## Facts

- Affiliated entities operated two Moe’s Southwest Grill restaurants in Georgia under franchise agreements with Moe’s Franchisor, LLC.
- The franchise agreements required compliance with brand standards enforced through unannounced Restaurant Operation and Standards Evaluations (ROSE).
- The agreements treated repeated ROSE failures as defaults and permitted termination after specified inspection failures, in some instances without a cure period.
- One location repeatedly failed inspections, and Moe’s issued a termination notice providing a period to sell the business or vacate.
- Before the termination period expired, the debtors filed Chapter 11 petitions, triggering the automatic stay.
- Moe’s moved for relief from the automatic stay to terminate the franchise agreements, arguing the agreements could not be assumed under 11 U.S.C. § 365(c)(1) without Moe’s consent, which Moe’s refused.

## Issues

1. Whether 11 U.S.C. § 365(c)(1) barred the debtors in possession from assuming the Moe’s franchise agreements without Moe’s consent based on applicable nonbankruptcy law governing franchise/trademark relationships.
2. Whether the inability to assume the franchise agreements constituted “cause” to grant relief from the automatic stay under 11 U.S.C. § 362(d) to permit termination.

## Decision

- The court held that § 365(c)(1) prevented assumption of the franchise agreements without Moe’s consent and that Moe’s did not consent.
- The court found cause under § 362(d) to modify the automatic stay.
- The court granted Moe’s motion for relief from stay, permitting Moe’s to proceed to terminate the franchise agreements under their terms and applicable law.

## Legal Principles

- Under 11 U.S.C. § 365(c)(1), a debtor in possession may not assume (or assign) an executory contract if applicable nonbankruptcy law excuses the nondebtor counterparty from accepting performance from a different entity and the counterparty does not consent.
- Franchise agreements tied to trademark and brand-control obligations may fall within § 365(c)(1) where applicable law protects the franchisor’s right to control who operates under the brand.
- When a contract central to the debtor’s operations cannot be assumed as a matter of law and the counterparty withholds consent, a bankruptcy court may find “cause” under § 362(d) to lift the automatic stay to allow termination remedies.

## Conclusion

The court ruled that the debtors could not assume Moe’s franchise agreements without Moe’s consent under § 365(c)(1); because consent was withheld and the franchise rights were not preservable through assumption, the court granted stay relief under § 362(d) to allow Moe’s to terminate the agreements.


In re Taylor Inv. Partners II, LLC, 533 B.R. 837 (Bankr. N.D. Ga. 2015)