A federal court in California recently denied a franchisee’s motion to dismiss two of a franchisor’s counterclaims, each related to the loss of future royalties for the termination of the parties’ franchise agreements, finding the claims were not barred by California precedent or state franchise statutes. Fiesta Ventures Bevercreek, LLC v. Qdoba Rest. Corp., 2025 WL 2420683 (S.D. Cal. Aug. 21, 2025).
Since 2012, Fiesta Ventures, a franchisee of Qdoba fast casual restaurants, and Qdoba Restaurant Corp had been parties to franchise agreements for the operation of multiple Qdoba restaurants in Ohio. In 2023, the parties signed a new franchise agreement for the operation of a proposed location in Bevercreek, Ohio. When Fiesta Ventures struggled to open the new location, including because of a terminated lease, Qdoba issued a default notice and terminated the franchise agreement and a second franchise agreement for another location. In response, Fiesta Ventures sued for unfair business practices under California franchise law. Qdoba filed an answer and six counterclaims, two of which sought lost future royalties resulting from termination of the franchise agreements. Fiesta Ventures moved to dismiss the two counterclaims for lost future royalties arguing that Qdoba is not entitled to lost future royalties as a matter of California law, and that lost future royalties are unavailable as a remedy because they violate public policy under the California Franchise Relations Act (CFRA) and the California Franchise Investment Law (CFIL).
The court denied Fiesta Ventures’ motion to dismiss. It reasoned that the precedent in Postal Instant Press, Inc. v. Sealy, 51 Cal. Rptr. 2d 365 (Ct. App. 1996), which Fiesta Ventures’ motion heavily relied upon, did not actually preclude lost future royalties. The court undertook a detailed analysis of Sealy and related authority, concluding that although Sealy generally stands for the proposition that lost future royalties are unavailable in the absence of a total breach, an award of lost future royalties can still be available if a total breach occurs, as alleged in the instant case. The court also rejected Fiesta Ventures’ argument that the CFRA and the CFIL prohibit recovery of lost future royalties as a matter of public policy. As to the CFRA, the court found that the statute’s territorial limitation meant that it did not apply to Fiesta Ventures’ out-of-state franchise locations. The court held that the CFIL primarily governs the sale of franchises, which was not at issue in the case, and therefore did not bar the lost future royalty claims.
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