What are the implications of the pending litigation (Item 3) for potential Sonesta Select Sonesta Essential franchisees?
Sonesta_Select_Sonesta_Essential Franchise · 2025 FDDAnswer from 2025 FDD Document
[Item 3: **LITIGATION]
Red Lion Hotels Franchising, Inc. v. JS Three Star Investment Inc., Case No. 96777-422 (District Court of the 422nd Judicial District, Kaufman County, Texas). In December 2016, SRLHF filed a lawsuit against a former franchisee for failure to pay its account, unjust enrichment and breach of contract as a result of its failure to pay amounts due under the membership agreement. On March 8, 2017, defendant filed an answer and counterclaim alleging that SRLHF failed to provide services under the membership agreement, which defendant alleges was a violation of the Texas Deceptive Trade Practices Act, requesting damages in the amount of $81,000. On December 11, 2017, the parties entered into a confidential settlement agreement in which the parties agreed to mutually release each other from all claims. On January 18, 2018, the court dismissed the case with prejudice.
Suits Against Former Franchisees/Guarantors to Collect Unpaid Amounts and Liquidated Damages:
Sonesta RL Hotels Franchising Inc. v. Ganapati LLC and Mayuri Patel, Civil Action No. 1:24-cv-11518-DJC, Filed June 10, 2024 (United States District Court for the District of Massachusetts)
Sonesta RL Hotels Franchising Inc. v. Sai Genesh LLC, Kunal Patel, and Parth Patel, Civil Action No. 1:24-cv-11534-RGS, Filed June 11, 2024 (United States District Court for the District of Massachusetts)
Sonesta RL Hotels Franchising Inc. v. TGP ACO II TIC, LLC and Ternion Growth Partners, LLC, Civil Action No. 1:24-cv-11539-MJJ, Filed June 12, 2024 (United States District Court for the District of Massachusetts)
Other than the above, no litigation is required to be disclosed in this Item.
What This Means (2025 FDD)
According to Sonesta Select Sonesta Essential's 2025 Franchise Disclosure Document, Item 3 lists legal proceedings that could materially affect the franchise. For a potential franchisee, this information is crucial for assessing the stability and legal standing of Sonesta Select Sonesta Essential.
The document states that there was a case in December 2016, Red Lion Hotels Franchising, Inc. v. JS Three Star Investment Inc., involving a lawsuit against a former franchisee for failure to pay its account, unjust enrichment, and breach of contract. The defendant counterclaimed, alleging failure to provide services under the membership agreement and violation of the Texas Deceptive Trade Practices Act, requesting damages of $81,000. However, this case was settled confidentially on December 11, 2017, and dismissed with prejudice on January 18, 2018.
Additionally, the document discloses three lawsuits filed in June 2024 against former franchisees and guarantors to collect unpaid amounts and liquidated damages: Sonesta RL Hotels Franchising Inc. v. Ganapati LLC and Mayuri Patel, Sonesta RL Hotels Franchising Inc. v. Sai Genesh LLC, Kunal Patel, and Parth Patel, and Sonesta RL Hotels Franchising Inc. v. TGP ACO II TIC, LLC and Ternion Growth Partners, LLC. All three cases were filed in the United States District Court for the District of Massachusetts. The presence of these suits indicates potential issues with franchisees meeting their financial obligations, which could reflect on the overall financial health and management of franchised locations. However, the document also states that other than the listed suits, no other litigation is required to be disclosed in Item 3.
Prospective franchisees should carefully review these legal cases to understand the nature of disputes and their potential impact. While the 2016 case was resolved, the recent filings in June 2024 may warrant further investigation to assess any ongoing risks or systemic issues within the franchise network. It is important to note that Item 3 only requires disclosure of litigation that is material, so further due diligence may be necessary to gain a comprehensive understanding of Sonesta Select Sonesta Essential's legal history.