No Expansion of Pennsylvania’s Franchise Good Faith Covenant to Performance Obligations:
Commentary on DiStefano, Inc. v. Tasty Baking Co.

I. Introduction

In DiStefano, Incorporated v. Tasty Baking Company, No. 24-1926 (4th Cir. Nov. 26, 2025) (unpublished), the United States Court of Appeals for the Fourth Circuit affirmed summary judgment in favor of a franchisor in a dispute with its distributor/franchisee. The case centers on a distributor agreement governed by Pennsylvania law and raises two core questions:

When a franchise agreement expressly authorizes termination after multiple breach notices, can the franchisee block termination by invoking an implied covenant of good faith?
Does Pennsylvania’s “very limited duty of good faith” in franchise relationships extend beyond termination to cover how the franchisor performs its contractual obligations, particularly post-termination obligations?

The Fourth Circuit answered in a way that confirms — and crystallizes for federal courts applying Pennsylvania law — a narrow view of the implied covenant of good faith in the franchise context:

Termination was contractually proper where the franchisee received three breach notices within three months and had no evidence that the notices were false.
Pennsylvania’s implied covenant of good faith in franchise agreements applies only to attempts to terminate the relationship and does not extend to “performance-related” issues in the franchise relationship, including post-termination operations by the franchisor.

Although the opinion is unpublished and therefore not binding precedent within the Fourth Circuit, it provides a clear, structured application of Pennsylvania franchise law that will be persuasive in similar disputes and offers important drafting and litigation lessons for franchisors and franchisees alike.

II. Factual and Procedural Background

A. The Distribution/Franchise Relationship

DiStefano, Inc. (“DiStefano”) operated as a distributor and franchisee for Tasty Baking Company (“Tasty Baking”) under a written agreement. The agreement granted DiStefano the right to sell and distribute Tasty Baking products along a specified “route” or territory.

Key features of the agreement, as described in the appellate opinion, included:

A provision that if DiStefano received more than two breach notices within a twelve-month period, this would constitute “substantial harm” to Tasty Baking’s business and entitle Tasty Baking to terminate the agreement. (J.A. 261)
A post-termination mechanism under which Tasty Baking would take over the operation of the route “until the distribution rights could be sold,” with associated financial and operational terms. (J.A. 261–62)
A requirement that, when operating the route post-termination, Tasty Baking would use “reasonable efforts, recognizing the limited personnel Tasty has for such purpose.” (quoted at 2024 WL 3936920, at *6)
A choice-of-law clause designating Pennsylvania law as governing the agreement.

B. The Alleged Breaches and Termination

Between July and September 2021, Tasty Baking issued three breach notices to DiStefano, based on:

Two incidents involving DiStefano’s failure to remove expired products from retail stores, and
One incident involving failure to satisfy a particular store’s service requirements.

Pursuant to the contract, receipt of more than two such notices in a twelve-month period constituted “substantial harm” and gave Tasty Baking the contractual right to terminate. Shortly after the third notice, Tasty Baking terminated the agreement and took over the route.

C. The Lawsuit in the District of Maryland

DiStefano (and, initially, its principal, Dwayne DiStefano) sued Tasty Baking in the United States District Court for the District of Maryland, invoking diversity jurisdiction. DiStefano asserted:

A breach-of-contract claim based on termination of the distributor agreement, arguing that Tasty Baking:
- Unfairly enforced the contract (e.g., by disproportionately inspecting DiStefano’s stores to generate more breach notices), and
- Failed to provide support in addressing a disgruntled retailer’s complaints.
A breach-of-contract claim based on post-termination conduct, alleging that Tasty Baking:
- Did not adequately service the route after taking it over, and
- Failed to pay DiStefano a share of post-termination profits.
A statutory claim under the Maryland Fair Distributorship Act (MFDA).

The district court:

Held that the Maryland Fair Distributorship Act did not apply to this relationship, and DiStefano did not appeal that ruling.
Interpreted Pennsylvania law as controlling under the choice-of-law clause.
Granted summary judgment to Tasty Baking on all remaining contract-based claims in a written opinion: DiStefano, Inc. v. Tasty Baking Co., 2024 WL 3936920 (D. Md. Aug. 26, 2024).

DiStefano appealed only the contract-based rulings.

D. The Appeal to the Fourth Circuit

On appeal, the parties largely reprised their district-court arguments:

DiStefano contended that:
- Termination was improper under both the express contract terms and the implied covenant of good faith.
- Tasty Baking’s post-termination conduct breached both the contract and the implied covenant of good faith, arguing that the covenant should extend to “performance-related” aspects of the franchise relationship.
Tasty Baking maintained that:
- Termination was expressly authorized by the contract once three breach notices were given.
- There was no evidence that the breach notices were fabricated or inaccurate.
- Pennsylvania law restricts the implied covenant of good faith in franchise agreements to termination issues only, and the post-termination operational claim was purely contractual.

The Fourth Circuit, reviewing the summary judgment ruling de novo, affirmed.

III. Summary of the Opinion

A. Standard of Review

The court applied the familiar summary judgment standard, citing W.C. English, Inc. v. Rummel, Klepper & Kahl, LLP, 934 F.3d 398, 402–03 (4th Cir. 2019):

Review of summary judgment is de novo, applying the same standards as the district court.
The facts are viewed in the light most favorable to the non-moving party (here, DiStefano).
Summary judgment is appropriate where there is no genuine dispute of material fact and the movant is entitled to judgment as a matter of law.

B. Termination of the Distributor Agreement

The Fourth Circuit agreed with the district court that:

The distributor agreement unambiguously authorized termination once DiStefano had received more than two breach notices in a twelve-month period.
Here, DiStefano received three breach notices within three months, satisfying the contractual condition for termination.
DiStefano admitted it had no evidence that the breach notices were inaccurate or that the underlying breaches “did not occur.”

On appeal, DiStefano attempted to argue that the first two breach reports, involving expired products, had been fabricated. The court rejected this argument:

Tasty Baking produced a sworn declaration from the employee who actually discovered the expired products.
DiStefano offered no evidence to rebut that account, relying instead on mere speculation.

Accordingly, the court held that Tasty Baking’s termination was “squarely within the parties’ agreed terms” and did not constitute breach of contract.

C. The Implied Covenant of Good Faith and Termination

The court recognized, consistent with Pennsylvania law, a limited duty of good faith and commercial reasonableness in the context of franchise terminations. It cited the Pennsylvania Supreme Court’s decision in Witmer v. Exxon Corp., 434 A.2d 1222 (Pa. 1981), which holds that:

the implied duty of good faith is “applicable only in the context of an attempt on the part of the franchisor to terminate its relationship with the franchisee.”

However, the court bypassed the theoretical dispute about whether a franchisor can breach this implied duty while still acting under an express termination clause:

Witmer suggests there is no breach where the franchisor does “no more than activate the procedures explicitly contemplated by the plain terms” of the contract.
The Fourth Circuit did not have to decide that issue, because DiStefano had no evidence whatsoever that Tasty Baking acted in bad faith (e.g., selectively targeting it for inspections, or offering less support compared to other distributors).

The record, the court emphasized, contained only “mere speculation” of unfair treatment, which is insufficient to survive summary judgment.

D. Post-Termination Conduct and the Implied Covenant

The Fourth Circuit then addressed DiStefano’s argument that the implied covenant of good faith should extend to “performance-related” aspects of the franchise relationship, including Tasty Baking’s conduct in operating the route after termination. The court endorsed the district court’s conclusion that:

Under Pennsylvania law, the “very limited duty of good faith” applies only to attempts to terminate the relationship, not to other aspects of the franchise relationship.
No Pennsylvania appellate court has extended the duty to cover a franchisor’s performance of its contractual obligations.

Thus:

DiStefano’s post-termination claim could not be grounded in the implied covenant of good faith.
The claim “turned entirely on the terms of the parties’ agreement.”

E. Post-Termination Breach-of-Contract Claims

Turning to the contract itself, the court found:

The agreement required Tasty Baking to use “reasonable efforts, recognizing the limited personnel Tasty has for such purpose” when operating the route post-termination.
DiStefano offered no concrete evidence — only assertions “notably devoid of any citation to the record” — that Tasty Baking failed to exercise such reasonable efforts.
Even if Tasty Baking “operated the line imperfectly,” that would not, without more, show a failure to use reasonable efforts; the contract did not require perfect performance.
As to profits, the contract’s post-termination provision clearly placed payment obligations on DiStefano to Tasty Baking, not the other way around. The court found no contractual basis for DiStefano’s claim to a share of post-termination profits.

Since the contract did not create the rights and obligations DiStefano sought to enforce, and there was no evidence of a breach of the obligations it did impose, the post-termination contract claim failed.

F. Disposition

The Fourth Circuit affirmed the judgment of the district court in full and dispensed with oral argument on the ground that the facts and legal contentions were adequately presented in the written materials and oral argument would not aid the decisional process.

IV. Detailed Analysis

A. Precedents and Legal Framework

1. Witmer v. Exxon Corp. (Pa. 1981)

Witmer v. Exxon Corp., 434 A.2d 1222 (Pa. 1981), is the cornerstone of Pennsylvania law on the implied covenant of good faith in franchise relationships. The Pennsylvania Supreme Court:

Recognized a narrow implied duty of good faith and commercial reasonableness in franchise terminations.
Limited that duty to the context of attempts to terminate the franchise relationship.
Held that where the franchisor merely “activates the procedures explicitly contemplated by the plain terms” of the contract, there is no breach of the implied covenant.

The Fourth Circuit in DiStefano relies on Witmer in two key ways:

Scope of the Covenant: It reiterates that, under Witmer, the implied duty is:
“applicable only in the context of an attempt on the part of the franchisor to terminate its relationship with the franchisee.”
and not to any other part of the franchise relationship.
Effect of Express Contract Rights: It acknowledges Witmer’s holding that there is no breach where the franchisor simply follows explicit termination procedures in the contract, though the Fourth Circuit expressly declines to decide whether that principle might admit exceptions in other factual settings.

2. Summary Judgment Standard: W.C. English, Inc. v. Rummel, Klepper & Kahl, LLP

The Fourth Circuit cites its own precedent, W.C. English, Inc. v. Rummel, Klepper & Kahl, LLP, 934 F.3d 398 (4th Cir. 2019), primarily for the standard of review:

Summary judgment rulings are reviewed de novo.
The court must view evidence in the light most favorable to the non-moving party.
The non-moving party must come forward with specific facts showing a genuine dispute for trial; speculation and unsupported assertions do not suffice.

This standard underpins the court’s treatment of DiStefano’s claims:

DiStefano’s allegations that breach notices were “fabricated” lacked evidentiary support.
Assertions about Tasty Baking targeting DiStefano, or giving it less support than other distributors, were unsupported by record citations.
Allegations of inadequate post-termination route service were similarly devoid of admissible evidence.

In all these respects, the court relied on the summary judgment framework to treat those claims as insufficient to create a triable issue of fact.

B. The Court’s Legal Reasoning

1. Contract Interpretation and Termination Rights

The termination provision was drafted in unusually explicit and quantifiable terms:

Receipt of more than two breach notices within a twelve-month period would constitute “substantial harm” to Tasty Baking’s business.
That “substantial harm” would entitle Tasty Baking to terminate the agreement.

The Fourth Circuit:

Emphasized the unambiguous nature of this clause.
Noted that DiStefano did not dispute the number of notices or their timing.
Focused on whether there was any evidence that the underlying breaches did not occur.

Once Tasty Baking produced a sworn declaration establishing the expired products and other breaches, and DiStefano admitted it had no evidence contradicting that account, the contractual condition for termination was satisfied. At that point, the analysis shifted from “whether Tasty was allowed to terminate” (answered yes by the plain language) to “whether Tasty exercised that right in bad faith.”

2. The Implied Covenant of Good Faith at Termination

On the termination question, the implied covenant of good faith operates as a narrow overlay on top of express contractual rights under Pennsylvania law. The court proceeds as follows:

It acknowledges that Pennsylvania recognizes a duty of good faith in the context of franchise termination, citing Witmer.
It flags a doctrinal issue: can a franchisor act in bad faith even when it invokes a termination right that is clearly and explicitly granted by the contract?
- Witmer suggests “no” where the franchisor merely uses the contractually specified procedures.
- But later cases sometimes leave open room for allegations of pretext or discriminatory enforcement.
The court declines to resolve that question because the record contains no admissible evidence that Tasty Baking acted with an improper motive or selectively enforced contract terms against DiStefano.

In other words, the court’s reasoning rests heavily on the evidentiary record: even if the law might, in some hypothetical case, recognize a bad-faith termination despite the presence of an express contractual right, this was not such a case because DiStefano’s assertions of unfair treatment were unsupported “mere speculation.”

3. Limiting the Covenant to Termination: No Expansion to Performance

The most significant doctrinal move in the opinion concerns the scope of the implied covenant of good faith. The appellant urged the court to apply the covenant to “performance-related” aspects of the franchise relationship, including:

How Tasty Baking serviced the route post-termination, and
Whether it shared profits from that operation with DiStefano.

The Fourth Circuit rejected that argument, relying squarely on the Pennsylvania Supreme Court’s language in Witmer:

the covenant is “applicable only in the context of an attempt on the part of the franchisor to terminate its relationship with the franchisee,” and no Pennsylvania appellate court has applied it to a franchisor’s performance of its contractual obligations.

Thus:

The court interpreted Pennsylvania law as foreclosing any extension of the franchise good faith covenant to post-termination or performance-related conduct.
Any rights regarding post-termination operations must be found in the express terms of the contract, not in an implied covenant.

This is the central legal principle of the case and the primary “new” articulation for federal courts applying Pennsylvania law: the implied covenant in franchise agreements is formally confined to the termination decision itself.

4. Evaluating Post-Termination Contract Obligations

Once the court confined the analysis to the four corners of the contract, the outcome turned on straightforward contract interpretation and evidentiary sufficiency:

The contract obligated Tasty Baking to use “reasonable efforts” when operating the route, “recognizing the limited personnel” available.
The court interpreted “reasonable efforts” as:
- Not equivalent to perfect performance,
- Context-sensitive, accounting for resource constraints (explicitly referenced in the provision).
DiStefano failed to produce any fact-based, record-supported evidence that Tasty Baking’s performance fell below that reasonableness standard.

On the profit-sharing issue:

The court read the contract’s post-termination provision as clearly requiring payments from DiStefano to Tasty Baking in connection with Tasty Baking’s operation of the route.
There was no language entitling DiStefano to a share of profits.
Because “the language of the [a]greement does not create the rights and obligations” DiStefano asserted, that claim failed as a matter of law.

C. Impact and Significance

1. For Franchisors and Franchisees under Pennsylvania Law

The decision reinforces several important points about Pennsylvania franchise law:

Express Termination Provisions Are Powerful When a franchise agreement defines specific, objective triggers for termination (e.g., a certain number of breach notices in a time period), courts applying Pennsylvania law will enforce those terms strictly, as long as the underlying breaches are real and documented.
Bad Faith Requires Evidence Allegations that a franchisor “targeted” a franchisee, fabricated violations, or provided less support than to other franchisees must be backed by concrete evidence — comparative data, documents, testimony — not mere suspicion. Without such evidence, summary judgment will likely be granted.
The Covenant of Good Faith Is Narrow in the Franchise Context Under Witmer and as applied in DiStefano, Pennsylvania confines the implied duty of good faith and commercial reasonableness to the termination decision itself; it does not function as a general fairness overlay on all aspects of franchise performance.
Post-Termination Claims Are Purely Contractual Once the relationship is terminated, claims about how the franchisor manages the former franchisee’s territory, including financial arrangements, must be grounded in the express terms of the agreement. There is no implied good-faith duty supplementing or expanding those terms under Pennsylvania franchise law.

2. For Contract Drafters

From a drafting perspective, DiStefano is highly instructive:

Define Termination Triggers Clearly Tasty Baking’s contract explicitly quantified “substantial harm” and tied termination rights to objective metrics (more than two breach notices in twelve months). Such clarity reduces the room for judicial second-guessing and protects the franchisor when termination occurs.
Specify Post-Termination Obligations Precisely The contract’s explicit recognition of limited personnel and the “reasonable efforts” standard played a significant role. Parties should:
- Set realistic performance expectations for any post-termination or transitional operations.
- Clear up who pays whom, and under what formula, during any such interim period.
Choice-of-Law Clauses Matter The application of Pennsylvania law, as opposed to Maryland’s potentially more protective distributor statute, profoundly shaped the outcome. Parties should be aware that choosing Pennsylvania law in franchise agreements may import this narrow view of the implied covenant.

3. For Litigators and Future Cases

Although unpublished, the opinion has several likely future effects:

Persuasive Authority on Scope of Good Faith Federal courts within the Fourth Circuit, applying Pennsylvania law, will likely treat DiStefano as a clear articulation that the franchise good faith covenant does not extend to performance and post-termination issues.
Emphasis on Evidentiary Rigor at Summary Judgment Franchisees bringing bad-faith and discriminatory-enforcement claims will need to marshal robust evidence early, including affidavits, internal records, and comparator data; otherwise, their claims are vulnerable to summary judgment.
Reinforcement of Predictability The decision contributes to a predictable framework: if termination meets clear contractual criteria and there is no evidence of falsity or pretext, courts will be reluctant to impose additional constraints through implied duties.

V. Complex Concepts Simplified

1. Summary Judgment

Summary judgment is a procedural device used to avoid trials when there is no real dispute about the key facts. It works like this:

The party moving for summary judgment (here, Tasty Baking) argues that even if all reasonable factual inferences are drawn in the opponent’s favor, the law still requires judgment in its favor.
The non-moving party (here, DiStefano) cannot simply rely on the allegations in its complaint. It must present actual evidence — documents, deposition testimony, sworn declarations — showing a genuine dispute.
If the court finds that the evidence is one-sided, it may grant judgment without a trial.

In DiStefano, the lack of evidence to substantiate the allegations of fabricated notices, selective inspections, or unreasonable route servicing was fatal at the summary judgment stage.

2. Implied Covenant of Good Faith and Fair Dealing

In general contract law, many jurisdictions recognize an implied covenant of good faith and fair dealing, meaning:

Each party must act in a way that does not destroy the other party’s right to receive the benefit of the contract.
Parties should not exercise contractual discretion in a manner that is purely arbitrary or designed to undermine the contract’s purpose.

Pennsylvania law imposes a very narrow version of this duty in franchise agreements:

It exists primarily — and, per Witmer and this case, exclusively — in the context of termination decisions.
It does not function as a general overlay on all aspects of franchise performance.

Thus, while in some states a franchisee might try to invoke an implied duty to challenge a franchisor’s route management or pricing decisions, Pennsylvania (as applied here) does not extend such a duty to those performance issues.

3. “Reasonable Efforts” Clauses

A “reasonable efforts” clause requires a party to act with a degree of diligence and competence that would be expected of a reasonable party under the circumstances, but it does not require perfection. Factors that can shape what’s “reasonable” include:

Contractual language (here, recognizing Tasty Baking’s “limited personnel”).
Industry practice and norms.
The nature and complexity of the task.

In DiStefano, the court stressed that even if Tasty Baking’s post-termination operation was “imperfect,” that still would not prove a breach of the “reasonable efforts” obligation, absent evidence of substantial or systematic dereliction.

4. Franchise vs. Distributor and Post-Termination Operation

Though labels vary, courts generally treat:

Franchise agreements as ongoing relationships where the franchisee uses the franchisor’s branding, systems, and products.
Distributor agreements as arrangements focusing more on product distribution in a territory.

Here, DiStefano is described as both a “distributor and franchisee.” The key feature is the route — a defined territory for selling and servicing Tasty Baking products. The contract’s post-termination mechanism is typical in franchise/distributor contexts:

The franchisor temporarily takes over operations to prevent market disruption.
The route may later be resold or reassigned.

Disputes often arise over how that post-termination period is managed and who gets the economic benefit. DiStefano makes clear that, under Pennsylvania law, those questions are governed by the express contract, not by an expanded notion of good faith.

5. Choice-of-Law Clauses

A choice-of-law clause is a provision in a contract specifying which jurisdiction’s law will govern disputes arising under the contract. In this case:

The agreement designated Pennsylvania law as controlling.
The suit was filed in Maryland federal court, where a Maryland distributor statute (MFDA) might otherwise have been relevant.
The district court held the Maryland statute inapplicable, and DiStefano did not appeal that ruling.

The result is that the entire legal framework for evaluating termination, good faith, and post-termination obligations came from Pennsylvania, not Maryland — a critical factor, given Pennsylvania’s restrictive stance on implied franchise duties.

VI. Conclusion: Key Takeaways and Broader Significance

DiStefano, Inc. v. Tasty Baking Co. confirms and clarifies several important principles for franchise and distribution law under Pennsylvania’s legal regime:

Express Contract Terms Control Termination When a franchise agreement clearly defines termination triggers — such as a specified number of breach notices within a set period — courts will enforce those triggers as written, provided the underlying breaches are real and unrefuted.
The Franchise Good Faith Covenant Is Narrow Under Pennsylvania law, the implied covenant of good faith and commercial reasonableness in the franchise context applies only to attempts to terminate the relationship. It does not create a continuing, general duty of fairness in all aspects of performance.
No Expansion to Post-Termination Performance The Fourth Circuit firmly declined to extend the implied covenant to Tasty Baking’s post-termination operation of the route. All such claims must be anchored in the contract’s text.
Speculation Cannot Defeat Summary Judgment Allegations that breach notices were fabricated, inspections were targeted, or service was substandard must be supported by evidence. Without concrete proof, courts will not allow such claims to proceed to trial.
“Reasonable Efforts” Does Not Mean Perfection A contractual commitment to use “reasonable efforts,” especially when coupled with recognition of resource limits, requires competent and good-faith performance, not flawless execution. Imperfections alone do not equal breach.

Although unpublished and not binding precedent within the Fourth Circuit, DiStefano is a well-structured application of Pennsylvania franchise law that:

Reinforces the centrality of contract drafting in allocating termination and post-termination risks.
Signals to franchisees that claims of bad faith and unfair treatment must be evidence-based, not speculative.
Provides federal courts in diversity cases with a clear, conservative reading of Pennsylvania’s implied covenant in franchise settings.

For parties entering franchise or distribution agreements governed by Pennsylvania law, and for their counsel, this decision underscores a practical message: if you want protections beyond the narrow termination-focused good-faith duty recognized in Witmer, they must be expressly written into the contract. Courts are unlikely to supply them by implication.

No Expansion of Pennsylvania’s Franchise Good Faith Covenant to Performance Obligations: Commentary on DiStefano, Inc. v. Tasty Baking Co.