Is the termination clause in Section 18B.1.h of the City Publications Franchise Agreement, related to franchisee bankruptcy, enforceable under federal bankruptcy law?

According to City Publications' 2025 Franchise Disclosure Document, Section 18B.1.h of the Franchise Agreement, which allows City Publications to terminate the agreement if the franchisee declares bankruptcy, may not be enforceable under federal bankruptcy law. This is explicitly stated in amendments to the franchise agreement for franchisees in California, Maryland, and Virginia. The relevant federal law is cited as 11 U.S.C. Section 101, et seq.

This means that if a City Publications franchisee files for bankruptcy, a court might not uphold City Publications' right to terminate the franchise agreement based solely on the bankruptcy filing. Federal bankruptcy law could override the termination clause in the franchise agreement, potentially allowing the franchisee to continue operating the business while under bankruptcy protection.

Prospective franchisees should be aware that the enforceability of this clause can be complex and subject to interpretation by the courts. It is advisable to seek legal counsel to fully understand the implications of this clause and how federal bankruptcy law would apply in their specific circumstances. This is especially important if the franchisee is considering operating in California, Maryland, or Virginia, as these states have specific addenda addressing this issue.