Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—E.D.N.Y.: Franchise termination dispute raises waiver questions under Maryland law, (Jun 15, 2026)

By Wendy Biddle, J.D.

Years of accepting late payments may complicate a franchisor's ability to invoke termination rights.

The federal district court in Brooklyn, New York mostly denied summary judgment filed by Kiddie Academy Domestic Franchising, LLC against its former franchisee, Paradise Organization Corp., and its individual guarantors. The decision turned primarily on whether the franchisor waived its right to terminate the franchise agreement without providing notice and an opportunity to cure, after years of accepting late and deficient payments. The court concluded that noted that although the defendants' payment lapses may have provided grounds for immediate termination under the Voluntary Termination Agreement, because Kiddie Academy continued to accept payments and did not invoke its termination right for nearly six years after executing the agreement, that created a triable issue of fact of whether Kiddie waived its termination rights that could not be resolved on a summary judgment motion (Kiddie Academy Domestic Franchising, LLC v. Paradise Organization Corp., No. 2:24-cv-02864-GRB-JMW (E.D.N.Y. Jun. 12, 2026)).

Background. Kiddie Academy is a franchisor of educational childcare centers serving children between six weeks and twelve years of age, operating more than 300 franchised locations nationwide, including fourteen on Long Island. Paradise Organization Corp. first entered a franchise agreement with Kiddie Academy in 1999. Upon expiration of that agreement in 2012, the parties executed a renewal franchise agreement, under which owners Sonu and Deepak Chadha personally guaranteed all of Paradise's obligations.

The renewal franchise agreement required Paradise to remit weekly royalty payments and brand building fund fees, maintain the premises, and comply with both in-term and post-term non-compete obligations. The agreement also afforded defendants a thirty-day notice-and-cure period before any termination for default could take effect.

From 2012 through 2018, Paradise consistently submitted payments late, accumulating what the parties characterized as a substantial arrearage. To restructure the debt, the parties entered into three related documents in 2018: a Voluntary Termination Agreement, a settlement agreement, and a promissory note. The Voluntary Termination Agreement permitted Kiddie Academy to terminate the franchise agreement immediately without notice or an opportunity to cure upon any new default, defined to include any event of default under either the franchise agreement or the promissory note. The 2018 Promissory Note required Paradise to satisfy a total debt of $133,934.90 in three installments due by the end of October, November, and December 2018. The 2018 Settlement Agreement, in turn, provided that if Paradise fulfilled all its obligations and remained out of default, the Voluntary Termination Agreement would become null and void.

Critically, the Voluntary Termination Agreement was signed only by the defendants. Kiddie Academy apparently never executed the document, despite a condition precedent specifying the agreement would become effective only upon Kiddie Academy's execution.

In the years following the 2018 restructuring, Paradise again fell behind on payments. By March 4, 2024, it owed Kiddie Academy more than $48,000. Kiddie Academy also alleged that Paradise violated the franchise agreement in 2023 and 2024 by failing to provide required financial disclosures and failing to adequately maintain the premises. On March 4, 2024, Kiddie Academy invoked the Voluntary Termination Agreement and sent a termination notice, with termination to become effective April 3, 2024. The court emphasized that the intervening period was not an opportunity to cure. Within days of receiving the termination notice, defendants began converting the premises into an independent childcare operation called Blooming Buds Learning Center, allegedly in violation of the franchise agreement's non-compete provisions.

Kiddie Academy sued Paradise and moved for partial summary judgment on three of its claims: breach of contract based on failure to make timely payments under the Franchise Agreement; breach of contract based on the non-competition provisions in the Franchise Agreement; and permanent injunction enforcing the non-competition provisions of the Franchise Agreement. Kiddie Academy also moved for summary judgment on the Paradise’s counterclaims of breach of contract; violation of the implied covenant of good faith and fair dealing; conspiracy; and declaratory judgment.

Breach of contract claims. Kiddie Academy alleged that Paradise breached the Franchise Agreement by failing to make timely payments and by opening a competitive daycare in the same space. Paradise argued that the Volunteer Termination Agreement was ineffective at the time of termination and therefore Kiddie Academy did not have the right to terminate the agreement without providing notice and an opportunity to cure. The court denied summary judgment on Kiddie Academy's breach of contract claims and its request for a permanent injunction, finding genuine issues of material fact on the question of waiver.

The court's analysis addressed two distinct waiver questions, applying Maryland law pursuant to a governing law provision in the franchise agreement. The first question was whether the Voluntary Termination Agreement was ever effective, given that Kiddie Academy never signed it. The court acknowledged the unambiguous condition precedent requiring Kiddie Academy's execution, but concluded that defendants had waived it as a matter of law. Under Maryland law, a party may waive a condition precedent by taking actions inconsistent with an intent to rely on that condition. Here, defendants admitted they made payments in accordance with the promissory note schedule as required by the Voluntary Termination Agreement, even if belatedly. The court found that conduct sufficient to waive the execution requirement, resolving that question in favor of Kiddie Academy.

The second waiver question was a bit thornier. Paradise argued that even if the Voluntary Termination Agreement was valid, it became null and void once the promissory note was paid in full in July 2019; seven months after the December 2018 deadline. They further argued that by continuing to accept payments after the promissory note's deadlines passed, and for years thereafter, Kiddie Academy waived its right under the Voluntary Termination Agreement to terminate without notice and an opportunity to cure.

The court found substantial merit in defendants' position sufficient to create a triable issue. Under Maryland law, a party that continues to accept performance after an alleged breach waives its right to terminate the contract for that breach. The court noted that all of defendants' lapses may have provided grounds for immediate termination under the Voluntary Termination Agreement, yet Kiddie Academy continued to accept payments and did not invoke its termination right for nearly six years after executing the agreement, and five years after satisfaction of the promissory note. The court observed that "a reasonable juror could find that this constituted a waiver of plaintiff's right under the VTA to terminate the Franchise Agreement without providing notice and an opportunity to cure."

The presence of non-waiver clauses in both the Voluntary Termination Agreement and the 2018 Settlement Agreement added further complexity. Both documents stated that Kiddie Academy's failure to enforce any term would not constitute a waiver of its rights. Maryland law requires the trier of fact to consider non-waiver clauses, though it does not treat them as dispositive. A party asserting waiver must demonstrate intent to waive both the relevant contractual provision and the non-waiver clause itself. The court concluded that these unresolved factual questions, including the interplay between Kiddie Academy's years of inaction and the non-waiver language, precluded summary judgment.

Because the breach of contract claims could not be resolved on summary judgment, the court denied the permanent injunction as well, finding that Kiddie Academy had not demonstrated actual success on the merits, the standard applicable to permanent rather than preliminary injunctive relief.

Counterclaims. On the counterclaims, the court dismissed the implied covenant of good faith and fair dealing counterclaim because Maryland does not recognize an independent cause of action for breach of that implied covenant; such a theory must proceed as an element of a breach of contract claim. The court dismissed the civil conspiracy counterclaim because neither Maryland nor New York recognizes civil conspiracy as a standalone tort absent an underlying tortious act, and defendants' claims sounded in contract rather than tort. Defendants' breach of contract counterclaim premised on wrongful termination survived for the same factual reasons that precluded summary judgment on Kiddie Academy's claims, and the declaratory judgment counterclaim concerning the non-compete provisions likewise survived given the unresolved termination question.

The Case is No. 2:24-cv-02864-GRB-JMW.

Judge: Brown, G.

Attorneys: Clifford J. Bond (Kaufmann Gildin & Robbins LLP) for Kiddie Academy Domestic Franchising, LLC. Laurel R. Kretzing (Jaspan Schlesinger LLP) for Paradise Organization Corp.

Companies: Kiddie Academy Domestic Franchising, LLC; Paradise Organization Corp.

Cases: FranchisingDistribution NewYorkNews