Regarding C12 Group franchises in Maryland, is the franchise agreement provision for termination upon franchisee bankruptcy always enforceable?
C12_Group Franchise · 2025 FDDAnswer from 2025 FDD Document
With regard to Item 17, the following is added:
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- Any claims arising under the Maryland Franchise Registration and Disclosure law must be brought within three (3) years after the grant of the franchise.
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- The general release required as a condition of renewal, sale, and/or assignment/transfer shall not apply to any liability under the Maryland Franchise Registration and Disclosure Law.
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- The provision in the Franchise Agreement which provides for termination upon bankruptcy of the franchisee may not be enforceable under federal bankruptcy law (11 U.S.C. Section 101 et seq.).
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- A franchisee may bring a lawsuit in Maryland for claims arising under Maryland Franchise Registration and Disclosure Law.
Source: Item 23 — RECEIPTS (FDD pages 46–137)
What This Means (2025 FDD)
According to the 2025 C12 Group Franchise Disclosure Document, the enforceability of the franchise agreement's termination provision upon the franchisee's bankruptcy is not absolute in Maryland. The FDD explicitly states that such provisions may not be enforceable under federal bankruptcy law. This acknowledgment serves as a critical disclosure for prospective franchisees in Maryland, alerting them to potential legal limitations on C12 Group's ability to terminate the agreement solely based on bankruptcy.
Federal bankruptcy law, specifically 11 U.S.C. Section 101 et seq., governs bankruptcy proceedings and can override certain contractual clauses, including those allowing termination upon bankruptcy. This means that a C12 Group franchisee's bankruptcy case could involve a legal challenge to the termination clause, and a court might rule the clause unenforceable, potentially allowing the franchisee to continue operating the franchise under bankruptcy protection.
This disclosure is important for potential C12 Group franchisees in Maryland because it highlights the interplay between franchise agreements and federal law. While the franchise agreement may contain certain stipulations, federal law can supersede those provisions in specific circumstances, such as bankruptcy. Prospective franchisees should seek legal counsel to fully understand their rights and obligations under both the franchise agreement and federal bankruptcy law, especially concerning termination clauses and their potential enforceability.