Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—Tex. App.: Property restoration business franchisor prevails in dispute with franchise owner, (Mar 11, 2026)

By Martin A. Steinberg, J.D.

Rainbow International terminated franchise agreements with Cheyenne Partners and its principal, alleging repeated failures to submit required reports, provide financial statements, and comply with contractual obligations.

The Texas appellate court affirmed a trial court judgment in favor of Rainbow International, LLC and The Grounds Guys, LLC in a dispute with franchisee Cheyenne Partners, LLC and its principal, Jason Kitts, arising from the termination of Michigan-based franchise agreements. The appellate court rejected the franchisees’ argument that Michigan franchise law governed the dispute, holding that they waived the issue by failing to properly request judicial notice of foreign law under Texas Rule of Evidence 202. The court further concluded that legally and factually sufficient evidence supported the trial court’s finding that the franchisees breached their agreements by failing to timely submit required weekly sales reports, pay fees, provide audited financial statements, and by impairing the franchisor’s goodwill through noncompliance with an insurance-program relationship. Finally, the court held that the franchisees waived their appellate complaints regarding affirmative defenses and counterclaims because the pleadings asserting those claims were not included in the appellate record (Cheyenne Partners, LLC v. Rainbow International, LLC, No. 10-24-00282-CV (Tex. App. Mar. 5, 2026)).

Background. Rainbow is a franchisor of property-restoration businesses that offer water, fire, smoke, and mold-damage services. The Grounds Guys is a franchisor of landscaping businesses. Jason Kitts acquired a Rainbow International franchise in Monroe, Michigan, in 2009 and later purchased a second franchise in Oakland, Michigan, in 2014. That same year, he also obtained a franchise from The Grounds Guys. Kitts assigned the franchise interests to his company, Cheyenne Partners, LLC, but remained personally liable as guarantor. Although the franchises were financially successful, Kitts’ relationship with Rainbow became increasingly contentious.

After months of unsuccessful communications, Rainbow filed suit in the 170th District Court of McLennan County, Texas, in September 2017. Shortly thereafter, Rainbow issued a “Notice of Default and Intent to Terminate Franchise Agreements,” identifying alleged defaults and giving the franchisees thirty days to cure them, followed by a “Notice of Final Termination of Franchise Agreement” in November 2017. The defendants later removed the case to the U.S. District Court for the Western District of Texas in April 2018, but the federal court remanded the matter to the state court in December 2018. A bench trial was ultimately held in June 2024, after which the trial court found that the franchisees had breached the Rainbow agreement, abandoned the Grounds Guys franchise, and awarded damages to the franchisors.

Standard of Review. In appeals from a bench trial, a trial court’s findings of fact are reviewed under the same legal and factual sufficiency standards applied to jury verdicts, while conclusions of law are reviewed de novo. A party challenging the legal sufficiency of evidence must show that no evidence supports the adverse finding. Evidence is legally sufficient if reasonable factfinders could reach the verdict, and reviewing courts credit favorable evidence while disregarding contrary evidence unless reasonable factfinders could not do so.

For factual sufficiency challenges, the reviewing court considers the entire record. It will set aside a verdict only if it is so contrary to the overwhelming weight of the evidence as to be clearly wrong and unjust. The court also emphasized that appellate courts may not substitute their judgment for that of the factfinder, which is responsible for assessing witness credibility, weighing testimony, and resolving conflicts in the evidence.

Choice of law. Because the appellants failed to properly invoke or preserve the issue, the appellate court held that the choice-of-law argument was waived. The appellants argued that the trial court erred by failing to apply Michigan law, which they contended provides statutory protections governing franchise relationships. However, under Texas Rule of Evidence 202, a party seeking application of another state’s law must file a motion requesting judicial notice of the foreign law and provide the court with sufficient information to apply it. A party must also raise the issue in the trial court in a timely manner to preserve it for appellate review.

The appellants asserted that they sufficiently raised the choice-of-law issue through several filings that referenced Michigan law and cited provisions of the Michigan Franchise Investment Law. However, the court determined that the cited documents did not properly invoke Michigan law. Two of the filings were made in federal court before the case was remanded to state court, and therefore did not notify the state trial court. Other documents were filed only after the trial or after judgment had been rendered, making them untimely to raise a choice-of-law issue. In another filing, the appellants cited a Michigan statute but did not clearly raise a choice-of-law dispute or explain differences between Michigan and Texas law.

The court further noted that the appellants never filed the required Rule 202 motion requesting judicial notice of Michigan law. Although Michigan law was mentioned during the trial and referenced during cross-examination of a witness, those references did not constitute a formal request for the trial court to apply Michigan law.

Breach of contract. The appellate court rejected the appellants’ contention that the breach-of-contract judgment was invalid because certain alleged breaches required notice and an opportunity to cure and because the trial court allegedly relied on multiple theories of liability. The court noted that the argument largely depended on the application of Michigan law, which the appellants had waived. It also observed that several provisions of the franchise agreement allowed termination without notice or an opportunity to cure. It further explained that other breach theories presented at trial did not require notice under the franchise agreement and independently supported the judgment.

The court also held that legally and factually sufficient evidence supported the trial court’s finding of breach. Testimony showed that the franchisees failed to submit required weekly sales reports, remit associated license fees, provide audited financial statements, and comply with program requirements associated with a Liberty Mutual insurance program, thereby impairing the franchisor’s goodwill. Because the franchise agreement permitted termination without notice for certain violations, the evidence supported the trial court’s determination of breach.

Applicable law. Under Texas law, to establish a breach of contract, a plaintiff must prove the existence of a valid contract, the plaintiff's performance or tender of performance, the defendant's breach, and damages resulting from the breach. Applying these principles, the court examined the evidence supporting the alleged contractual defaults.

Testimony showed that the franchise agreements required the franchisee to submit weekly sales reports and pay license fees. Evidence indicated that the franchisees repeatedly failed to submit these reports and associated payments. The agreements also required the franchisees to provide financial statements, including audited statements upon request, which the evidence showed were not provided. In addition, the franchisees’ failure to comply with requirements tied to a Liberty Mutual insurance program they chose to participate in led to the program's suspension and damaged the franchisor’s goodwill.

Although the franchisee testified that he later submitted missing reports and attempted to cure certain deficiencies after receiving the notice of default, the court noted that the franchise agreements permitted termination without notice or an opportunity to cure for certain violations, including failure to timely submit reports, failure to provide audited financial statements, and conduct materially impairing the franchisor’s goodwill. The court therefore concluded that more than a scintilla of evidence supported the trial court’s finding of breach and that the judgment was not against the overwhelming weight of the evidence.

Affirmative defenses and counterclaims. The court declined to review the appellants’ argument that the evidence established their affirmative defenses because the pleadings asserting the affirmative defenses and counterclaims were not included in the appellate record. The appellants argued that the evidence supported their affirmative defenses, including fraud, fraudulent nondisclosure, violation of Michigan law, and prior material breach, and also supported their counterclaims for fraud, breach of contract, violations of the Texas Deceptive Trade Practices Act, and violations of the Michigan Franchise Investment Law. Without those pleadings, the court could not determine the issues presented at trial or evaluate the appellants’ claims. Because the appellants bore the burden of ensuring that the record contained the necessary documents, the court held that they waived their complaints regarding the denial of their affirmative defenses and counterclaims.

The Case is No. 10-24-00282-CV.

Judge: Smith, S.

Attorneys: Joel S. Shields (Scanes Yelverton Talbert, LLP) for Cheyenne Partners, LLC. Jim Dunnam (Partner at Dunnam & Dunnam LLP) for Rainbow International, LLC.

Companies: Cheyenne Partners, LLC; Rainbow International, LLC

Cases: FranchisingDistribution TexasNews