If a Crowne Plaza Licensee in Maryland commences a bankruptcy proceeding, is the License Agreement's immediate termination provision necessarily enforceable under federal law?
Crowne_Plaza Franchise · 2025 FDDAnswer from 2025 FDD Document
ADDENDUM TO FRANCHISE DISCLOSURE DOCUMENT PURSUANT TO THE MARYLAND FRANCHISE REGISTRATION AND DISCLOSURE LAW
In recognition of the requirements of the Maryland Franchise Registration and Disclosure Law, the Franchise Disclosure Document for use in the State of Maryland shall be amended as follows:
-
- The general release language contained in the License Agreement shall not relieve the Licensor or any other person, directly or indirectly, from liability imposed by the laws concerning franchising of the State of Maryland.
-
- The License Agreement provides that it may be terminated immediately upon, among other things, the Licensee commencing any case, proceeding or other action seeking reorganization, etc. under any law relating to bankruptcy, etc. This provision may not be enforceable under federal law relating to bankruptcy.
-
- The laws of the State of Maryland may supersede the License Agreement, including the areas of termination and renewal of the License.
-
- Any claims arising under the Maryland Franchise Registration and Disclosure Laws must be brought within three years after the grant of the License.
-
- Pursuant to the Interpretive Opinion "Adopting NASAA Statement of Policy Regarding the Use of Franchise Questionnaires and Acknowledgments" dated January 23, 2023 (the "Interpretive Opinion"), issued by the State of Maryland Office of the Attorney General Securities Division (the "Division"), the Division requires franchisors selling franchises that are subject to the Maryland Franchise Registration and Disclosure Law to include the following statement in their franchise agreements: "No statement, questionnaire, or acknowledgment signed or agreed to by a franchisee in connection with the commencement of the franchise relationship shall have the effect of (i) waiving any claims under any applicable state franchise law, including fraud in the inducement, or (ii) disclaiming reliance on any statement made by any franchisor, franchise seller, or other person acting on behalf of the franchisor. This provision supersedes any other term of any document executed in connection with the franchise." Accordingly, any statement, questionnaire, or acknowledgment in the License Agreement that is not permitted under the Interpretive Opinion is deleted in its entirety and shall have no force or effect.
-
- This Maryland addendum applies only if the Maryland Franchise Registration and Disclosure Law would apply on its own, even if Holiday did not provide this addendum.
Source: Item 23 — Receipts (FDD pages 100–424)
What This Means (2025 FDD)
According to Crowne Plaza's 2025 Franchise Disclosure Document, the enforceability of the License Agreement's immediate termination provision upon a licensee's commencement of bankruptcy proceedings in Maryland is not necessarily guaranteed under federal law. The FDD includes an addendum specific to Maryland that addresses this issue.
The addendum states that the License Agreement typically allows for immediate termination if a licensee initiates any action seeking reorganization under bankruptcy laws. However, it explicitly notes that "This provision may not be enforceable under federal law relating to bankruptcy." This means that a federal bankruptcy court will ultimately decide whether the termination clause is valid and can be enforced.
This is a critical point for prospective Crowne Plaza franchisees in Maryland. It highlights that standard contractual terms can be superseded by federal law, particularly in bankruptcy cases. Franchisees should be aware that even if the License Agreement states that bankruptcy leads to immediate termination, a court might not uphold that provision. This could allow the franchisee to continue operating, at least temporarily, while undergoing bankruptcy proceedings. Franchisees should seek legal counsel to fully understand their rights and obligations under both the License Agreement and federal bankruptcy law.