Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—WDKy: Franchisees Failed to Satisfy Conditions for Delaying Remodeling Because of Permit Delay, (May 23, 2013)

By William Zale, J.D.

Because franchisees failed to provide KFC with timely documentation of permitting delays in remodeling of stores under the terms of a settlement agreement, the federal district court in Louisville granted KFC’s motion to enforce the settlement agreement to close the stores (KFC Corp. v. Kazi, May 22, 2013, McKinley, J.).

KFC terminated the franchise agreements for three California stores and brought suit alleging that the franchisees had violated the franchise agreements. As part of a settlement agreement, KFC reinstated the franchise agreements for the three stores, conditioned on the franchisees remodeling at least two of the stores within six months. The franchisees were granted a three-week extension but still had not begun to remodel after it expired.

The franchisees argued that the settlement agreement provided for extensions of the six-month time frame when a permitting delay occurred. The court noted, however, that the franchisees had to satisfy two conditions in order to claim an exception based on a permit delay: (1) provide documentation that they applied for permits within one week of KFC’s approval of the architect’s specifications; (2) provide documentation that they had satisfied all permit requirements within one week after a permitting entity’s request. The documentation had to be provided within one week from their notice of a permit delay.

The franchisees failed to satisfy the first condition in light of their admission that, after KFC approved their remodeling drawings, they failed to meet the one week deadline (extended by three weeks), for their permit applications. As to the second condition, the franchisees contended that they had not received “formal notice” of a delay by the permitting authorities. The agreement did not mention or require “formal notice,” the court observed. The franchisees admitted that they had actual knowledge that there would be delays throughout the permit review and approval processes. Despite this knowledge, they failed to provide any documentation to KFC of the permitting delay, the court found.

The court ordered the franchisees to immediately close and de-image the two stores.

The case is No. 3:11-CV-00475-JHM-DW.

Attorneys: Charles J. Cronan, IV (Stites & Harbison, PLLC) for KFC Corp. Amy O. Wheeler (Stoll Keenon Ogden PLLC) for Zubair M. Kazi.

Companies: KFC Corp.

Cases: FranchisingDistribution KentuckyNews