The Third Circuit Court of Appeals affirmed summary judgment for a franchisor on a franchisee’s breach of contract claims, finding that the franchise agreement unambiguously granted the franchisor the right to suspend the franchisee’s hotel from the reservation system and divert reservations for a failure to perform. Baymont Franchise Sys. Inc. v. Bernstein Co. LLC, 2025 WL 3633151 (3d Cir. 2025).
The Bernstein Company, LLC executed a franchise agreement with Baymont Franchise Systems Inc. in 2014 for the operation of a 60-room Baymont-branded hotel in Georgia. Bernstein Co. failed to pay recurring fees to Baymont, at which point Baymont suspended Bernstein Co. from the reservation system, as permitted by the franchise agreement. David Bernstein personally guaranteed Bernstein Co.’s obligations under the franchise agreement. By its terms, the franchise agreement terminated in 2017 after Bernstein Co. lost possession of the hotel facility. Baymont then advised Bernstein Co. and David Bernstein that they owed Baymont liquidated damages for premature termination as well as outstanding recurring fees and other charges. Baymont sued Bernstein Co. and David Bernstein for breach of the franchise agreement and the guaranty. Bernstein Co. defaulted, while David Bernstein answered and made several attempts to file counterclaims against Baymont.
After repeatedly granting motions to amend, the district court denied Bernstein’s fifth and sixth requests to amend his answer and counterclaim. Baymont then moved for summary judgment, which the court granted, awarding Baymont $136,367.34 in past due recurring fees, $49,634.82 in liquidated damages, $2,993.00 in costs, and $104,701.21 in attorneys’ fees. Bernstein appealed to the Third Circuit. The Third Circuit affirmed summary judgment for Baymont, holding that the district court correctly assessed that further attempts to amend the answer and counterclaim would be futile. The court emphasized that under the franchise agreement, Baymont was unambiguously permitted to suspend the hotel from the reservation system for any default under the system and to divert reservations after giving notice of non-performance, non-payment, or default. The Third Circuit also rejected Bernstein’s challenge to the liquidated damages calculation, noting the “presumptive reasonableness” of liquidated damages provisions in commercial contracts under New Jersey law. This decision underscores the importance of express termination and liquidated damages provisions in the franchise agreement.