Breach of a Franchise Agreement Michele and Lorraine Thomas are sisters who live in Lansing, Mythigan. Michele has a master's degree in business administration and works for a large corporation, while Lorraine works for WebMD. They have wanted to go into business together and have been researching the daycare and preschool market in their area, believing that there are insufficient quality facilities in their area to meet the needs of local parents. Frank and Melissa Wright, reside in Fernwood, Atlantis. Since 2013, they have owned Alphabetz Alphabetz Academy, Inc., which is incorporated in Delaware and headquartered in Atlantis. The company operates and franchises daycare and pre-school programs in 7 states as Alphabetz Academies, but currently have no franchisees in Mythigan. In February 2019, the Thomas sisters approached the Wrights, expressing their interest in purchasing an Alphabetz Academy daycare and pre-school franchise. In March 2019, Alphabetz gave Michele and Lorraine a financial statement purporting to state the historical earnings of their existing franchisees. This earnings claim reflected that in the first two years after purchasing a franchise, a franchisee could expect to receive net income of $260,000 and $440,000, respectively. In subsequent conversations with the Wrights, Michele and Lorraine discussed factors to consider in looking for a suitable location for a daycare franchise in the Lansing area, the building requirements for an Alphabetz Academy franchise; the equipment and supplies needed to furnish the daycare; teaching philosophy; licensing and certifications required to open and staff a daycare in Mythigan; use of the Alphabetz brand; and available marketing materials to promote the daycare prior to its opening. In April 2019, the sisters met with the Wrights again and were given an offering circular and a franchise agreement (the Agreement) for their signature. After consulting with their attorney, they each signed the Agreement, becoming Alphabetz Academy franchisees. In June 2019, the Thomas sisters created Thomaslove, Inc., to hold title to the land they purchased the following month on Oak Parkway in a Lansing suburb where they intended to build their Alphabetz Academy franchise. Thomaslove, Inc. would also own the building and personal property used in the operation of their Alphabetz franchise. Thomaslove is incorporated and has its principal place of business (headquarters) in Mythigan. Between June 2019 and January 2020, the sisters had a daycare facility constructed on their Oak Parkway property that conformed in all aspects to the Alphabetz Academy franchise standards. By the end of February, they had purchased all the teaching materials, hired the daycare providers, and were beginning to train them in the Alphabetz teaching philosophy. They also began advertising the new facility and accepting children into age-appropriate classes, scheduled to open on April 1. Then COVID hit, and Alphabetz Academy faced economic uncertainty, just like many small businesses. Two weeks before their scheduled opening, the Wrights notified the Thomas sisters that they were no longer willing to expand their franchise to Mythigan, a state hit very hard by COVID. They told Michele and Lorraine Thomas that they could not use the Alphabetz Academy name and logo, would have to alter the exterior design of their daycare facility so that it would not be mistaken for an Alphabetz Academy franchise, and that could not advertise that their daycare providers were trained in the Alphabetz educational philosophy. Michele and Lorraine Thomas estimate that they have spent more than $875,000 purchasing the property, constructing and equipping the facility, hiring and training the daycare providers, and accepting children into their programs. They sued the Wrights and Alphabetz Academy, Inc. for breach of contract in federal district court in Mythigan. The Wrights have filed a motion to dismiss for lack of subject matter jurisdiction.

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