A hotel franchisor was not entitled to recover its requested damages in the amount of $1,065,165 for lost future revenues stemming from a franchisee's unilateral termination of the their agreement, according to a federal district court in St. Paul, Minnesota. The damages were too remote, uncertain, and speculative to be recoverable. Thus, the franchisor was awarded none of its requested actual damages for lost future revenues, $59,354 for fees outstanding at the time of termination plus interest, and its requested award of attorney fees was substantially reduced.

The franchisor asserted that it was entitled to the future revenues that the franchisee would have paid the franchisor over the 12-year period remaining on the 15-year franchise term. The franchisor calculated the requested amount by determining that the actual fees the franchisee was obligated to pay the franchisor over the course of the final 12 months that the franchisee actually operated the hotel averaged $279 per day. The franchisor then made an assumption that the franchisee would be obligated to continue paying the franchisor $279 per day over the remaining 4,505 days of the franchise term and reduced the amount to present value, the court noted.

There was no support for the franchisor's contention that it could estimate, with any reasonable degree of certainty, what the hotel's revenues would be over the remaining 12 years of the term of the agreement, the court held. The franchisor provided no proof regarding: (1) competitive market conditions in the relevant market, (2) its own expansion or contraction in the relevant market since 2007, (3) its historical accuracy in forecasting future revenue streams from franchised hotels, or (4) its ability to forecast economic trends.

In other contexts, courts had concluded that a two-year time period was a reasonable measure of a franchisor's damages for breach of a hotel franchise agreement because that was the average time it took a franchisor to find a replacement franchisee, the court observed. In this case, the franchisor provided no evidence from which the court could determine how long it likely would take the franchisor to replace the subject property in this geographic location. Other than a general statement that it had been unable to license a new facility in the area, the franchisor did not detail any efforts to mitigate its damages by finding another franchisee and opening another hotel in the market. The franchisor did not analyze the state of hotel competition in the relevant market and did not study whether customers were, or could have been, shifted to the franchisor's other hotels in the region. By allowing the franchisor to obtain a judgment for the 12-year stream of income sought by the franchisor, the court would be encouraging the franchisor to commit economic waste by putting forth no efforts to mitigate its damages, the court commented.

The franchisor's request for $36,347 for attorney fees and costs incurred in the dispute pursuant to an attorney fee provision in the parties' agreement was unreasonable, the court decided. The amount was reduced to $12,000 after taking into account the reasonable amount of work required to prosecute this type of case and taking into the account the court's experience with commercial litigation of this type.

The only possible explanation for the high level of attorney fees requested by the franchisor was that the franchisor included all of the legal work it incurred in connection with its attempt to obtain a legal judgment against the individual guarantor of the franchisee, the court opined. However, the franchisor was not entitled to "lard up" its judgment against the franchisee with fees it incurred in pursuit of the guarantor. The franchisor accepted the guarantor's offer of judgment, and, to the extent that the franchisor had any claim for attorney fees against the guarantor, it was subsumed in that judgment.

Days Inns Worldwide v. Investment Properties, DC Minn., ¶14,756

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