What federal law might affect Pearce Bespoke's right to terminate a franchisee upon bankruptcy?
Pearce_Bespoke Franchise · 2025 FDDAnswer from 2025 FDD Document
- Item 17 is amended to state:
- (a) Any claims arising under the Maryland Franchise Law must be brought within three (3) years after the grant of the franchise.
- (b) Any general release required by the terms and conditions of the Franchise Agreement as a condition of renewal, assignment or transfer shall not apply to any liability under the Maryland Franchise Law.
- (c) Our right to terminate you upon your bankruptcy may not be enforceable under federal bankruptcy law (11 U.S.C. §101 et. seq.).
- (d) Nothing herein shall waive your right to file a lawsuit alleging a cause of action arising under the Maryland Franchise Law in any court of competent jurisdiction in the State of Maryland.
Source: Item 22 — CONTRACTS (FDD page 39)
What This Means (2025 FDD)
According to Pearce Bespoke's 2025 Franchise Disclosure Document, the franchisor's right to terminate a franchise agreement upon the franchisee's bankruptcy may not be enforceable under federal bankruptcy law. Specifically, the addendum to the Franchise Agreement required by the state of Maryland states that the federal bankruptcy law, under 11 U.S.C. §101 et. seq., may affect the enforceability of Pearce Bespoke's termination rights in such cases. This disclosure is included to ensure compliance with Maryland franchise law.
This means that if a Pearce Bespoke franchisee in Maryland files for bankruptcy, the standard termination clauses in the franchise agreement related to bankruptcy might not be automatically enforceable. Federal bankruptcy law could provide the franchisee with certain protections, potentially preventing Pearce Bespoke from terminating the agreement solely based on the bankruptcy filing.
Prospective franchisees should be aware of this limitation, particularly if they are considering operating a franchise in Maryland. It is advisable to seek legal counsel to fully understand the implications of federal bankruptcy law on the franchise agreement and to assess the risks and potential outcomes in the event of financial distress leading to bankruptcy. This addendum serves as a critical disclosure, ensuring franchisees are informed of their rights and the limitations on the franchisor's actions under specific circumstances.