of compensatory damages, attorney’s fees and costs, and injunctive relief. The franchisee agreed to be personally responsible for damages on breach. He also agreed to pay for interest on late payments at 1.5 percent of the highest legal rate and attorney’s fees and costs. The Cleaning Authority could submit “detailed records” in support of attorney fee reasonableness at the appropriate juncture. Apart from those items, the court found that other aspects of the requested relief involved disputed facts.

Relief denied. It was not clear that the Cleaning Authority was entitled to over $15,000 in pre-termination damages. Here, the Cleaning Authority relied only on answers to interrogatories without a declaration in support or other competent evidence. That was a speculative and inadequate basis for awarding putative pre-termination damages. The Cleaning Authority’s spreadsheet calculations were not necessarily accurate in light of correspondence from the franchisee’s counsel that repeatedly questioned them.

The court found the Cleaning Authority’s request for post-termination damages, in the form of lost future royalties, also lacked evidentiary support. Again, the Cleaning Authority relied on an answer to an interrogatory that left the mathematical calculations ambiguous as well as a spreadsheet without a corresponding declaration in support or other competent evidence. The court said it was also at a loss on how to decide potential double-recovery or the Cleaning Authority’s duty to mitigate. That foreclosed an award of post-termination damages “at this juncture.”

Counterclaims rejected. The court found the undisputed facts showed the Cleaning Authority was entitled to judgment as a matter of law on franchisee’s breach of contract counterclaim. The franchisee argued that the Cleaning Authority materially breached for failure to provide adequate advice and guidance, but the court found no dispute about operational support provided. The franchisee’s own exhibits showed the Cleaning Authority gave feedback on specific advertisements, provided advice on hours and hourly rate, and supported the franchisee in other ways. They had also done business together for about 20 years.

The court acknowledged the franchisee may have faced difficulty recruiting and retaining employees, but the franchise agreement “did not require the ‘tailored advice and guidance’ that [the franchisee] perceived as a material breach.” Per the objective theory of contracts in Maryland law, see Taylor v. NationsBank, N.A., 365 Md. 166, 178 (2001), the plain meaning of the agreement only called for “reasonable” operating assistance as the Cleaning Authority deemed necessary.

Maryland remedy. In any event, the court noted that any Cleaning Authority material breach would not have excused the franchisee from “performing while simultaneously reaping the benefits of the agreement.” See 7-Eleven, Inc. v. McEvoy, 300 F. Supp. 2d 352, 358 (D. Md. 2004). The available remedy for franchisor breach in the District of Maryland is to sue for damages or discontinue the acceptance of the benefits and then discontinue performance. Here, there was no dispute that the franchisee failed to send notice of default, to identify a breach, or to otherwise request termination of the franchise agreement. Moreover, he continued to benefit from the franchise agreement while unilaterally deciding not to perform certain obligations.

The franchisee’s arguments for a declaratory judgment were largely the same and failed for the same reasons. Again, attempts to “reframe the purpose and terms” of the franchise agreement to require more tailored guidance from the franchisor did not succeed because Maryland law follows objective contract interpretation.

No impossibility. As for frustration of purpose with respect to franchisee hiring, both parties cited to Maryland cases addressing frustration of purpose and impossibility in the context of the COVID-19 pandemic. Based on one of those cases in particular, the franchisee failed to show that performance was objectively impossible. See Critzos v. Marquis, 256 Md. App. 684, 700-701 (2023). The Critzos court found the restaurant in that matter could still offer carry-out or delivery. The instant court similarly ruled there was no genuine dispute that the franchisee, despite the pandemic, “still had the minimum employees necessary to continue operating his franchise[]” and even continued to operate and hire staff well after the pandemic.

The Case is No. 1:24-cv-00147-EA.

Judge: Aslan, E.

Attorneys: Michael L. Sturm (Lathrop GPM LLP) for The Cleaning Authority Franchising SPE, LLC. Trent A. Echard (Echard Marquette, P.C.) for Mike Cavallaro.

Companies: The Cleaning Authority Franchising SPE, LLC

Cases: FranchisingDistribution Covid19 MarylandNews