FRANSMART, LLC v. Freshii Development, LLC
768 F. Supp. 2d 851
E.D. Va.2011Background
- Fransmart, LLC sues Freshii Development, LLC for breach of a ten-year exclusive franchise sales consulting agreement.
- The agreement designated Old Fransmart as sole exclusive consultant for marketing/sales in the US and worldwide (except Canada).
- Old Fransmart transferred its assets/liabilities to DanCo, which renamed Fransmart; Royalty Trust remained as a passive holder.
- Freshii paid Old Fransmart for franchise sales through January 2010; after the restructuring, Fransmart continued to service Freshii’s account.
- Freshii challenges assignment of the contract from Old Fransmart to Fransmart as a lack of standing, with other defenses (fraud, lack of specificity, lack of mutuality, unconscionability).
- Both sides cross-moved for summary judgment; the court held Fransmart liable for breach and rejected Freshii’s defenses.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to sue for breach | Fransmart validly assigned rights to Fransmart. | Contract is non-assignable personal service; assignment invalid. | Assignment valid; Fransmart has standing. |
| Fraudulent inducement | No misrepresentation; model/viability statements were forward-looking and supported by facts. | Old Fransmart misrepresented existence of a growth model and financial health. | No fraud; arguments fail as matter of law. |
| Lack of specificity | Agreement provides essential terms; exclusive marketing/sales with defined quotas and compensation is definite. | Marketing/selling activities are not individually itemized. | No lack of specificity; contract terms sufficiently definite. |
| Lack of mutuality | Consideration flows both ways; Fransmart must market/sell and Freshii must pay; mutual promises exist. | Limited remedy of termination undermines mutuality. | Mutuality exists; no defect. |
| Unconscionability | Sophisticated commercial parties negotiated arms-length; terms not grossly one-sided. | Terms are oppressive/unfair. | Contract not unconscionable. |
Key Cases Cited
- Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487 (1941) (choice-of-law rules apply in diversity actions)
- Colgan Air, Inc. v. Raytheon Aircraft Co., 507 F.3d 270 (4th Cir. 2007) (Virginia choice-of-law analysis; contract governs governing law)
- Tate v. Hain, 25 S.E.2d 321 (Va. 1943) (intent of parties given effect in choice-of-law context)
- McGuire v. Brown, 76 S.E. 295 (Va. 1912) (personal services contracts concept in Virginia)
- Reynolds & Reynolds Co. v. Hardee, 932 F. Supp. 149 (E.D. Va. 1996) (assignment of contracts and personal services considerations)
- Paige v. Faure, 127 N.E. 898 (N.Y. 1920) (whether successors and assigns clause controls assignment)