A federal district court in Missouri ruled that Hardee’s Food Systems, Inc., a fast food franchisor, did not breach the implied covenant of good faith and fair dealing in its agreement with a franchisee. The franchisee had alleged that two of the franchisor’s television ads were “lewd” and had resulted in lost profits and other damages to the franchisee. As evidence, the franchisee cited numerous complaints from its “predominantly agricultural and union-oriented community, about the unacceptable nature of these ads.”

The relevant provision in the franchisee’s agreement stated, in part, that Hardee’s would “direct all advertising, marketing, and public relations programs and activities…with sole discretion over the creative concepts, materials and endorsements used in those programs and activities…” Under Missouri law, where a contract leaves a decision to the discretion of a particular party, that party breaches the covenant of good faith and fair dealing only if it exercises its judgment “in a manner that evades the spirit of the agreement and denies the movant the expected benefit of the agreement.” The court held that there was no evidence demonstrating that the challenged conduct was arbitrary and capricious, opportunistic, or evaded the spirit of the franchise agreement. Instead, the court found that Hardee’s decisions were made in what it believed to be the best interests of the Hardee’s brand.

Hardee’s Food Systems, Inc. v. Hallbeck, D.C. Mo. No. 4:09-cv-00664-AGF, February 28, 2012.