Fiesta Ventures of Bevercreek, LLC v. Qdoba Restaurant Corporation

Summary

The United States District Court for the Southern District of California denied the counterdefendants’ amended motion to dismiss Qdoba Franchisor, LLC’s second and fourth counterclaims for lost future royalties. The court held that the allegations plausibly supported a total breach of the franchise agreements and that lost future royalties could be available under the circumstances. The court also rejected the counterdefendants’ public-policy arguments under California franchise statutes and denied Qdoba’s request for judicial notice as moot.

Holdings

1. The counterclaims plausibly alleged that Fiesta Ventures committed a total breach of the franchise agreements and that Qdoba may seek lost future royalties as damages.
2. Sealy does not categorically foreclose a franchisor from seeking lost future royalties as a matter of law; the availability of that remedy depends on the nature of the breach and whether the breach itself prevented the franchisor from earning the royalties.
3. The California Franchise Relations Act and California Franchise Investment Law do not apply to the out-of-state franchise agreements at issue and therefore do not provide a basis for dismissing the lost-future-royalties counterclaims.

Questions Presented

1. Whether the counterclaims plausibly alleged a breach of the franchise agreements sufficient to support a claim for lost future royalties under California law.
2. Whether Postal Instant Press, Inc. v. Sealy categorically bars a franchisor from seeking lost future royalties after terminating a franchise agreement.
3. Whether California's Franchise Relations Act or Franchise Investment Law makes lost future royalties unavailable or otherwise bars Qdoba's counterclaims in this dispute.

Disposition

other