Scion Hotels LLC v. Holiday Hospitality Franchising LLC

• Court: Court of Appeals for the Third Circuit
• Decided: July 31, 2025
• Docket: 24-2800
• Status: Unpublished

Opinion

NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT ______________ No. 24-2800 ______________ SCION HOTELS LLC, Appellant

v.

HOLIDAY HOSPITALITY FRANCHISING LLC ______________ On Appeal from the United States District Court for the District of New Jersey (D.C. Civil No. 2:21-cv-02276) District Judge: Honorable Julien X. Neals ______________ Submitted Under Third Circuit L.A.R. 34.1(a) June 16, 2025

Before: CHAGARES, Chief Judge; MONTGOMERY-REEVES, and McKEE, Circuit Judges.

(Opinion filed: July 31, 2025) ______________ OPINION ______________ MONTGOMERY-REEVES, Circuit Judge.

This appeal concerns a dispute between a franchisor and a franchisee and the

District Court’s determination that the franchisor permissibly decided not to renew a

 This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not constitute binding precedent. franchise agreement under the New Jersey Franchise Practices Act (“NJFPA”). For the

reasons set forth in this Opinion, we will affirm in part and vacate and remand in part.

I. BACKGROUND1 In June 2019, Scion Hotels LLC (“Scion”) purchased a Holiday Inn hotel in the

Newark Airport market from an owner in an existing franchise agreement with franchisor

Holiday Hospitality Franchising LLC (“HHF”). When HHF learned about the sale, it

offered Scion a long-term franchise agreement. But Scion was not ready to sign a long-

term agreement, so the parties agreed to franchise the hotel as a Holiday Inn until April

2021 (the “Franchise Agreement”).

The Franchise Agreement contained two provisions relevant to this appeal. First,

the Franchise Agreement provided that it was “non-renewable” and “confer[red] . . .

absolutely no rights of license renewal or extension whatsoever” after April 2021 (the

“non-renewal” provision). Joint Appendix (hereinafter “App.”) 1107. And second, the

Franchise Agreement prohibited Scion from “further[ing], promot[ing], or divert[ing]

business to a competing business.” App. 1061.

After entering the Franchise Agreement, both parties entered contracts with

separate third parties. In October 2019, HHF agreed to open a competing Holiday Inn in

the Newark Airport market, which opened in December 2019. And in November 2020,

Scion agreed to convert its property into a Hampton Inn (the “Hilton Agreement”)2 at the

1 We recite only uncontested facts necessary to contextualize this appeal. Relevant disputes of material fact will be addressed where applicable later in this Opinion. 2 The Hampton Inn is one of Hilton Worldwide’s (“Hilton”) hotel brands. 2 completion of the Franchise Agreement. The Hilton Agreement contemplated that

renovations on Scion’s property would begin in March 2021. In April 2021, Scion

stopped operating its property as a Holiday Inn. In late-May 2022, it reopened as a

Hampton Inn.

Scion initiated this litigation in February 2021 contending that HHF impermissibly

refused to renew the Franchise Agreement, forcing its hand in entering the Hilton

Agreement, to its financial detriment. The operative complaint alleges three Counts as a

result: (1) wrongful non-renewal under the NJFPA (“Count One”); (2) constructive

termination under the NJFPA (“Count Two”); and (3) unreasonable standards of

performance under the NJFPA (“Count Three”). HHF moved for summary judgment,

which the District Court granted. Scion timely appealed.

II. DISCUSSION3

On appeal, Scion contends that the District Court erred by weighing the evidence

and granting summary judgment for Scion on all Counts and by holding that Scion could

not obtain damages if successful. HHF contends that a “non-renewal” provision in the

Franchise Agreement forecloses Scion’s claims and that the District Court did not err in

any of its holdings.

We agree with Scion that: (1) the “non-renewal” provision is inoperative; and

(2) the District Court erred in granting summary judgment for HHF on Count One and

3 The District Court had jurisdiction over this case under 28 U.S.C. § 1332. We have jurisdiction over this appeal under 28 U.S.C. § 1291. We review de novo a district court’s decision granting summary judgment. Glaesener v. Port Auth. of N.Y. & N.J., 121 F.4th 465, 467 (3d Cir. 2024) (citing Tundo v. Cnty. of Passaic, 923 F.3d 283, 286–87 (3d 3 the damages issue. But we disagree that the District Court erred in granting summary

judgment on Counts Two and Three.

A. The “Non-Renewal” Provision

We begin our analysis with a threshold question: whether the “non-renewal”

provision is valid and enforceable. If it is, then the provision would foreclose all of

Scion’s claims.

The Franchise Agreement’s “non-renewal” provision is not enforceable because it

impermissibly operates as a release. Specifically, the NJFPA forbids franchisors from

requiring franchisees to assent to releases that “relieve any person from liability imposed

by [the] act.” N.J. Stat. Ann. § 56:10-7. Here, if enforced the “non-renewal” provision

would relieve HHF from liability under the NJFPA by vitiating the statute’s requirement

that a franchisor renew a franchisee’s franchise agreement or show “good cause” for the

nonrenewal. N.J. Stat. Ann. § 56:10-5; see also Gen. Motors Corp. v. New A.C.

Chevrolet, Inc., 263 F.3d 296, 319 (3d Cir. 2001) (“Even if the terms of a private

franchise agreement permit termination at will, § 56:10–5’s good cause requirement will

supersede that arrangement and impose a good cause requirement on the franchisor’s

decision.”). The provision therefore is superseded by the NJFPA, and we will disregard it

as unenforceable. See Gen. Motors, 263 F.3d at 319; Roman v. Bergen Logistics, LLC,

Cir. 2019)). “Summary judgment is appropriate only ‘if, when viewed in the light most favorable to the [nonmoving party], there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law.’” Hayes v. N.J. Dep’t of Hum. Servs., 108 F.4th 219, 221 (3d Cir. 2024) (alteration in original) (quoting Natale v. Camden Cnty. Corr. Facility, 318 F.3d 575, 580 (3d Cir. 2003)).

4 192 A.3d 1029, 1037 (N.J. Super. Ct. App. Div. 2018) (recognizing that under New Jersey

law if a contractual term violates the law, it will be disregarded (quoting Naseef v. Cord,

Inc., 216 A.2d 413, 418 (N.J. Super. Ct. App. Div. 1966)).

B. Count One—Wrongful Nonrenewal

As to Count One, Scion contends that the District Court erroneously granted

summary judgment for HHF because there is a genuine dispute of material fact regarding

whether HHF had “good cause” to refuse renewing the Franchise Agreement under N.J.

Stat. Ann. § 56:10-5. The District Court concluded that good cause existed after finding,

sua sponte, that Scion “failed to substantially comply with the Franchise Agreement”

when Scion “entered the [Hilton Agreement], which conflicted with [Scion’s] duties

under the Franchise Agreement.” App. 14. The District Court erred in granting HHF

summary judgment on this basis.

The NJFPA does not mince words; it aims to protect franchisees from

unreasonable franchisor agreement terminations. N.J. Stat. Ann. § 56:10-2 (“It is . . .

necessary in the public interest . . . to protect franchisees from unreasonable termination

by franchisors.”). In this spirit, § 56:10-5 provides that it is a “violation” of the NJFPA

“for any franchisor directly or indirectly through any officer, agent, or employee” to “fail

to renew a franchise” without “having first given written notice setting forth all the

reasons for such” nonrenewal. N.J. Stat. Ann. § 56:10-5. The statute further specifies

that “[i]t shall be a violation of” the NJFPA “for a franchisor to . . . fail to renew a

franchise without good cause.” Id. “Good cause” is defined as a “failure by the

5 franchisee to substantially comply with [the] requirements imposed upon him by the

franchise.” Id.

The New Jersey Supreme Court has held that “[t]he plain meaning of the [above]

language, supported by the legislative history, sharply curtails a franchisor’s right to end

the franchise in the absence of a breach by the franchisee.” Westfield Ctr. Serv. v. Cities

Serv. Oil Co., 432 A.2d 48, 55 (N.J. 1981). From this, the New Jersey Supreme Court

held that “a franchisor who in good faith and for a bona fide reason . . . fails to renew a

franchise for any reason other than the franchisee’s substantial breach of its obligations

has violated N.J. Stat. Ann. [§] 56:10-5 and is liable to the franchisee.” Id. at 57. We

have understood a “substantial breach” under the NJFPA to be no different from the

common law concept of a material breach. Mall Chevrolet, Inc. v. Gen. Motors LLC, 99

F.4th 622, 631 (3d Cir. 2024) (explaining that the NJFPA’s “good-cause standard is

similar to the legal concept of material breach”); accord Dunkin’ Donuts of Am., Inc. v.

Middletown Donut Corp., 495 A.2d 66, 74–75 (N.J. 1985) (concluding in the context of

Section 56:10-5 that “a material breach of contract” entitled a franchisor to terminate a

franchise). Thus, for HHF to succeed at summary judgment, it must show that there is no

genuine dispute of material fact that Scion substantially or materially breached its

obligations under the Franchise Agreement.

HHF did not meet this burden, and the District Court should have denied HHF’s

motion for summary judgment on Count One. Specifically, the District Court erred in

concluding that Scion’s “actions demonstrate[d] a lack of substantial compliance” with

the Franchise Agreement where Scion voluntarily abandoned “the franchise relationship

6 by actively pursuing a rival franchise relationship with Hilton.” App. 31. We agree with

the District Court that courts have recognized that undisputed evidence of a franchisee

“acting in direct defiance” of an active franchise agreement, Gen. Motors Corp. v. New

A.C. Chevrolet, Inc., 91 F. Supp. 2d 733, 740 (D.N.J. 2000), or “operat[ing]” for another

franchise in violation of a franchise agreement’s express terms, Maple Shade Motor

Corp. v. Kia Motors of Am., Inc., 384 F. Supp. 2d 770, 775 (D.N.J. 2005), provide “good

cause” to terminate a franchisor/franchisee relationship as a matter of law.4 But these

examples are not this case because the record does not indisputably establish that Scion

operated its business for another franchise or that it directly defied the Franchise

Agreement in violation of the Franchise Agreement’s express terms.5

Instead, Scion submitted evidence that it only operated another franchise after the

Franchise Agreement concluded, and that Scion only contractually agreed to begin

4 New A.C. Chevrolet, 91 F. Supp. 2d at 740 (finding that “direct defiance of a term of the agreement” can constitute “good cause” to decline renewing a franchise); Westfield, 432 A.2d at 57 (“[A] franchisor who in good faith and for a bona fide reason . . . fails to renew a franchise for any reason other than the franchisee’s substantial breach of its obligations has violated N.J. Stat. Ann. [§] 56:10-5 and is liable to the franchisee.” (emphasis added)). 5 In fact, the District Court never identified a provision of the Franchise Agreement that was breached, further separating relevant cited law from applicability to the District Court’s analysis. Op. 12–16 (identifying no specific term of the Franchise Agreement that Scion failed to comply with while recognizing that substantial compliance “requires that the franchisee refrain from acting in direct defiance of a term of the agreement” (quoting Red Roof Franchising, LLC v. Patel, 877 F. Supp. 2d 124, 138 (D.N.J. 2012)). It is only in HHF’s appellate briefing that we are directed to Paragraph 3 of the Franchise Agreement, which provides, in part, that Scion cannot “further, promote, or divert business to a competing business.” HHF on appeal contends that this contractual language is what Scion failed to substantially comply with. 7 renovations during the Franchise Agreement but did not actually defy the Franchise

Agreement and do so. This conduct is distinct from actually operating a competing

franchise in express violation of a contractual term, or otherwise defying the terms of the

Franchise Agreement generally. Cf. Maple Shade, 384 F. Supp. 2d at 775 (finding that a

Kia franchisee impermissibly “operated” as a Mazda dealer where it failed to build a

contractually-required separate showroom for Kia vehicles and instead intermixed Kia

and Mazda vehicles in a singular showroom for public display). It is for a jury to decide

whether Scion negotiating with Hilton or agreeing to begin renovations in March 2021,

but not actually doing so, constituted substantial noncompliance or a material breach.

Net 2 Funds, LLC v. Hartz Mountain Indus., No. 23-15T1, 2018 WL 2122723, at *3–4

(N.J. Super. Ct. App. Div. May 9, 2018) (“[W]hether a party breached [an] agreement”

and whether that breach was material is “a question for the factfinder, not the court.”

(quoting Murphy v. Implicito, 920 A.2d 678, 689–90 (N.J. Super. Ct. App. Div. 2007)).

Thus, we will vacate and remand Count One.

C. Count Two—Constructive Termination

As to Count Two, Scion contends that HHF constructively terminated the

Franchise Agreement by entering into a franchise agreement with a separate hotel and

destroying Scion’s exclusivity in the Newark Airport market. To this end, Scion

maintains that it “presented evidence that HHF both intended to cease doing business

with Scion and that HHF’s actions benefited the [competing hotel] to Scion’s detriment.”

Opening Br. 34. The District Court granted summary judgment in HHF’s favor on this

8 Count, holding that the evidence Scion provided could not support a constructive

termination claim. We agree.

New Jersey courts have recognized that a constructive termination claim is viable

under § 56:10-5. Maintainco, Inc. v. Mitsubishi Caterpillar Forklift Am. Inc., 975 A.2d

510, 520 (N.J. Super. Ct. App. Div. 2009) (noting that the statute itself makes clear that

the NJFPA “prohibits a franchisor from ‘indirectly’ terminating a franchise without good

cause” (quoting N.J. Stat. Ann. § 56:10-5)). Specifically, they have: (1) held that the loss

of exclusivity in a given market can constitute constructive termination “in and of itself”

if a franchisee enjoys “a contractual right of exclusivity,” id. at 520–21; and (2) credited

the Second Circuit’s determination that a franchisee can show a constructive termination

if exclusivity destruction is accompanied by an intent to “undermine [a franchisee’s

business]” or “result[s] in a substantial decline in franchisee net income.” Id. (quoting

Petereit v. S.B. Thomas, Inc., 63 F.3d 1169, 1183 (2d Cir. 1995)).

Scion failed to provide evidence of contractual exclusivity, an intent to undermine,

or a substantial decline in net income. First, the Franchise Agreement did not provide

Scion a “contractual right to exclusivity;” to the contrary, it “grant[ed] to [Scion] a non-

exclusive license” to use the Holiday Inn brand at its hotel in the Newark Airport market.

App. 1107. Second, Scion provided no non-speculative evidence that it suffered a

9 substantial decline in net income6 or that HHF intended to undermine Scion in agreeing

to convert a rival hotel into a Holiday Inn. Thus, we will affirm on Count Two.

D. Count Three—Unreasonable Standards of Performance

As to Count Three, Scion contends that it was held to an “unreasonable standard

of performance” because it was “set [] up for failure” when HHF introduced another

Holiday Inn into the market, resulting in non-renewal. The District Court held, however,

that there is no evidence in the record that HHF “acted arbitrarily, in bad faith[,] [or] with

an intent to impose economic ruin” upon Scion. App. 22. In particular, the District Court

found that there is no evidence that HHF’s own negotiations with the competing hotel or

its treatment of Scion were “in bad faith” or otherwise purposefully damaging to Scion;

instead, the evidence showed only measured business decisions resulting in alleged harm.

See App. 23–24. We agree with the District Court.

Section 56:10-7(e) provides that “[i]t shall be a violation of this act for any

franchisor, directly or indirectly . . . [t]o impose unreasonable standards of performance

upon a franchisee,” resulting in harm. The parties agree that the hallmarks of an

“unreasonable standards” claim are “arbitrariness, bad intent[,] or economic ruin.” King v.

6 Scion suggests that it “showed” an “immediate loss of revenue” after the competing Holiday Inn began operating in December 2019. In so contending, it cites one line in its CEO’s declaration stating, “we suffered an immediate decline in revenue and guests.” App. 828. This lone declaration is conclusory and not sufficient to survive summary judgment. Paladino v. Newsome, 885 F.3d 203, 209 (3d Cir. 2018) (holding that only “a single, non-conclusory affidavit or witness’s testimony, when based on personal knowledge and directed at a material issue, is sufficient to defeat summary judgment” (quoting Lupyan v. Corinthian Colls., Inc., 761 F.3d 314, 320, 321 n.2 (3d Cir. 2014) (emphasis added))). 10 GNC Franchising, Inc., No. 04-5125, 2006 WL 3019551, at *5 (D.N.J. Oct. 23, 2006).

But we need not reach these hallmarks because it is undisputed that Scion “did not

default” under the Franchise Agreement and that Scion did not suffer harm as a result of

failing to perform under the Franchise Agreement—HHF never asserts that it declined to

renew the Franchise Agreement because Scion failed to perform under the Franchise

Agreement. Thus, an “unreasonable standards of performance” claim is facially

inapplicable under the plain meaning of the statutory language. We will, therefore, affirm

on Count Three.

E. Damages

Finally, the District Court held that Scion “failed to present evidence that [it]

suffered damages” because any “damages alleged are not attributable to [HHF]” but

instead were “a direct result of [Scion’s] obligations” under the “conflicting” Hilton

Agreement. App. 26. This damages conclusion by the District Court was in error.

If Scion can succeed on Count One, then HHF may be liable for costs Scion

incurred resulting from HHF’s nonrenewal. Westfield, 432 A.2d at 57 (“[A] franchisor

who . . . fails to renew a franchise for any reason other than the franchisee’s substantial

breach of its obligations has violated N.J. Stat. Ann. [§] 56:10-5 and is liable to the

franchisee. . . .” (emphasis added)). Thus, we will vacate the District Court’s damages

finding.

11 III. CONCLUSION

For the reasons set forth above, we will vacate and remand the District Court’s

order as to Count One and the accompanying damages determination. We will affirm the

District Court’s order as to Counts Two and Three.