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Honesty Is Fundamentally the Best Policy

By John J. Jacko III
October 30, 2006

The Superior Court of Pennsylvania recently delivered good news for franchisors and their counsel, as it expressly held 'that there are circumstances where the nature of the breach permits the aggrieved party to immediately terminate the contract despite a 'cure' provision where a franchisee commits grievous acts of dishonest conduct.' In LJL Transp., Inc. v. Pilot Air Freight Corp., __ A2.d __, 2006 PA Super 176, 2006 WL 1977508 (Pa. Super, Pa. July 17, 2006) (No. 2068 EDA 2005), Judge Richard B. Klein, with Judge Maureen Lally-Green concurring, authored the opinion affirming a Northampton County trial court's order denying the franchisee's motion for summary judgment and granting the franchisor's cross-motion for summary judgment.

As recognized by the trial court, the case was one of first impression in Pennsylvania. At issue was an examination of the propriety of a franchise termination arising out of a franchisee's demonstrated and admitted lack of honesty. The facts are simple. Franchisor, Pilot Air Freight Corporation ('Pilot'), terminated its Lehigh Valley and Harrisburg, PA, franchisee's franchise agreement without affording the franchisee an opportunity to cure pursuant to the agreement's 90-day cure provision. Pilot stated that its reasons for terminating the franchise were that the franchisee: 1) improperly shipped products through third-party affiliated entities of the franchisee, ie, other than Pilot, and 2) failed to disclose those shipments and payments to Pilot.

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