Franchisor Wins Attorneys’ Fees and Costs in Termination Decision

29 September 2020 Legal News: Distribution & Franchise Publication
Authors: Jesse L. Beringer

The U.S. District Court for the Eastern District of Virginia recently issued a decision in AFC Franchising, LLC, et al., v. Fairfax Family Practice, Inc., et al., 1:18-cv-1356 (LMB/IDD), awarding a franchisor attorneys’ fees and costs following a drawn-out suit based on, among other things, alleged breach of a franchise agreement. 

Plaintiff AFC Franchising, LLC (“AFCF”) operated a franchise system consisting of urgent care centers.  In June 2014, AFCF entered into a franchise agreement with defendant Fairfax Family Practice, Inc. (“FFP”), subject to a weekly royalty fee that AFCF could electronically debit from FFP.  The agreement provided that any default from FFP on royalty or other payments would constitute a basis for termination of the agreement unless FFP cured the default.  Finally, the agreement specified that both defendants, Ahmad Fazal Nusrat (“Nusrat”) and FFP, would be liable for attorneys’ fees if FFP breached the agreement.

In 2017, FFP missed some royalty payments, and in July 2018, Nusrat removed AFCF’s ability to electronically debit those royalty payments.  Defendants received a notice of default, but failed to cure. AFCF terminated the franchise agreement in early September 2018. AFCF filed suit seeking damages for unpaid royalties and a declaration that it validly terminated the agreement.  The court granted AFCF’s motion for summary judgment.

The parties then litigated the issue of attorneys’ fees and costs. Defendants did not contest that they owed attorneys’ fees, but sought to cap them at $25,000. The court held that the hourly rates for AFCF’s attorneys and the hours worked were reasonable with a few exceptions for duplicative work or administrative fees like delivery services. The court ultimately reasoned that the parties had agreed AFCF would be entitled to fees in the event it prevailed in a suit for breach of the franchise agreement and should receive them in this case in the amount of $128,957.50, plus some costs.

The case is instructive to in-house attorneys and outside counsel alike.  Notably, the franchise agreement provided for attorneys’ fees.  Though the amount of fees was more than five times the amount of past-due royalties awarded to AFCF, this did not stop the court from awarding fees where they were due.  This case underscores the simple—yet important—lesson to include a clear attorneys’ fees provision in franchise agreements.

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