When can franchisors obtain either liquidated damages or lost future royalties when the parties’ franchise relationship terminates? (Radisson v. Majestic Towers)
Minneapolis franchise law attorney Kirk Reilly discusses liquidated damages and lost future royalties.
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I had the privilege of representing Radisson in a case, Majestic Towers out in California in, I believe, 2007, and unfortunately in California under their law if a franchisee violates the contract and the franchisor terminates them, the California courts and law had said the franchisor isn’t entitled to its lost future damages because the franchisor took the action of terminating. It seems like a bad decision, but in the Radisson case we were able to convince the court that because Radisson had a liquidated damages clause that the parties agreed to beforehand, that took it outside of this law that would have prevented it, and the court ruled that, yes, this liquidated damages clause allowed Radisson to get the damages through the remaining term of the contract that the liquidated damage clause said it was entitled to. So it was a really good decision for franchisors, and I think it gave them a lot of impetus to start thinking hard about should we put liquidated damage clauses in our contracts.