What are the potential consequences for a Circle K franchisee who fails to comply with the franchisor's requirements for inventory management (Item 8) and how does this relate to the litigation history of TMC (Item 3)?

[Item 3: LITIGATION]

TMC Franchise Corporation v. Broadway Restaurants, Inc., Zuri Barnes, Case No. 21STCV 19544 (Los Angeles County Sup. Ct.). On September 13, 2019, TMC terminated for cause the Circle K franchise agreement with Broadway Restaurants, Inc. ("BRI"), after BRI failed to cure its defaults under the franchise agreement, following several opportunities to cure provided by TMC. Following the termination, TMC made multiple attempts to contact BRI to cause BRI to comply with its post-termination obligations. When such attempts proved unsuccessful, on May 25, 2021, TMC filed this action against BRI and Zuri Barnes,

BRI's guarantor under the terminated franchise agreement (collectively with BRI, the "Defendant"), due to the Defendant's failure to comply with its post-termination obligations under its terminated franchise agreement, including failure to de-identify the Circle K store operated under the franchise agreement and failure to pay liquidated damages as required under the franchise agreement. TMC sought damages of $61,444 as well as recovery of attorneys' costs and fees. Defendant filed a cross-complaint on September 17, 2021, seeking damages in excess of $5,000,000 and alleging that TMC failed to comply with its obligations under the Circle K franchise agreement, including failing to advertise Defendant's Circle K store, engaging in price fixing, and failing to deposit rebates to Defendant, which actions the Defendant further alleged constituted a breach of the implied covenant of good faith and fair dealing, and unfair business practices under California Business & Professions Code section 17200. TMC disputed all material allegations against it and that Defendant was entitled to any purported damages Promptly after the filing of the cross-complaint, TMC filed a demurrer requesting the court to dismiss the cross-complaint in its entirety, as well as a motion to strike portions of the cross-complaint, including the damages requested, as contrary to well-established California law. The Court granted the demurrer in part and limited Defendant's right to claim damages. The parties settled the dispute on December 29, 2022, pursuant to which settlement Defendant paid TMC $30,722, and the parties entered into mutual releases of liability and filed a stipulation of dismissal, with prejudice, of the lawsuit.

8.3 Inventory of Products.

Franchisee will maintain at all times sufficient minimum inventories of products and merchandise in the Store as set forth in the mandatory provisions of the Business Systems Manuals or as otherwise specified by Franchisor.

(c) Agreement Regarding Fuel and Franchise. Upon Franchisor's exercise of the Right of First Refusal, Franchisor and Franchisee will enter into (i) Franchisor's standard form of Franchise Agreement for the operation of a retail convenience store and motor fuel business under the Circle K trade name and service marks utilizing the Business System ("Circle K Business Franchise Agreement"), which Circle K Business Franchise Agreement will replace and supersede this Agreement, and (ii) all related agreements, including, without limitation, the Motor Fuel Supply Agreement, pursuant to which Franchisor will supply Circle K branded fuel to Franchisee at the Franchised Location, which Motor Fuel Supply Agreement will be updated to reflect the price and delivery terms offered by Franchisor in exercising the Right of First Refusal. Franchisee agrees and acknowledges that the Circle K Business Franchise Agreement may include terms and conditions (including fees, funding and requirements related to technology and reporting) that may be materially different from the terms and conditions of this Agreement, provided the pricing and term of fuel supply shall not be materially different. If Franchisor elects not to exercise the Right of First Refusal, Franchisee's acceptance of a More Favorable Offer or Bona Fide Offer will be subject to Franchisor's prior written approval of the brand of fuel to be offered at the Franchised Location. If Franchisor elects to exercise the Right of First Refusal but Franchisee refuses to sign the Circle K Business Franchise Agreement, this Agreement will be subject to immediate termination and, if terminated, Franchisee will be required to comply with all of the post-termination obligations hereunder, including but not limited to the payment of liquidated damages as well as the unamortized portion of any funding provided by Franchisor.