Court Sides With Applebee's Franchisee in Bankruptcy Case
A main point of contention in the bankruptcy case of RMH Franchise Holdings, Applebee’s second largest franchisee, is whether their franchise agreements were terminated prior to a bankruptcy filing.
Dine Global Brands (DIN), Applebee’s parent, filed a lawsuit against RMH arguing they'd already terminated the franchise agreements for the company’s Arizona and Texas restaurant locations and were entitled to take them over. RMH, on the other hand, said they filed bankruptcy just prior to receiving the franchise termination notice, and that the franchise agreements were assets of the company and its creditors. Any actions involving those agreements, RMH argued, were bound by the court.
U.S. bankruptcy judge for the District of Delaware, Brendan Shannon, ruled today in favor of RMH that Applebee’s did not properly terminate the franchise agreements. He cited RMH’s early morning bankruptcy filing on May 8, whereas Applebee’s, unaware of the filing, sent a forbearance letter later that day agreeing to delay its termination rights until May 20. Furthermore, that same day, unaware of RMH’s filing, Applebee’s sent a letter terminating the Arizona and Texas franchise agreements retroactively to April 27 and filed a lawsuit in U.S. District Court asserting its rights to terminate the franchise agreements and recover over $12 million in back royalties and advertising fees.
The court sided with RMH’s receipt of earlier multiple “cure extensions” with no notice of intent to terminate the franchise agreements. In his opinion, Judge Shannon wrote, “nothing in the record suggests Applebee’s unambiguously notified the Debtors (RMH) prior to the petition date that it intended to terminate the franchise agreements on April 27, 2018.”
Judge Shannon explained the Applebee’s franchise agreements were governed by Kansas law (Applebee’s was founded and headquartered for many years in Kansas), which “mandates that termination of a contract be clear and unambiguous and convey an unmistakable purpose to rescind or forfeit the agreement.”
Legal sources said this is a rare win for the franchisee in a case like this. Dine Global Brands said it would appeal the decision.