Franchises Alert: Ohio franchisors — Is your liquidated damages clause enforceable?

On October 31, 2012, the United States District Court for the Southern District of Ohio denied a franchisor’s demand for liquidated damages against two franchisees. The case, Leisure Systems, Inc. v. Roundup LLC, provides guidelines for determining whether liquidated damages clauses are reasonably correlated to potential actual damages that could result from a breach of the franchise agreement or whether such provisions constitute an unenforceable penalty.