MFIL “Good Cause” Allows Franchisors to Require Updated Franchise Agreements as a Condition of Transfer

Introduction

In Oakland Family Restaurants v. Am. Dairy Queen Corp. (6th Cir. Mar. 12, 2025), two long-time Michigan Dairy Queen franchise operators (Oakland Family Restaurants, Inc. and Lake Area Restaurants, Inc.) sought to reward loyal employees by transferring certain stores and related franchise rights. The franchisor, American Dairy Queen Corporation (ADQ), would consent only if the incoming operators signed ADQ’s modern “Treat Operating Agreement,” rather than operating under a decades-old franchise agreement dating to 1965.

The dispute centered on whether ADQ (1) had the contractual right to withhold consent to assignment unless its conditions were met, and (2) could enforce that right in light of Michigan’s Franchise Investment Law (MFIL), which voids certain transfer-restriction provisions unless refusal is supported by “good cause.”

Summary of the Opinion

The Sixth Circuit affirmed summary judgment for ADQ. It held that:

  • The 1965 franchise agreement contained a clear, unambiguous consent-to-assignment requirement, and plaintiffs failed to show—by clear and convincing evidence—that ADQ waived or modified that requirement through later letters, addenda, or course of conduct.
  • Assuming (without deciding) MFIL applied, MFIL did not render the consent-to-assign provision unenforceable on these facts.
  • ADQ had “good cause” under MFIL to condition consent on the new franchisees signing updated franchise agreements, because modernizing agreements for brand and operational consistency was commercially reasonable.

Analysis

Precedents Cited

  • Snyder v. Finley & Co., 37 F.4th 384 (6th Cir. 2022): Cited for the de novo standard of review on cross-motions for summary judgment, framing the appellate lens rather than the substantive contract analysis.
  • CMACO Auto. Sys., Inc. v. Wanxiang Am. Corp., 589 F.3d. 235: Used for the summary-judgment standard (no genuine dispute of material fact; reasonable jury standard) and the instruction to view evidence in the nonmovant’s favor.
  • Gasperini v. Ctr. for Human., Inc., 518 U.S. 415 (1996): Cited for the Erie principle that state law governs substantive issues—in this case, Michigan contract law.
  • Shah v. State Farm Mut. Auto. Ins., 920 N.W.2d 148 (Mich. Ct. App. 2018): Central to the contract analysis. The court relied on Shah for two propositions: (1) contractual rights are generally freely assignable unless clearly restricted; and (2) a clause conditioning assignment on consent is “perfectly clear” and enforceable when unambiguous.
  • Quality Prods. & Concepts Co. v. Nagel Precision, Inc., 666 N.W.2d 251 (Mich. 2003): The key Michigan authority on modification/waiver. The Sixth Circuit used it to require “clear and convincing” evidence of mutual intent to waive or modify a contract, and to emphasize that unilateral expectations or post-hoc interpretations do not suffice.
  • Salzman v. Maldaver, 24 N.W.2d 161 (Mich. 1946): Discussed in connection with the parol evidence rule. The panel avoided deciding whether the letters were barred by parol evidence because, even if considered, they favored ADQ.
  • Allstate Ins. v. Freeman, 443 N.W.2d 734 (Mich. 1989): Used to address plaintiffs’ surplusage argument. The court applied Freeman’s principle that terms are not superfluous if they serve a reasonable purpose.
  • W. Mich. Univ. Bd. of Control v. State, 565 N.W.2d 828 (Mich. 1997): Invoked for the idea that anti-surplusage interpretive tools are less necessary when contractual text is clear.
  • Franchise Management Unlimited, Inc. v. America's Favorite Chicken, 561 N.W.2d 123 (Mich. Ct. App. 1997): The leading MFIL transfer decision cited. The panel read it to mean MFIL’s “good cause” inquiry examines whether the franchisor had good cause “at the time of the proposed transfer” to enforce a transfer restriction, rather than imposing a strict drafting requirement that the contract itself must expressly say “good cause.”

Legal Reasoning

1) The operative contract term: ADQ’s consent-to-assignment clause remained in force

The court first identified the governing contract terms. The 1965 agreement barred assignment “without first obtaining the written consent and approval of [ADQ].” Under Shah v. State Farm Mut. Auto. Ins., that kind of restriction is enforceable when unambiguous.

Plaintiffs attempted to show the consent requirement was waived/modified by (i) a 1996 letter, (ii) a 1999 letter, and (iii) 2000 addenda addressing territory allocation and adding conditions tied to transferring territory only with an operating store of at least six months.

Applying Quality Prods. & Concepts Co. v. Nagel Precision, Inc., the panel held plaintiffs did not provide “clear and convincing evidence” of mutual intent to waive or modify ADQ’s consent requirement:

  • The 1996 letter clarified that territory could not be sold alone; it did not retract ADQ’s approval right, and it contemplated assignment occurring with store sales.
  • The 1999 letter, in all caps, reaffirmed the need for prior written consent—strong evidence against waiver.
  • The 2000 addenda included an “Affirmation” clause stating that, except as “specifically amended,” the 1965 agreement remained “in full force and effect.” The addenda did not “specifically amend” the consent clause; they added further constraints (no sale/assignment of territory except with an operating store of at least six months), which the court read as narrowing assignment opportunities, not expanding them.

The court also rejected the surplusage objection: the addenda still served a reasonable purpose by clarifying how ADQ would evaluate transfers (e.g., a six-month operating history) even if ADQ retained ultimate consent authority. Under Allstate Ins. v. Freeman and W. Mich. Univ. Bd. of Control v. State, clarity in text defeated plaintiffs’ “superfluous terms” theory.

2) MFIL did not negate the consent-to-transfer clause on these facts

MFIL provides that a transfer-refusal provision is “void and unenforceable” unless refusal is for “good cause.” See Mich. Comp. Laws § 445.1527(g). Plaintiffs argued this statute effectively invalidates a consent clause unless the contract itself limits refusal to “good cause.”

The Sixth Circuit disagreed, relying on Franchise Management Unlimited, Inc. v. America's Favorite Chicken as demonstrating that the statutory “good cause” analysis can be applied to the franchisor’s actual basis for refusal at the time of transfer, even if the clause does not recite the words “good cause.” In other words, MFIL channels the enforcement of a consent clause through a reasoned “good cause” inquiry; it does not impose a formalistic drafting mandate.

Notably, the panel assumed without deciding MFIL’s retroactive application, and therefore did not reach ADQ’s Contracts Clause arguments. It affirmed on narrower grounds: even if MFIL applied, ADQ’s conduct met the statute’s “good cause” requirement.

3) “Good cause” existed: requiring updated agreements was commercially reasonable

The court adopted the district court’s framing that MFIL “good cause” centers on “commercial reasonability.” By 2020, ADQ had a company-wide policy that new franchisees must sign updated agreements to address modern realities—technology (electronic payments, data security), online ordering, rewards programs, supply chain, sanitation expectations, and system-wide brand consistency.

The 1965 agreement, the court reasoned, was structurally unsuited to governing a global franchise system in 2025. It was commercially reasonable for ADQ to require new operators—who were not the original contracting parties—to adopt current contractual controls rather than rely on informal compliance or goodwill. That justification satisfied MFIL “good cause.”

Impact

  • Transfers in legacy franchises: Franchisees operating under older agreements should expect that, at transfer time, franchisors may condition consent on adoption of modern form agreements—especially where the franchisor can articulate system-standardization, technology, compliance, and brand-management needs.
  • MFIL as a reasonableness filter, not a drafting trap: The opinion reads MFIL § 445.1527(g) as requiring courts to evaluate the franchisor’s real-world reason for refusal (“good cause” at the time), rather than invalidating consent clauses merely because they lack “good cause” wording.
  • High bar for waiver/modification under Michigan law: The decision reinforces that franchisees alleging waiver or modification must show clear and convincing evidence of mutual intent; historical practice and later understandings are unlikely to overcome explicit “consent required” text—particularly where later documents expressly reaffirm the original agreement.
  • Practical litigation posture: The panel’s approach encourages litigants to focus on the “commercial reasonability” record (policy rationales, modernization needs, system risks), not merely on semantics of anti-assignment clauses.

Complex Concepts Simplified

  • Consent-to-assignment clause: A term requiring the other party’s written approval before a contract can be transferred to someone else.
  • Waiver / modification (Michigan): A contract term can be waived or changed, but only with clear and convincing proof that both sides intended the change (not just one side’s assumption).
  • Parol evidence rule: When a written contract is clear, courts often refuse to use earlier statements or negotiations to change its meaning.
  • Rule against surplusage: Courts try to read contracts so every term has a purpose; but when text is clear, courts won’t distort it just to avoid overlap.
  • MFIL “good cause” (transfer context): Under Mich. Comp. Laws § 445.1527(g), a franchisor’s refusal to permit a franchise transfer must be justified—typically by commercially reasonable grounds tied to qualifications, compliance, defaults, or other legitimate system needs.
  • Contracts Clause issue (not decided): Whether applying a later statute to an older contract unconstitutionally impairs contractual obligations; the court avoided deciding this by assuming MFIL applied and still finding ADQ prevailed.

Conclusion

The Sixth Circuit’s decision underscores a practical rule for franchise transfers governed by Michigan law: clear consent-to-assignment provisions remain enforceable absent clear, mutual waiver or modification, and— even assuming MFIL applies—franchisors can establish “good cause” to condition transfer approval on execution of updated franchise agreements when modernization and system-wide consistency needs make that condition commercially reasonable.