# MEMORANDUM **To:** Harbor Crust LLC (Manager/Members) **From:** Counsel **Re:** Hearthstone Brands' March 1 Termination Notice — Merits, Injunction Strategy, Discovery, and Settlement Posture --- ## 1. Executive summary The March 16 termination date is invalid on its face. Solace law requires 30 days to cure unless one of four narrow exceptions applies, and none does: temperatures were in safe range (no immediate, substantial public-safety threat), there is no abandonment or insolvency, and the log failure is the **second**, not the third, recurrence of the same breach in twelve months. Hearthstone gave fifteen days and did not even invoke a safety suspension — an implicit admission that no emergency existed. On the merits, three of four grounds are cured or immaterial (logs, advertisement, royalties). The **remodel is the only ground with real residual danger**, and even it likely resolves in our favor because completion is scheduled for March 24 — *inside* the 30-day cure window that should have run to approximately March 31. Hearthstone's "pattern" theory is legally unavailable: the no-cure recurrence exception is breach-specific and requires a third occurrence of the *same* breach; it cannot be manufactured by aggregating four different, mostly technical, violations. Immediate priorities: (a) a written cure certification and demand to withdraw, sent today; (b) a TRO/preliminary injunction application filed before March 16; (c) targeted comparator discovery with a protective order; (d) rejection of the $150,000 release as presently structured, with a counter-proposal in consent-decree form. --- ## 2. Good cause, ground by ground Good cause requires a **material** breach of a **reasonable** requirement **applied in good faith**. Hearthstone bears the burden on all three elements for each ground. **Ground 1 — Two missing temperature logs.** This is a recordkeeping lapse, not a food-safety event. The inspection found all food temperatures within safe range, so the underlying protective purpose of the standard was satisfied. Recordkeeping is a *reasonable* requirement, and a documentation gap is not trivial in a food business — but materiality is measured by consequence, and there was none. Harbor Crust did not merely fix the lapse; it installed an automated logger on March 3 and has produced continuous records since, i.e., it eliminated the possibility of human-error gaps. That is cure plus structural improvement, well inside any cure period. **Status: cured.** **Ground 2 — Remodel not completed by February 1.** This is the strongest ground Hearthstone has and the one to take seriously. A capital-improvement deadline is generally a reasonable and material requirement; 65% completion on March 1 is objectively a missed deadline. But three facts defeat termination: - **Diligence and immateriality of the remainder.** Rule 3 excuses perfect performance where the remaining item is immaterial and the franchisee proceeds diligently. The delay is attributable to fixture supply chains, not neglect, and a contractor schedule shows completion March 24. - **Timing inside the lawful cure window.** A proper March 1 notice with 30 days runs to roughly March 31. Completion on March 24 is *within* that window. Hearthstone's own procedural shortcut is what creates the appearance of non-cure. - **Good faith.** Harbor Crust requested an extension in January and received **no answer**. Silence in response to a documented, pre-deadline extension request — while (per the field manager) granting 30-to-90-day extensions elsewhere — is evidence that the requirement was not "applied in good faith." **Status: substantially performed, curing on a diligent schedule; the litigation and settlement centerpiece.** **Ground 3 — Unapproved local social-media advertisement.** Preapproval is a legitimate brand-control requirement, and Harbor Crust technically breached it. But the ad contained correct prices and no false statement, and was removed within four hours of notice. There is no consumer confusion, no misrepresentation, no measurable brand harm. This is a *de minimis* breach, cured immediately. It cannot independently support termination and adds almost nothing to a pattern theory. **Status: cured; immaterial.** **Ground 4 — $38,000 in late royalties.** Nonpayment can be material. But Harbor Crust paid the full amount March 4. Under Rule 6, Hearthstone's reservation of rights preserves its ability to terminate on *other* grounds, but acceptance of full payment **eliminates nonpayment as an uncured ground**. Action item: confirm the $38,000 covered every component the agreement makes due — royalties, ad-fund contributions, interest, and late fees. If any residual sum exists, pay it immediately under protest so no arrearage remains. **Status: cured, subject to verifying no residual balance.** **The "pattern" argument.** Hearthstone's theory is that four breaches together show unfitness. Legally, that theory has to travel through one of the no-cure exceptions, and the only candidate — third recurrence — is expressly limited to *the same* material breach within twelve months. Logs (second occurrence), a remodel deadline, an ad approval, and a payment delinquency are four different requirements. A "pattern" of cured, non-recurring, largely technical breaches is not good cause; it is an argument for heightened monitoring, which we are volunteering. --- ## 3. Cure period and the public-safety exception **Required period: 30 days.** The notice gave fifteen. Each exception fails: | Exception | Applicability | |---|---| | Immediate, substantial public-safety threat | **No.** Inspection found safe temperatures; missing paperwork is not an immediate danger. | | Abandonment | No. | | Insolvency | No. | | Third recurrence of the same breach in 12 months | **No.** Second log failure. | Two additional points cut hard against Hearthstone. First, the notice **did not identify any food-safety suspension**, and Hearthstone allowed the restaurant to keep operating for fifteen days — conduct inconsistent with a genuine emergency. A franchisor cannot claim an emergency exception while behaving as if there is no emergency. Second, even if a safety breach existed, Rule 4 permits **suspension of the dangerous activity**, not wholesale termination, where the danger is promptly removed and the breach is not a third recurrence. Both conditions are met (automated logging installed March 3; second occurrence). Termination is therefore disproportionate as a matter of law. **Realistic caveat:** the notice defect is procedural and Hearthstone can attempt to re-notice with a proper 30-day period. That is precisely why we must build the substantive cure record now — so that a re-issued notice on the same four grounds is met with completed cures, an operating remodel, and (if needed) comparator evidence of pretext. A defective notice buys time; the cure record wins the case. --- ## 4. Validity of the March 16 date Invalid. The earliest lawful termination date on this notice is on or after the expiration of a 30-day cure period (approximately March 31), and only if a material condition remains uncured at that time. By March 31, on the current record: logs cured, ad cured, royalties paid in full, remodel complete (March 24). We will seek a declaration that the March 1 notice is void for insufficient cure time and, alternatively, that all grounds were timely cured. --- ## 5. Continued cure and payment obligations (non-negotiable) Rule 9 obligates Harbor Crust to keep curing and paying undisputed amounts while it litigates. Any lapse here converts our strongest case into a losing one and hands Hearthstone a clean new ground. Accordingly: 1. Pay all royalties, ad-fund fees, interest, and late charges when due, in full, by traceable transfer, marked "paid under protest / all rights reserved." 2. Maintain automated logging continuously; preserve exports; do not revert to manual logs. 3. Treat the log standard as zero-tolerance going forward. A **third** log failure within twelve months would trigger the no-cure exception and could end the franchise lawfully. This is the single largest self-inflicted risk. 4. Submit **nothing** promotional without written preapproval; document each submission and response time. 5. Drive the remodel to completion by March 24; obtain contractor certification, photographs, permits/inspection sign-offs, and any required certificate of occupancy. 6. Send Hearthstone a written **proof-of-cure package** (logger specs, continuous temperature exports, ad takedown timestamp, payment confirmation, contractor schedule and progress photos, January extension request and proof of no response) with a demand to withdraw the notice. --- ## 6. Comparator evidence: what we need and why the current account is insufficient The former field manager's statement — six company-owned or franchised locations with repeated log gaps or remodel delays receiving 30-to-90-day extensions — is a valuable **lead**, not evidence. As it stands it is hearsay, unquantified, and fails the only test that matters: **similarly situated**. We cannot yet show which locations, which requirement was breached, how many recurrences within twelve months, what cure terms were granted, whether the units were company-owned or franchised, or whether the **same decision-makers** acted. Hearthstone will explain the difference away with facts we cannot presently rebut (different recurrence counts, different regions, different agreements). Selective enforcement proves pretext only when the comparison is genuinely apples-to-apples on breach type, recurrence, and decision-maker. **Discovery demand (subject to a two-tier protective order; anonymized unit codes acceptable for the first production):** 1. All default and termination notices for temperature-log/recordkeeping violations and for remodel/capital-improvement deadline failures, for a defined period (e.g., 36 months, brand-wide or by region). 2. For each: unit ID/code, ownership status (company-owned, affiliate-owned, franchised), operator identity, cure period stated, extensions requested and granted, length and rationale of extensions, and final outcome (rescinded, cured, terminated, transferred). 3. Recurrence histories: violation counts per unit within rolling twelve-month periods, so third-recurrence comparisons are possible. 4. All extension requests and responses concerning remodel deadlines, including **unanswered** requests, and any brand-wide supply-chain relief, deadline moratoria, or COVID/supply-delay policies. 5. Internal enforcement guidance: default matrices, escalation policies, materiality classifications, field-manager manuals, and any policy on automated logging as an accepted remediation. 6. Identity of decision-makers on the Harbor Crust termination and on each comparator disposition, plus their communications. 7. All internal communications regarding Harbor Crust: the decision to give fifteen rather than thirty days; the omission of a safety suspension; the origin of the **$150,000** figure and the release terms; refranchising, remarketing, relocation, or acquisition interest in this territory or unit; any transfer inquiries or buyer interest. 8. Any prior leniency and any **prospective notice** of strict enforcement (Rule 5): bulletins, memoranda, or emails announcing that logs/remodels would henceforth be enforced strictly. If none exists, Hearthstone's strict-enforcement pivot lacks the required predicate. 9. Documents on the temperature inspection that found safe ranges, and any internal risk assessment of the log gaps. 10. A Rule 30(b)(6)-style deposition on enforcement practices, comparator dispositions, and the Harbor Crust decision. We should be prepared to accept confidentiality tiers, attorneys'-eyes-only designation for third-party franchisee identities, and coded unit labels — offering these up front makes the demand harder to resist. Also: preserve the former manager's account promptly (declaration or deposition), and do not rely on it as our sole pretext evidence. --- ## 7. Preliminary injunction **Likelihood of success — strong.** Facial procedural violation (15 days instead of 30); no applicable exception; three grounds cured; the fourth substantially performed and completable within the lawful window; proportionality limits under Rule 4; good-faith defects (unanswered extension request, no prospective strict-enforcement notice, monetized rescission demand). **Irreparable harm — strong.** Loss of the location, brand license, customer goodwill, and 42 jobs. A terminated franchise is a destroyed going concern, not a computable damages claim; the location cannot be reconstituted after de-identification and re-franchising. **Equities — favorable.** Hearthstone loses nothing: royalties are current, monitoring is offered, and the remodel milestone is enforceable. Harbor Crust loses everything. Hearthstone's willingness to rescind for $150,000 demonstrates the "risk" is monetizable, not existential. **Public interest — favorable.** Safety is *better* protected under an injunction with automated logging and reporting than under a termination that changes operators mid-remodel. Enforcing the statutory good-cause and cure regime is itself a public interest, as is preserving 42 jobs. **Proposed interim conditions (offer them affirmatively):** - Automated temperature logging with real-time or daily franchisor portal access; weekly written reports for 90 days. - Franchisor right to unannounced inspections, plus one third-party food-safety audit at Harbor Crust's expense. - Binding remodel completion by **March 24**, with a short cushion (e.g., April 7) only for documented force-majeure supply delays, supported by contractor certification and photographic proof. - Zero-tolerance advertising protocol: no local creative without written approval; Hearthstone to respond within 24–48 hours; immediate takedown on request. - All royalties, ad-fund fees, and current charges paid on time; any disputed amount escrowed. - Modest bond; expedited discovery and trial setting (60–90 days). - **Automatic dissolution/expedited enforcement clause:** if Harbor Crust misses the remodel milestone or a logging report, Hearthstone may move on 5 days' notice; conversely, compliance bars re-noticing on these four grounds. - Order preserves all parties' claims and waives nothing. **Timing:** file for a TRO immediately — well before March 16 — with the cure certification letter as an exhibit, so the record shows Hearthstone refused a fully cured, fully monitored resolution. --- ## 8. The $150,000 release proposal Reject as structured. Three problems: 1. **Price/consideration mismatch.** Hearthstone has no proven damages. Logs produced no unsafe food; the ad was accurate and lived four hours; royalties are paid with interest; the remodel is days from completion. $150,000 is not remediation — it is the price of avoiding an unlawful termination. 2. **Prospective waiver of statutory rights.** A "waiver of future challenges" would surrender the good-cause and cure protections that Solace law confers. Such prospective waivers are ordinarily unenforceable and, in any event, would leave Harbor Crust terminable at will on the next technical lapse. That term is disqualifying by itself. 3. **Evidentiary value.** The offer is affirmative evidence for us: a franchisor genuinely confronting an immediate safety threat and an unfit operator does not sell reinstatement. Preserve the correspondence; expect a settlement-privilege fight, but the demand's existence and terms may also be provable through the pretext/bad-faith lens. --- ## 9. Recommended positions **Defense theory (one sentence for the court):** Hearthstone cut the statutory cure period in half without any qualifying exception, then declared "pattern" default on four breaches that were cured, immaterial, or on a diligent completion schedule — while granting rivals 30-to-90-day extensions for the same conduct and offering to sell reinstatement for $150,000. **Claims to plead:** violation of the good-cause/notice-and-cure statute; declaratory judgment that the March 1 notice is void and all grounds cured; breach of contract; breach of the duty of good faith (unanswered extension request, selective enforcement, no prospective strict-enforcement notice); injunctive relief; attorneys' fees if available. **Cure plan to certify in writing:** automated logging (installed March 3) plus 90 days of weekly reports; advertisement removed in four hours with a written preapproval-only protocol; $38,000 paid in full March 4 plus confirmation of zero residual balance; remodel complete March 24 with contractor certification, permits, and photographs. **Settlement position:** willing to memorialize the interim conditions as a **consent order or written amendment** with (i) the March 24 milestone, (ii) 90 days of monitoring and reporting, (iii) automated logging permanently, (iv) advertising preapproval discipline, and (v) reimbursement of Hearthstone's *documented, reasonable* inspection/monitoring costs — a five-figure figure at most, not $150,000. Non-negotiable exclusions: no prospective waiver of statutory rights, no waiver of future challenges, no general release of unknown claims, no admission of good cause, and no acceleration or transfer-consent leverage. Confidentiality and mutual non-disparagement are acceptable trade goods; so is a defined "clean slate" period after which the cured breaches are not counted toward recurrence. **Leverage sequence:** cure certification letter today → TRO before March 16 → comparator discovery with protective order → renewed settlement talks after the remodel is complete and the comparator files are produced, when our position is at its strongest and Hearthstone's "pattern" has no remaining uncured item to point to.