Kaufmann Gildin & Robbins LLPKaufmann Gildin & Robbins LLP2026-10-22T10:31:47Zhttps://www.kaufmanngildin.com/feed/atom/WordPress/wp-content/uploads/sites/1404180/2023/10/cropped-Kaufman-Gildin-site-icon-32x32.pngOn Behalf of Kaufmann Gildin & Robbins<![CDATA[FTC FRANCHISE ENFORCEMENT: WHAT THE PREMIER MARTIAL ARTS SETTLEMENT MEANS FOR FRANCHISORS AND FRANCHISE SALES ORGANIZATIONS]]>https://www.kaufmanngildin.com/?p=514122026-10-22T10:31:47Z2026-10-22T10:17:59Z
Think handing your franchise sales process to a third party puts the compliance burden on someone else? Think again.
The FTC’s recent enforcement action sends a clear warning to franchisors: you can outsource your franchise sales function, but you cannot outsource your compliance risk. Franchise sales practices, earnings representations and the conduct of third-party sales organizations remain squarely within the FTC’s enforcement crosshairs.
On October 5, 2026, the Federal Trade Commission (“FTC”) announced proposed settlements with Premier Franchising Group LLC (“PFG”), franchisor of Premier Martial Arts, and its former franchise sales organization, Franchise Fastlane LLC (“FFL”). The settlements resolve allegations that PFG and FFL made deceptive or unsupported representations to prospective franchisees concerning the Premier Martial Arts franchise opportunity and violated the FTC’s Franchise Rule. Under the proposed order against PFG, a monetary judgment of $3,875,424 would be entered against PFG, of which $650,000 must be paid to the FTC. The remaining $3,225,424 would be suspended subject to the accuracy and completeness of PFG’s sworn financial representations submitted to the FTC. The suspension will be lifted if, upon the FTC’s motion, the court finds that PFG “failed to disclose any material asset, materially misstated the value of any asset, or made any other material misstatement or omission in [its] financial representations,” potentially requiring PFG to pay the full judgment. The proposed order against FFL would impose a separate $1.2 million monetary judgment payable to the FTC. Together, the proposed settlements would require PFG and FFL to pay a combined $1.85 million to the FTC, provided the partial suspension of PFG’s judgment remains in effect. The proposed order against PFG also provides certain franchisees with the opportunity to cancel their existing franchise agreement within 60 days of receiving PFG’s notice of the option to cancel, without incurring any monetary penalty other than payment of any fees due as of the cancellation date.
Key Takeaways for Franchisors
1. An Item 19 Disclosure Must Be More Than Accurate—It Must Be Supportable
One of the FTC’s central allegations was that the financial performance information included in PFG’s 2020-2022 FDDs reported significant earnings for existing Premier Martial Arts franchisees, but that PFG lacked a reasonable basis to believe those results were representative of what new franchisees could achieve. The FTC specifically pointed to differences between existing franchisees and the franchisees being recruited.
For example, according to the FTC, many existing franchisees operated studios ranging from approximately 2,000 to 7,000 square feet, while PFG recommended that new franchisees open studios of approximately 1,200 to 1,600 square feet. The FTC also alleged that most prospective franchisees lacked martial arts experience, while existing franchisees generally had significant martial arts experience.
This distinction is critical.
The lesson for franchisors is important: Item 19 is not simply an exercise in reporting historical financial data. A financial performance representation must have a reasonable basis and be presented in a manner that does not mislead prospective franchisees about the results they can reasonably expect.
When preparing or updating Item 19, franchisors should consider:
Whether the units included in the analysis are reasonably comparable to the units currently being offered;
Whether the franchise model, investment requirements or operating structure has changed;
Whether franchisee qualifications or experience differ materially;
Whether the disclosure appropriately identifies material limitations on the data; and
Whether the franchisor can substantiate the reasonable basis for the disclosure.
Franchisors should periodically evaluate not only whether their Item 19 data is accurate, but also whether the underlying data remains relevant to the current franchise offering.
2. What Salespeople Say Outside the FDD Matters
A carefully drafted FDD does not protect a franchisor if its sales personnel or third-party franchise sales organization (“FSO”) make representations that are inconsistent with, or go beyond, the FDD.
The FTC alleged that FFL told prospective Premier Martial Arts franchisees that individuals without martial arts experience could profitably operate a franchise on a semi-absentee basis while working fewer than 15 hours per week.
This is a useful reminder that franchisors should monitor the entire franchise sales process—not simply the FDD.
Franchisors therefore should consider implementing ongoing monitoring procedures, including periodic review of recorded sales calls, mystery-shopper programs, audits of FSO communications, and certifications from sales personnel confirming compliance with approved scripts and policies.
A franchisor may engage an FSO to generate leads, qualify prospects, conduct discovery calls, manage sales presentations, or otherwise facilitate franchise sales. But using an FSO does not eliminate the franchisor’s responsibility to establish appropriate controls over what prospective franchisees are told.
3. Franchise Sales Organizations Do Not Eliminate the Franchisor’s Compliance Risk
The FTC's action also underscores the risks associated with third-party franchise sales organizations.
FFL was involved in marketing and selling Premier Martial Arts franchises. The FTC alleged that FFL participated in making financial performance representations outside the FDD and that certain aspects of its relationship with PFG were required to be disclosed.
Franchisors frequently rely on franchise brokers, sales organizations and lead-generation companies to expand their franchise development efforts. Those relationships can be valuable—but they also require oversight.
Franchisors should consider whether their agreements with these organizations adequately address compliance obligations, training, recordkeeping, approval rights, audit rights, indemnification, and the franchisor’s ability to terminate the relationship if the FSO violates applicable law or the franchisor’s policies.
Outsourcing franchise sales does not mean outsourcing franchise compliance. A third-party franchise sales organization should not be treated as a compliance firewall.
“Semi-Absentee” and Lifestyle Claims Require Particular Care
The FTC’s complaint alleged that PFG and FFL promoted the Premier Martial Arts opportunity by representing that individuals without martial arts experience could profitably operate one or more studios on a “semi-absentee” basis while working fewer than 15 hours per week. These allegations demonstrate the regulatory risk associated with claims about the amount of time a franchisee will need to spend operating a business.
Statements suggesting that a franchise can be operated “part-time,” “semi-absentee,” or with limited owner involvement can be highly influential to prospective franchisees. They also may be difficult to substantiate because the time commitment can vary based on staffing, franchisee experience, local market conditions and the franchisee's involvement in the business.
Thus, franchisors promoting a semi-absentee model should carefully evaluate whether their marketing materials and sales presentations make representations about:
Hours worked;
Owner involvement;
Staffing requirements;
Profitability;
Time to break even; or
The ability to operate multiple units.
The safer approach is to ensure that operational claims are carefully substantiated, consistently communicated and appropriately reflected in the franchisor’s compliance program.
4. What Should Franchisors Do Now?
The Premier Martial Arts case provides a timely opportunity for franchisors to conduct a franchise sales compliance audit. At a minimum, franchisors should:
Review their current Item 19 to confirm that each financial performance representation has a reasonable basis and remains relevant to the current franchise model.
Compare the FDD to actual franchise sales practices and identify representations made outside the FDD.
Review earnings and operating claims, including semi-absentee ownership, owner involvement and profitability.
Audit FSO communications.
Confirm required FDD disclosures for individuals involved in franchise sales.
Regularly train and monitor internal and third-party sales personnel.
The Bottom Line for Franchisors
The FTC’s Premier Martial Arts action demonstrates that franchise sales compliance extends far beyond preparing and delivering an FDD. Item 19 must be supported by a reasonable basis, sales representatives must stay within the boundaries of the franchisor’s disclosures, and third-party franchise sales organizations must be subject to meaningful oversight.
Although the FTC’s allegations against PFG and FFL have not yet been resolved through final court orders, the proposed settlements provide a useful warning for franchisors and franchise sales organizations. If approved by the district court, the orders will have the force of law and impose significant obligations on both parties.
For franchisors, the most important takeaway may be the simplest: if someone is selling your franchise, their representations can become your compliance problem because franchise compliance does not end when the FDD is finalized. It continues every time someone speaks to a prospective franchisee.
Michael highlights what he sees as a certain stagnation in traditional franchise agreements. He points out that while many franchise agreements are still structured around single and multi-unit agreements, they often overlook the reality that over 50% of franchise units are owned by multi-unit franchisees.
"We’re developing today what we look at as franchising by class."
This notion encourages a more nuanced approach, suggesting that agreements should reflect the diverse capabilities and resources that multi-unit franchisees bring to the table. The goal is to tailor agreements that recognize the differences in operational needs and contributions of various franchisee classes.
The Role of Technology and AI
As we navigate through an age dominated by technology, Michael emphasizes the need for franchisors to adapt. He notes that site selection and training can be optimized through technology, reducing the reliance on traditional methods.
"We can find out a lot about that location just by going to the internet and reviews."
This shift by a franchisor, notes Michael, would not only streamline operations but also empower more franchisees to take ownership of their management processes.
New Perspectives on Franchisees and Franchising
In the episode, we explore with Michael ideas about how franchising could be modified to fit contextual practices more efficiently, and how franchising can be used for public good such as health clinics in the social franchising context, among other topics.
The conversation with Michael Seid sheds light on the pressing need for the franchising industry to further adapt to the current business landscape. By acknowledging the complexity and diversity within franchise operations, both franchisors and franchisees can work together to create a more efficient and effective system. As Michael puts it: "We should be redesigning franchising to match up to what we're doing now anyway."
For a deeper dive into these insights, listen to the full episode where Michael discusses his upcoming books and more about the future of franchising.
]]>On Behalf of Kaufmann Gildin & Robbins<![CDATA[New Podcast Episode: Navigating Franchise Law in Mexico with Zarina Beltran, Esq.]]>https://www.kaufmanngildin.com/?p=513782026-10-15T09:31:28Z2026-10-15T09:11:52Z
Insights on new regulations and market potential for franchisors
In the latest episode of the KGR Franchise Law Podcast, we dive into some nuances and updates regarding franchise law in Mexico with Zarina Beltran, a seasoned franchise lawyer based in Mexico City. Zarina sheds light on the vibrant franchise sector in Mexico and the recent legal updates that every franchisor should be aware of.
Zarina opens by emphasizing Mexico's unique position in the franchising landscape, noting that the country has specific franchise laws due to its proximity to the U.S. She highlights the significance of the franchise sector, stating that it represents approximately 6-9% of Mexico's GDP and generated over 700,000 jobs last year.
Key Requirements for Franchising in Mexico
One of the fundamental requirements for franchising in Mexico is the Franchise Disclosure Document (FDD). Zarina points out that this must be provided at least 30 business days before executing an agreement, which often surprises international franchisors accustomed to shorter timelines.
"A lot of people assume that since this is Mexico, we won't have a specific law. But due to our proximity to the U.S., Mexico is a very interesting market for franchisors to enter," Zarina explains.
Recent Changes in Franchise Regulations
The podcast also covers recent updates in franchise regulations that came into effect this July. Zarina discusses the new provisions that require franchisors to disclose detailed information about the number of operating units and their performance.
Additionally, franchisors must now clarify all payments that franchisees will make as well as return on investment estimates. Zarina notes,
"If the FDD was provided but the information was not truthful, then the franchisee will have the first year to demand damages and subsequently, the nullity of the agreement."
Manning arose from a motor vehicle accident involving a vehicle owned by Tropic Island Trading Company Limited. Tropic had entered into an International Unit Franchise Agreement with Budget Rent A Car.The plaintiffs sued Budget and others for personal injuries arising from the accident. Budget moved for summary judgment, arguing, among other things, that it could not be held vicariously liable for Tropic's alleged negligence.The trial court denied the motion, and the Second Department affirmed.The Appellate Division reiterated the established New York rule that, absent proof of a principal/agency relationship or proof that a franchisor exercised a sufficiently high degree of control over its franchisee, there generally is no basis for holding a franchisor responsible for the franchisee's misconduct. The court cited Friedler v. Palyompis, 12 A.D.3d 637 (2d Dep't 2004), as well as Stern v. Starwood Hotels & Resorts Worldwide, Inc., 149 A.D.3d 496 (1st Dep't 2017), and Fogel v. Hertz International, 141 A.D.2d 375 (1st Dep't 1988).Importantly, however, the court did not hold that Budget was vicariously liable. Instead, it concluded that Budget's submissions failed to eliminate triable issues of fact concerning whether an agency relationship existed or whether Budget exercised the requisite degree of control over Tropic's operations.That distinction is important for franchisors.
The Agreement Is Only Part of the Story
Franchise agreements commonly state that the franchisee is an independent contractor and expressly disclaim any agency relationship. Those provisions are an important part of establishing the parties’ intended relationship and protecting the franchisor from vicarious liability.But when a vicarious liability claim arises, the analysis may extend beyond the language of the agreement. A plaintiff may argue that the parties’ actual conduct demonstrates a relationship different from the one independent contract relationship described in the agreement.The practical question becomes: What did the franchisor actually do?What did it require? What did it monitor? What did it approve? What authority did it retain?And, most importantly, did the franchisor's conduct remain within the legitimate bounds of protecting its brand and maintaining brand standards, or did it cross the line into controlling the franchisee’s day-to-day business operations?
Brand Standards vs. Operational Control
This distinction is particularly important because franchisors necessarily exercise some degree of control over their systems. Brand standards are fundamental to franchising.A franchisor may impose requirements concerning trademarks, customer experience, facilities, equipment, technology, training, quality, safety and legal compliance. These requirements do not, by themselves, transform a franchisee into the franchisor’s agent. The potential problem arises when the franchisor’s involvement moves beyond establishing and enforcing system standards and begins to resemble direct management of the franchisee’s business.For example, there may be a meaningful distinction between requiring a franchisee to maintain vehicles in accordance with specified safety or brand standards and directing the franchisee's employees regarding the day-to-day operation or maintenance of those vehicles. Similarly, there is a distinction between inspecting a franchise location for compliance with system standards and directly supervising the franchisee’s employees or managing the franchisee’s daily operations.Where the line is drawn will depend on the particular facts and circumstances of the franchise relationship.Accordingly, franchisors should not assume that an independent contractor provision will, by itself, resolve the issue. The contractual language matters, but so does the franchisor’s conduct in practice.
Four Steps Franchisors Should Consider
Manning offers franchisors an opportunity to take a step back and examine not only what their franchise agreements say, but also how their franchise systems operate in practice. A few considerations are particularly important:1. Review the franchise agreement.The agreement should clearly define the parties’ respective roles and responsibilities and expressly address the independent contractor relationship. It should appropriately allocate responsibility for employees, operations, compliance, insurance, vehicles, premises and other matters that belong with the franchisee.2. Compare the contract to reality.A franchisor should periodically consider whether its actual day-to-day practices are consistent with the relationship established in the franchise agreement. Do field personnel make decisions that should belong to the franchisee? Do communications inadvertently suggest that the franchisor is directing employees or managing operations?3. Document the purpose of system standards.Franchisors should be able to explain why particular requirements exist. Whether a standard is designed to protect trademarks, maintain consistency, satisfy regulatory requirements or promote customer safety, documenting its legitimate business purpose can help distinguish brand oversight from operational control.4. Address liability before litigation.Vicarious-liability issues should be considered as part of franchise-system management, not only after an accident or lawsuit occurs. Operating manuals, training materials, inspection procedures, field-support practices and franchisee communications should be reviewed periodically with these issues in mind.
The Bigger Franchise Law Lesson
Manning does not suggest that franchisors are automatically responsible for their franchisees’ negligence. Nor does it suggest that ordinary system standards create an agency relationship. Instead, it illustrates a practical lesson: a franchisor's potential liability may depend not only on what the franchise agreement says, but also on what the franchisor actually does.The goal is not to eliminate franchisor oversight. Effective franchise systems require meaningful standards, monitoring and brand protection. The key is to structure those controls carefully so the franchisor can protect the system without assuming responsibility for the franchisee’s independent business operations.Ultimately, Manning v. Budget Rent A Car is a useful reminder that vicarious liability is not simply a litigation issue - - it is also a franchise system design issue. Accordingly, the best time to examine the line between protecting the brand and controlling the business is before that line becomes the central issue in a lawsuit.
Under the 2020 standard, routine parts of an arm’s-length business relationship do not, by themselves, make you a joint employer. In this type of relationship, each business operates independently. The rule instead focuses on whether you have and use substantial direct and immediate control over essential terms and conditions of employment.
This distinction allows you to establish requirements designed to protect your trademarks, products, services and other elements of your franchise system. Requiring employees to wear approved uniforms, for example, differs from determining their schedules or directing their day-to-day work. Brand standards and employment decisions, however, should remain distinct.
When can control raise joint-employer concerns?
The analysis changes when your involvement reaches the franchisee’s workforce. Under the current standard, essential terms and conditions of employment include:
Wages and benefits
Hours of work
Hiring and firing
Discipline
Employee supervision and direction
Your level of involvement in these matters is important. Direct control may support a finding that you share control over the employees’ working conditions.
Do your agreements and practices preserve the distinction?
Your franchise agreement is only part of the picture. Joint-employer status depends on the facts of each relationship. How you operate in practice also matters.
As you review your franchise system, look at your agreements, operations manuals and field practices. Do they keep a clear line between protecting your brand and managing franchisee employees?
The current standard draws clearer lines than the 2023 rule would have. But those lines still matter. The key question is whether the authority you keep, and the control you actually use, stays within them.]]>by Kaufmann Gildin & Robbins<![CDATA[New Podcast Interviews: Franchising in New Zealand and Australia]]>https://www.kaufmanngildin.com/?p=513602026-10-02T04:46:30Z2026-09-28T05:46:58ZThe KGR Franchise Law Blog has just posted two new podcast episodes, regarding franchising in New Zealand and in Australia, respectively. They can be found here and here, and on all major podcast platforms.
A. NEW ZEALAND: Insights from franchise lawyer Stewart Germann on entering the Kiwi market
In a recent discussion, franchise lawyer **Stewart Germann** shared invaluable insights about franchising in New Zealand, especially for U.S. franchisors looking to expand. With over 50 years of legal experience in New Zealand, Stewart's expertise sheds light on the unique landscape of franchising in this vibrant market.
1. The New Zealand Franchise Landscape
Stewart highlighted that unlike the U.S., New Zealand lacks specific franchise legislation, making it relatively easier for U.S. franchisors to enter the market. He explained, "Because you're in the U.S., you're used to regulation with your mandatory FDD. But when you come to New Zealand, there's no franchise-specific legislation."This absence of mandatory disclosure regimes is a significant advantage, allowing for a smoother entry process. According to Stewart, forming a company in New Zealand can be done in as little as 24 hours, with minimal requirements, making it an attractive option for international businesses.
2. High Demand for Franchising
The appetite for franchising in New Zealand is substantial, with over 546 franchise brands reported in a recent survey, boasting the highest per capita franchise presence in the world. Stewart noted, "The turnover for franchising is over seventy billion dollars, contributing over eleven percent of New Zealand's GDP."He emphasized that franchises in food and beverage sectors are particularly successful, mentioning brands like **Cinnabon** and **Dunkin' Donuts** as examples of thriving franchises in the region. Fitness franchises are also booming, with chains like **Anytime Fitness** and **Snap Fitness** gaining traction. These are just a few examples.
3. Practical Considerations for U.S. Franchisors
For U.S. franchisors contemplating expansion, Stewart advised on several key points:- **Legal Framework**: Engage with a local franchise lawyer to understand the market and legal requirements.- **Trademark Registration**: It’s critical to begin trademark filings early to avoid potential issues in the future.- **Market Visits**: Stewart encourages potential franchisors to visit New Zealand to gain firsthand experience of the market environment. "Come on out and have a look," he said, highlighting the importance of establishing local connections.Stewart also mentioned the role of the **Franchise Association of New Zealand**, which has a robust code of practice to help maintain standards within the industry.
4. Upcoming Insights
In addition to his legal practice, Stewart is excited to announce his upcoming book on franchising law in New Zealand, set to be published later this year by Thomson Reuters. This book aims to fill a gap in the current literature and will serve as a valuable resource for both students and practitioners in the field.The conversation reinforced the idea that New Zealand presents a dynamic and welcoming environment for franchising, making it a compelling option for U.S. businesses looking to expand internationally.For further insights and a deeper understanding, consider tuning in to the full episode with Stewart Germann.
B. AUSTRALIA: Insights from franchise lawyer Iain Irvine
We dove into some of the intricacies of franchising in Australia with insights from Ian Irvine, a seasoned franchise lawyer with over twenty years of experience. Ian, a partner at Varden Legal, shares his expertise on navigating the legal landscape for franchisors looking to expand into Australia.
1. Understanding the Australian Franchise Landscape
The Australian franchise market is often perceived as highly regulated, but Ian challenges this notion. He clarifies that while Australia does have regulations, the simplicity and federal nature of these laws make it less complex than the state-based regulations in the U.S. Ian comments: "Australia is the most highly regulated franchise market in the world in terms of legal regulation. But it's certainly not as complicated as the United States."He emphasizes that franchisors in Australia need to navigate a federal framework rather than state-specific laws, which streamlines the process considerably.For U.S. franchisors eyeing the Australian market, understanding the initial compliance obligations is crucial. Ian points out that the structure chosen—whether direct franchising, master franchising, or multi-unit development—will dictate the level of regulatory compliance needed. He explains: "How you structure your franchise will impact your compliance obligations under our corporation laws."Franchisors must submit a franchise disclosure document, which includes a 14-day disclosure period. Unlike many U.S. state laws that require state examiner review processes, the Australian system offers a more streamlined approach. The registration process is quick, often taking less than a week, much less information, and it is a federal process without various different provincial / state laws to contend with.
2. Crafting an Australian Disclosure Document
One significant aspect that U.S. franchisors must consider is the creation of an Australian-specific franchise disclosure document. Ian outlines the differences: "The Australian disclosure document requires more detailed disclosure of ongoing operating costs than the U.S. approach, which typically focuses on initial setup costs."This means that franchisors must provide estimates for ongoing expenses, ensuring that potential franchisees are fully informed and not caught off guard by unexpected costs.
In 2009, Westchester Fitness, LLC entered into a franchise agreement with Retrofitness, LLC to operate a Retrofitness gym. Like many franchise agreements, it contained a forum selection clause — here, requiring that disputes be litigated exclusively in New Jersey state or federal court.The agreement expired in September 2019. Retrofitness promptly sued Westchester Fitness and its principal, Holly Wallman, in New Jersey state court over post-expiration obligations. While that suit was pending, Westchester Fitness turned around and sued Retrofitness in New York (Suffolk County) for breach of the same franchise agreement. Retrofitness removed the New York action to federal court, and, notably, the parties spent the ensuing months negotiating what they believed was a global settlement of both the New Jersey and New York disputes. That settlement fell apart in June 2020, and negotiations were unsuccessful in reaching agreement (or at least, the parties did not agree as to whether any agreement was reached).The federal court eventually decided it lacked subject matter jurisdiction and remanded the New York case back to Suffolk County. Once back in state court, the plaintiffs amended their complaint — adding two individual plaintiffs, two additional defendants, and several new causes of action arising out of the failed settlement negotiations themselves. Retrofitness (the franchisor) then moved to dismiss the entire amended complaint under CPLR 3211(a), invoking the New Jersey forum selection clause. The trial court granted the motion in full. The plaintiffs appealed.
The Appellate Division's Holding
The New York State Court Appellate Division’s (Second Department) affirmed in part and reversed in part, drawing a sharp — and instructive — line.
The forum selection clause was enforced for claims arising under the franchise agreement. As to the first through sixth and twelfth causes of action, which sounded in breach of the franchise agreement itself, the court held the forum selection clause fully enforceable and dismissed those claims from the New York action.
The clause was not enforced for claims arising from the failed settlement. The seventh through eleventh causes of action — which arose out of the parties' separate, later settlement negotiations, not out of the original franchise agreement — fell outside the clause's scope. The court reinstated those claims, holding that a forum selection clause's reach is defined by "the language of the forum selection clause itself," not by the general subject matter of the underlying dispute. Because those causes of action did not arise out of the franchise agreement, the New Jersey forum selection clause simply did not speak to those causes of action.
Litigating elsewhere did not waive the clause. The plaintiffs also argued that Retrofitness had waived its right to invoke the forum selection clause by removing the case to federal court and otherwise participating in the New York litigation. The Second Department rejected that argument outright, holding that participation in litigation — including affirmative steps like removal — did not waive the forum selection defense.
The Legal Standard the Court Applied
The court's forum-selection-clause analysis tracks well-settled New York law, and is worth restating because it is the standard franchisors will typically face whenever a franchisee tries to avoid a contractually chosen forum:
A forum selection clause is documentary evidence that can support dismissal under CPLR 3211(a)(1).
Such clauses are prima facie valid and enforceable.
To defeat one, the resisting party must make a "strong showing" that the clause is unreasonable, unjust, contrary to public policy, the product of fraud or overreaching, or that litigating in the chosen forum would be so gravely difficult that the party would, for all practical purposes, be deprived of its day in court.
General, unparticularized allegations of fraud relating to the underlying contract are not enough to invalidate a forum selection clause embedded in that same contract. The fraud has to go to the clause itself (or otherwise meet the demanding standard), not merely color the franchisee's broader grievance against the franchisor.
Westchester Fitness showed none of these factors, held the court. It did not show unconscionability, did not show unequal bargaining power or high-pressure tactics, did not tie its fraud allegations to the forum clause specifically, and offered no evidence that litigating in New Jersey would functionally deny it a forum at all. That is a fairly typical failure pattern, and it is why forum selection clauses tend to survive challenge: the bar to defeat them is high, and courts are reluctant to let a franchisee's general dissatisfaction with the franchise relationship do the work of invalidating a freely negotiated contract term.
Why the Scope Ruling Matters More Than the Enforcement Ruling
Franchisor's counsel will find the enforceability holding reassuring but unsurprising — courts routinely enforce forum selection clauses against franchisees who cannot clear the "strong showing" bar. The more practically significant part of the decision is the scope holding: the clause did not reach claims arising from the parties' post-dispute settlement negotiations.That result follows logically from the reasoning the court relied on — a forum selection clause's applicability does not depend on the "nature of the underlying action" as a category (e.g., "this is a franchise dispute, so the clause covers everything related to it"); it depends on the actual language of the clause and whether the specific claim arises out of the agreement containing it. Settlement negotiations conducted after the franchise agreement expired, over a settlement agreement that was never actually executed, are a different animal from a breach-of-franchise-agreement claim, even though they grew directly out of the same underlying relationship and even the same litigation.This is a distinction franchise litigators see recur in other contexts too: disputes over side letters, subsequent amendments, verbal modifications, releases, or freestanding settlement agreements can easily fall outside a forum selection (or arbitration) clause drafted only to cover "this Agreement," even when the parties and the underlying commercial relationship are identical to those in the franchise agreement.
Lessons for Franchisors
Draft forum selection (and arbitration) clauses to reach beyond the four corners of the agreement, if that's the intent. If a franchisor desires that its chosen forum govern any dispute connected to the franchise relationship — including disputes over settlement of franchise disputes, post-termination negotiations, or ancillary agreements — the clause needs broader language than "disputes arising under this Agreement." For example, one might consider language capturing disputes "arising out of or relating to" the franchise relationship, the franchise agreement, "or any amendment, side agreement, or settlement thereof." Standard-form clauses drafted decades ago (the subject franchise agreement was signed in 2009) often use narrower "arising under" language that, as this case shows, will not automatically follow the parties into every subsequent dispute connected to the franchise relationship.
You can litigate defensively without waiving a forum selection clause — but do not assume that's true everywhere or in every posture. Retrofitness (the franchisor) removed the case to federal court, participated in the resulting jurisdictional fight, and, it seems, only after remand moved to dismiss based on the forum clause. The New York state court found no waiver. That's a favorable and useful data point, but franchisors should still move to enforce a forum selection clause at the earliest practical opportunity. Waiver arguments are fact-specific, and a franchisor who litigates on the merits for an extended period, files affirmative claims of its own in the "wrong" forum, or otherwise engages substantively before raising the clause runs a real risk that a different court reaches a different result.
Settlement negotiations are not "off the books" for litigation risk — document them carefully. The claims that survived here (the seventh through eleventh causes of action) arose because the parties negotiated toward a settlement, allegedly reached one, and then one side told the court no settlement existed. Whatever actually happened in those negotiations, the case is a reminder that failed settlement talks can generate an entirely separate, independently litigable dispute — one that won't necessarily be covered by the underlying agreement's forum selection or dispute-resolution clauses. Franchisors negotiating settlements of franchise disputes should consider using written settlement term sheets or agreements that contain their own forum selection and dispute-resolution provisions, rather than relying on the original franchise agreement's clause to cover a later, distinct settlement dispute.
A forum selection clause remains one of the most durable protections a franchisor can build into a system-wide agreement. Litigating dozens or hundreds of franchisee disputes in the franchisor's home jurisdiction (or another consistent, chosen forum) is a significant efficiency and cost benefit, and this decision confirms that New York courts will hold franchisees to that bargain absent a genuinely strong showing of unfairness — general fraud allegations about the franchise relationship won't cut it.
Takeaway
Westchester Fitness v. Retrofitness does not break new legal ground, but it is a powerful illustration of two principles franchise counsel should keep close at hand: forum selection clauses are strongly enforced under New York law, and their reach is governed strictly by their text. Franchisors that desire broad, durable forum protection — covering not just the franchise agreement itself but everything that flows from the franchise relationship, including its eventual unwinding or settlement — should make sure their agreements state that explicitly, rather than relying on courts to read that intent in after a dispute has already fractured into multiple, only partially related, claims.
For franchisors, protecting the brand is essential. But when does protecting the brand and maintaining brand standards become exercising too much control over the franchisee's business? A recent New York appellate decision highlights why that distinction matters.
Franchising allows a company to expand its brand without directly owning and operating every location. The franchisee typically establishes and independently operates the business, employs its own personnel and assumes responsibility for day-to-day operations. But when a franchisee’s conduct allegedly causes injury to a third party, plaintiffs may look to the franchisor as the deeper pocket and seek to hold the franchisor vicariously liable for the franchisee’s acts or omissions.
A recent decision from the New York Supreme Court, Appellate Division, Second Department - - Manning v. Budget Rent A Car, 241 A.D.3d 676, 241 N.Y.S.3d 295 (2d Dep't 2025) - - provides an important reminder for franchisors: while an independent contractor provision is an essential component of a franchise agreement, it may not, by itself, shield a franchisor from being held vicariously liable for a franchisee’s acts or omissions.
The analysis may ultimately depend on what the franchisor actually did.
