Virginia Lawyers Weekly VA Lawyers Weekly
Where a franchisor needed to provide notice and an opportunity to cure before it could terminate an agreement for failure to meet development goals, and no such notice was provided here, the franchisor breached the contract.
Background
Defendant JTH Tax LLC sells franchises engaged in the preparation of tax returns as well as area development, or AD, territories that support the franchises within their prescribed geographic boundaries. Plaintiffs Road King Development Inc. and ZeeDee LLC are parties with two separate AD agreements with defendant.
Plaintiffs’ second amended complaint alleged the following causes of action: (1) breach of contract – wrongful termination as to Road King; (2) breach of contract – failure to pay franchise royalties as to Road King and ZeeDee and (3) breach of contract – wrongful termination as to ZeeDee. Both sides have filed motions for summary judgment.
Count One
To succeed on a breach of contract claim under Virginia law, plaintiffs must establish the following elements: (1) a legally enforceable obligation of a defendant to a plaintiff; (2) the defendant’s violation or breach of that obligation and (3) injury or damage to the plaintiff caused by the breach of obligation.
Road King alleges that the early renewal acknowledgement amended the term of the expiration date for Road King’s contract from six years to 10 years; therefore, Liberty’s correspondence on Nov. 23, 2020, constituted an improper termination. Although defendant contends this was a scrivener’s error, this document was reviewed and executed by both parties. So the fact that a party’s intent was not fully reflected cannot be attributed to an error of the scrivener.
Liberty’s stated basis for terminating Road King was its “failure to meet the development goals.” The failure to meet development goals is not listed as a specific reason for which Liberty may terminate Road King without opportunity to cure. Liberty did not provide a notice letter to Road King before Nov. 23, 2020, related to its failures to meet the terms and conditions of the contract. Thus, Liberty did not conform with the contractual requirements for terminating Road King without cause. Accordingly, plaintiffs’ amended motion for partial summary judgment is granted as to Count One and defendant’s motion for summary judgment is denied as to Count One.
Count Two
Plaintiffs allege that Liberty breached both ZeeDee and Road King’s AD agreements by failing to pay plaintiffs “the full share of royalties and fees owed to Plaintiffs, specifically, their portion of the e-filing fees charged by Liberty Tax to the Franchisees, by the deadline stated in paragraph 3.10.”
The franchise agreements make clear that e-filing fees are not included in gross receipts. Since e-filing fees are not included in gross receipts they are not subject to royalties under the AD agreements. Accordingly, defendant’s motion for summary judgment is granted as to Count Two.
Count Three
ZeeDee’s breach of contract claim in Count Three alleges that Liberty breached the AD Agreement by failing to renew the agreement on the same terms. The plain language of § 7.2 of the AD agreement gave ZeeDee an opportunity to enter into a new agreement with Liberty for the provision of similar services if ZeeDee: (a) was in compliance with the AD agreement; (b) gave 180 days written notice in accordance with the notice provision and (c) executed a general release.
Here, undisputed facts establish that ZeeDee did not comply with the “Minimum Requirements” in § 4.1 and Schedule B. Further, undisputed facts establish that ZeeDee did not give proper notice as required by § 8.10. Defendant is therefore entitled to summary judgment as to Count Three.
Plaintiffs’ amended motion for partial summary judgment granted in part, denied in part. Defendant’s motion for summary judgment granted in part, denied in part.
Road King Development Inc. v. JTH Tax LLC, Case No. 2:21-cv-55, Feb. 17, 2023. EDVA at Norfolk (Jackson). VLW 023-3-080. 23 pp.
