# MEMORANDUM **To:** Harbor Crust LLC **Re:** Hearthstone Brands’ March 1 Termination Notice **Date:** Immediate ## Executive Summary Hearthstone’s March 1 notice is legally defective. It purports to terminate on March 16—only fifteen days later—when Solace law generally requires written notice and **thirty days to cure**. No statutory exception applies. On the merits, the four asserted grounds are either already cured, non-material, or actively being cured. Harbor Crust should promptly seek a temporary restraining order and preliminary injunction, continue performing, and demand targeted comparator discovery. It should **not** sign Hearthstone’s proposed release, pay the $150,000 fee, or waive future challenges. --- ## I. Good Cause, Ground by Ground Solace law permits termination only for **good cause**: a material breach of a reasonable franchise requirement applied in good faith. Even a material breach generally cannot support termination if the franchisee cures within 30 days after written notice. ### 1. Missing Refrigerator-Temperature Logs **Status: cured / not a sufficient termination ground.** - The notice says Harbor Crust missed two logs in the prior month. - The inspection found all food temperatures within safe range. - Harbor Crust installed an automated logger on March 3 and has provided continuous records. - This was the **second** log failure in twelve months, not the third. The log requirement is likely reasonable, and food-safety recordkeeping is important. But the underlying danger is absent: temperatures were safe. The material condition—accurate, continuous temperature monitoring—has been corrected. The automated logger is the cure: it prevents future gaps and gives Hearthstone proof of compliance. Hearthstone may argue the missed logs cannot be “unwritten.” But that would make the statutory cure right illusory for past breaches. Under Solace law, a franchisee cures by correcting the material condition and supplying reasonable proof. Here, the material condition was a recordkeeping/monitoring gap, and Harbor Crust has corrected it. This ground should not support termination. --- ### 2. Failure To Complete Dining-Room Remodel By February 1 **Status: in cure; the most dangerous ground.** This is Hearthstone’s strongest factual ground: the remodel was due February 1 and was not complete by March 1. However: - Harbor Crust had reached **65% completion** by March 1. - Delay was caused by **supply-chain delays** for fixtures. - The contractor’s schedule shows completion by **March 24**. - Harbor Crust requested an extension in January and received **no response**. - The remodel is not complete, but the 30-day cure period exists precisely to allow completion of incomplete work. Harbor Crust should complete the remodel by **March 24** and document it thoroughly. If completed, this ground is cured. If not completed, the risk of termination increases significantly. The court should condition any injunction on a binding March 24 completion milestone. Hearthstone’s silence on the extension request is not a formal extension, but it undermines Hearthstone’s later claim of good faith and supports Harbor Crust’s diligence. --- ### 3. Unapproved Social-Media Advertisement **Status: cured / not material.** - Harbor Crust used a locally designed ad without prior approval. - The ad used correct prices and contained no false statement. - Harbor Crust removed it within four hours after notice. The preapproval requirement is reasonable for brand protection, but one unauthorized ad with no false content is likely not a **material** breach. Even if it is a breach, the violation was cured by removal. If Hearthstone wants prospective compliance, Harbor Crust should agree to submit all future ads for approval. This ground should not support termination. --- ### 4. $38,000 in Late Royalties **Status: cured.** - Harbor Crust paid the full amount on March 4. - Hearthstone accepted the payment under a reservation of rights. Under Solace Rule 6: - Acceptance under a reservation does **not** waive termination. - But once full payment clears, **nonpayment is eliminated as an uncured ground**. Hearthstone may still use the late-payment history as context, but it cannot terminate for unpaid royalties. The ground is cured. --- ### 5. Hearthstone’s “Pattern” Argument Hearthstone says the breaches show a “pattern.” That is not enough. - There is no **third recurrence** of the same material breach within twelve months. The log issue is only the second occurrence. - The other grounds are different types of alleged defaults. - Cured or non-material breaches cannot be aggregated to manufacture an incurable material breach. - If all grounds are cured or in cure, no good cause exists. The pattern argument is also why comparator discovery matters. If Hearthstone routinely gives other locations 30–90 day extensions for the same issues, its sudden 15-day termination of Harbor Crust suggests pretext or selective enforcement. --- ## II. The Cure Period and the Public-Safety Exception Solace law requires **written notice and 30 days to cure** before termination, except for: 1. Immediate and substantial threat to public safety; 2. Abandonment; 3. Insolvency; or 4. Third recurrence of the same material breach within twelve months. None applies here. - **No immediate and substantial public-safety threat:** The inspection found safe food temperatures. Hearthstone did not issue an immediate food-safety suspension. Even if the log gap created a food-safety concern, Rule 4 allows **immediate suspension of the dangerous activity**, not immediate termination. Because the danger was promptly removed and this is not a third recurrence, complete termination without cure would be disproportionate. - **No abandonment or insolvency** is alleged. - **No third recurrence:** the log failure is the second, not the third. Therefore, Hearthstone was required to give Harbor Crust **30 days to cure**. The March 1 notice gave only **15 days**. --- ## III. Is the March 16 Termination Date Valid? **No.** The March 16 date is invalid because: - It is only 15 days after the March 1 notice. - The 30-day cure period is mandatory unless an exception applies. - No exception was identified. - Hearthstone did not suspend any dangerous activity. - Hearthstone cannot retroactively rely on a public-safety exception after the fact. At a minimum, no termination could be effective before **March 31** if the March 1 notice were treated as a valid default notice. Because the notice itself fixed an invalid date, Hearthstone should be required to withdraw it or issue a compliant 30-day notice. The court should preserve the status quo pending the preliminary injunction. --- ## IV. Effect of Harbor Crust’s Actions | Action | Effect | |---|---| | Automated logger installed March 3 | Cures the log-record ground; provides ongoing proof of food-safety compliance. | | Advertisement removed within 4 hours | Cures the advertising ground; shows good faith; likely makes the breach immaterial. | | $38,000 royalties paid March 4 | Eliminates nonpayment as an uncured ground. Reservation of rights by Hearthstone preserves other grounds, but not this one. | | Remodel 65% complete; completion scheduled March 24 | Not yet cured, but in active cure. Must be completed to avoid danger. Hearthstone’s failure to answer the extension request supports equity. | --- ## V. Continued Cure and Payment Obligations Harbor Crust must continue to perform while challenging the termination. Specifically: 1. **Keep the automated logger operational** and preserve all temperature data. 2. **Complete the remodel by March 24**; provide weekly progress documentation. 3. **Do not use any advertisement without written preapproval** while this dispute is pending. 4. **Pay all undisputed ongoing royalties and fees when due.** If necessary, pay under a written reservation of rights. Withholding payments would create a new, legitimate default. 5. **Provide reasonable proof of cure** to Hearthstone: log data, payment confirmations, ad-removal records, contractor schedules, and inspection reports. 6. **Do not pay the proposed $150,000 fee.** That amount is disputed and is not an undisputed obligation. --- ## VI. Comparator Evidence and Discovery ### Why Comparator Evidence Matters Under Solace law, selective enforcement against similarly situated franchisees may show lack of good faith or pretext. If Hearthstone routinely gives other locations 30–90 days to cure log gaps and remodel delays, its 15-day termination of Harbor Crust is suspect. ### Why the Current Account Is Insufficient The current “record” allegedly shows that at least six locations had repeated log gaps or remodel delays and received 30–90 day extensions. But it does **not** identify: - The locations; - Their ownership status (company-owned vs. franchised); - Their exact violations; - Their recurrence history; - Their cure terms and extensions; - Their outcomes; or - The decision-makers involved. Without these details, Harbor Crust cannot establish that those locations were **materially similar** or that Harbor Crust was treated differently. A vague summary is not enough. It is also not admissible or reliable evidence. ### Comparator Discovery Hearthstone Should Be Required To Produce Harbor Crust should demand: 1. The names, addresses, and unit numbers of all locations identified by the former field manager. 2. Whether each was company-owned or franchised. 3. The exact nature and dates of each violation. 4. The number of recurrences of each violation within twelve months. 5. All notices, cure letters, extensions, and forbearance agreements. 6. The outcome of each matter: cure, reinstatement, settlement, or termination. 7. The identity and role of each decision-maker. 8. All documents concerning Hearthstone’s decision to issue Harbor Crust only 15 days to cure. 9. Enforcement policies and guidelines for log gaps, remodel deadlines, advertising preapproval, and late royalties. 10. Documents sufficient to show whether Hearthstone ever declared an “immediate public-safety threat” for similar log gaps. 11. All documents concerning any “pattern” determination involving Harbor Crust. These requests should be subject to a **confidentiality protective order**, but confidentiality is not a reason to withhold comparator evidence. --- ## VII. Preliminary Injunction Factors Solace courts will issue preliminary relief when the franchisee shows: 1. Likely success on the merits; 2. Irreparable loss of the business; 3. Favorable equities; and 4. Protection of the public through interim conditions. ### 1. Likely Success Harbor Crust is likely to succeed because: - The March 16 termination is premature. - Hearthstone failed to give 30 days. - No exception applies. - The log, advertising, and royalty grounds are cured. - The remodel is in active cure. - The “pattern” claim does not satisfy the statutory test. ### 2. Irreparable Loss Harbor Crust employs 42 people and will likely lose the business if terminated. Loss of the franchise location, going-concern value, goodwill, and workforce is not adequately compensable by money damages. ### 3. Favorable Equities Harbor Crust has acted in good faith: - It installed the logger. - It removed the ad. - It paid the royalties. - It is completing the remodel. - It offered enhanced monitoring and a binding March 24 milestone. Hearthstone, by contrast, gave a shortened cure period, ignored an extension request, and demanded a $150,000 release fee. The balance favors Harbor Crust. ### 4. Protection of the Public Through Interim Conditions The court should condition injunctive relief on: - Maintaining automated temperature logging and providing weekly reports for 90 days; - Completing the remodel by March 24; - Submitting all future ads for preapproval; - Paying all undisputed ongoing royalties/fees when due; - Permitting reasonable inspections by Hearthstone; - Preserving all relevant evidence; - Posting a reasonable injunction bond, if required. These conditions protect food safety and brand standards while preserving the franchise relationship. --- ## VIII. The Proposed $150,000 Release Deal Hearthstone’s offer—rescind termination only if Harbor Crust signs a release, pays $150,000, and waives future challenges—should be **rejected**. Problems: - **No contractual basis:** The $150,000 fee does not appear to be a royalty, fee, or damage amount in the franchise agreement. - **It is a penalty, not a cure:** Harbor Crust has already paid the actual late royalties and is curing the other items. - **It waives statutory protections:** A waiver of future challenges would bar Harbor Crust from challenging wrongful termination, bad faith, or selective enforcement. - **It creates a bad-faith precedent:** Hearthstone appears to be monetizing the threat of termination rather than enforcing legitimate standards. - **It could be unconscionable or obtained by duress:** A franchisee signing under threat of termination may later challenge it, but Harbor Crust should not take that risk. Harbor Crust should not sign a broad release and should not pay the $150,000. --- ## IX. Recommended Defense, Discovery, Cure Plan, and Settlement Position ### A. Concrete Defense Harbor Crust should assert: 1. No good cause exists because all grounds are cured or in cure. 2. The termination notice did not provide the required 30 days. 3. No public-safety exception applies. 4. No third-recurrence exception applies. 5. The termination is premature and invalid. 6. Hearthstone’s selective enforcement and failure to provide comparators show bad faith or pretext. 7. Hearthstone’s release/fee demand is inconsistent with good faith. Harbor Crust should seek: - A temporary restraining order before March 16; - A preliminary injunction preserving the franchise; - Declaratory relief that the termination is invalid; - If necessary, damages for wrongful termination/breach of the franchise agreement. ### B. Discovery Demand Serve targeted discovery immediately: - Interrogatories asking Hearthstone to identify all comparator locations and provide full details of violations, recurrence histories, cure periods, extensions, outcomes, and decision-makers. - Requests for production of all default and termination files for materially similar franchisees for the past three years. - Requests for admission that: - The $38,000 payment cleared; - The log failure was the second, not third, in twelve months; - The inspection found safe food temperatures; - Hearthstone did not issue an immediate food-safety suspension; - Six locations received 30–90 day extensions for similar issues. - A motion to compel if Hearthstone produces only vague summaries. ### C. Cure Plan Harbor Crust should: - Continue the automated logger and preserve records. - Complete the remodel by March 24; provide weekly progress photos and contractor invoices. - Obtain written approval for all advertising. - Pay all undisputed royalties and fees on time. - Send Hearthstone a formal “Notice of Cure” package with proof of: - Logger installation and data; - Ad removal; - Payment confirmation; - Remodel schedule and progress; - Proposed binding milestones. ### D. Settlement Position Harbor Crust should make this counterproposal: 1. Hearthstone withdraws the March 1 termination notice. 2. Hearthstone confirms that the log, advertising, and royalty grounds are cured. 3. Hearthstone permits the remodel to be completed by March 24. 4. Harbor Crust agrees to enhanced monitoring for 90 days: automated logs, weekly reports, ad preapproval, and timely payments. 5. No $150,000 payment. 6. No waiver of future statutory rights. 7. Any release, if any, should be narrow, mutual, and limited to claims arising from the March 1 notice—after Hearthstone withdraws the termination. If Hearthstone refuses, Harbor Crust should proceed with the injunction and discovery. --- ## Conclusion The March 16 termination date is invalid. Harbor Crust should continue curing, keep paying undisputed amounts, demand comparator discovery, and seek preliminary injunctive relief. It should reject the $150,000 release deal. With continued compliance and a binding March 24 remodel milestone, Harbor Crust has a strong likelihood of preserving the franchise.