Personal Guarantee of Franchisee Fees and Costs Upheld

What potential liabilities may owners of a terminated entity franchisee face as a result of personally guaranteeing the entity franchisee’s obligations in favor of the franchisor? As Violet Spear, the sole shareholder of Vianna, Inc., a terminated 7-Eleven franchisee in Evanston, Illinois, painfully learned, guarantors should expect to be liable for the franchisor’s attorneys’ fees and costs incurred to obtain performance under the franchise agreement and guarantee, which could be exorbitant.

In March 2008, 7-Eleven and Vianna signed a franchise agreement and Spear signed a Guarantee. In September 2010, 7-Eleven terminated the franchise agreement for cause and demanded possession of the store and its assets. Vianna failed to surrender possession of the store until the court issued an injunction and found Vianna and Spear in contempt for failing to immediately comply with the injunction. Although Spear expressly agreed under the Guarantee to pay Vianna’s obligations, and 7-Eleven’s reasonable attorney fees and any costs, she refused to pay 7-Eleven’s attorneys’ fees and costs when 7-Eleven tried to collect them from her under her Guarantee.

Spear filed a new action with the district court attempting to appeal the court’s first decision and arguing the attorneys’ fees and costs awarded to 7-Eleven should be waived or reduced “because it should not have taken much skilled lawyering to litigate against a pro se party (Spear).” Nevertheless, the court held that under Illinois law the Guarantee was enforceable and ordered Spear to pay $233,706 in attorney fees and costs to 7-Eleven. The court agreed with 7-Eleven that its attorneys’ fees were “reasonable” and consistent with fees its attorneys charged other clients. In addition, the court noted that Spear’s actions, including those related to her self-representation, delayed the proceedings and caused 7-Eleven to incur additional attorneys’ fees. Click here to see the entire case.

, ,