The Franchise Memorandum

In Hardee’s Food Systems, Inc. v. Hallbeck, No. 4:09CV00664 AGF (E.D. Mo. Feb. 28, 2012), the United States District Court for the Eastern District of Missouri granted summary judgment to Hardee’s on a claim that its decision to produce purportedly “lewd” television advertisements constituted an abuse of its discretion in overseeing the Hardee’s National Advertising Fund. (Gray Plant Mooty represented the franchisor in this case.) Although the franchise agreement gave Hardee’s “sole discretion” over the advertising and marketing activities financed by the fund, the franchisee alleged that it had been denied the “expected benefits” of its agreement and that Hardee’s had breached the implied covenant of good faith and fair dealing.

The record demonstrated that Hardee’s undertook the advertising campaign to promote its brand, that Hardee’s worked with a national advertising firm to create the campaign, and that senior Hardee’s personnel closely monitored consumer reaction to the campaign. The court found that Hardee’s had made a strategic marketing decision “in what it believed was the best interests of the Hardee’s brand,” and held that such activity did not constitute the type of “opportunistic” and “exploitive” conduct that the implied covenant was meant to address. The court also found that the franchisee’s knowledge of the advertising campaign before renewing its franchise agreement precluded its argument that it was denied the expected benefit of the agreement.