Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION NEWS: Franchisor of learning centers sues franchisee and guarantors, (Sep 24, 2013)

By Peter Reap, J.D., LL.M.

Huntington Learning Centers, Inc., a franchisor of businesses that provide tutoring services, has filed suit in the federal district court in Newark against one of its franchisees, 4F Enterprises, Inc., and four of the franchisee’s individual principals and guarantors.

According to the complaint, the parties entered into two franchise agreements, the first in 2009 and the second in 2012. The four individual principals of the franchisee entered into written guaranties personally guaranteeing the obligations of 4F under each franchise agreement. Later, when the defendants repeatedly failed to make required royalty and advertising payments, Huntington allowed two of the individual defendants to sign four promissory notes for the total of their noncurrent balances. Further, in conjunction with the promissory notes, these two individuals executed four security agreements to secure the debt reflected in the notes, the franchisor asserts.

Huntington alleges that the defendants breached their two franchise agreements by failing to make contractually required royalty and advertising payments in amounts not less than $13,042 under the first franchise agreement and $20,282 under the second agreement. In addition, the defendants failed to make payments on the promissory notes when they came due. The franchisor claims that it made numerous attempts, via warning notices and notices of default, to inform the defendants of these breaches and provide an opportunity for cure. Despite these attempts, the defendants failed to make any past due payments to the franchisor under any of their agreements, the franchisor contends.

Huntington brings a claim for a declaratory judgment that, based on the termination provisions in the parties’ franchise agreements, it is entitled to terminate the agreements immediately, without further notice, and without any right (or further right) to cure the defaults. It also alleges claims for breach of the franchise agreements, guaranties, and promissory notes, and seeks a declaratory judgment that it is entitled to exercise all of its rights and remedies under the security agreements.

The complaint in Huntington Learning Centers, Inc. v. 4F Enterprises, Inc., Civil Action No. 2:13-cv-5637, was filed September 20, 2013.

Attorneys: Phillip C. Bauknight (Porzio, Bromberg & Newman P.C.) for Huntington Learning Centers, Inc.

Companies: Huntington Learning Centers, Inc.

News: FranchisingDistribution NewJerseyNews