Delaware Business Litigation Report

Court Rejects Franchisor’s Attempt Based on Business Effects of COVID-19 to Escape Contractual Obligation to Purchase Franchisee’s Assets

Level 4 Yoga, LLC v. CorePower Yoga, LLC, C.A. No. 2020-0249-JRS (Del. Ch. March 1, 2022)
In this post-trial decision, the Court of Chancery awarded specific performance to Plaintiff/franchisee who sought to enforce Defendant/franchisor’s exercise of its contractual right to purchase Plaintiff’s assets, which included yoga studios in several states.  Defendant exercised its right as of May 2019 but then delayed, and ultimately purported to back out, after the COVID-19 pandemic took hold in early 2020.  The Court granted specific performance based upon the specific language of the parties’ agreement, finding Defendant failed to prove either a Material Adverse Effect or a violation of the ordinary course covenant when Plaintiff temporarily closed its yoga studios in response to COVID-19.  Among other reasons, the seller was the franchisee, the buyer was the franchisor, and the seller had followed the buyer’s instructions concerning the operation of franchises.  The Court also noted that the parties’ agreement contained no closing conditions or an express right to terminate.

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