RMH Franchise Holdings – Court Rules Against Applebee’s, Debtors Franchise Agreements Not Terminated Prepetition

September 25, 2018 – The Court hearing the RMH Franchise Holdings case, sided with the Debtors in a dispute with Applebee’s over whether Applebee’s had terminated the Debtors’ franchise agreements prior to the Petition Date [Docket No. 568].  In its judgment the Court states, “Applebee’s sent a termination letter in September 2017 that explicitly gave notice of impending termination, followed by a series of letters extending the cure period, none of which mentioned termination. The Debtors argue the Cure Extensions did not provide them with adequate or commercially reasonable notice of Applebee’s intent to terminate the Franchise Agreements. The Court agrees. Reliance on a series of letters with extensions of cure periods, none of which mention termination, is not clear and unambiguous notice of intent to terminate. Those letters operated only to extend the time within which the Debtors might cure the acknowledged defaults. Applebee’s argues the reservation of rights in each Cure Extension operated to preserve and push termination to the expiration of the final cure period. In its brief, Applebee’s quotes the September 20 Letter and suggests, in light of subsequent events, it should be read to say ‘the Franchise Agreements terminated ‘on the [219th] day without further notice,’ or, in other words, on April 27, 2018.’ AP Docket No. 39 (brackets in original). That argument is unpersuasive. The September 20 Letter provided the Franchise Agreements would terminate on the 91st day after notice of default. Applebee’s cannot retroactively edit the September 20 Letter. The subsequent Cure Extensions did not provide for termination of the Franchise Agreements upon expiry of the cure period and are inadequate to provide the requisite clear and unambiguous notice of termination. Even were the Court to find the Cure Extensions provided clear and unambiguous notice of Applebee’s intent to terminate, the record shows the Forbearance Letter signed on April 25, 2018 effectively delayed Applebee’s right to terminate until the Petition Date…. The Forbearance Letter reflects Applebee’s commitment to delay pursuing all of its rights under the Franchise Agreement—including termination. Applebee’s disputes that interpretation and attempts to distinguish between the act of termination and exercise of its post-termination rights. It again insists the Franchise Agreements had terminated nearly two weeks before the Petition Date, and that the Forbearance Letter delayed only its post-termination rights.”