ORDER

THOMAS A. HIGGINS, United States District Court Judge.

In accordance with the memorandum contemporaneously entered, the plaintiff's motion (filed July 10, 1998; Docket Entry No. 98) for summary judgment on its claims against the defendant and the defendant's counterclaim against the plaintiff is granted.

Accordingly, Shoney's shall recover from Mr. Morris $91,823.92 for accounts due under the six franchise agreements. Mr. Morris shall file a response to the plaintiff's request for future royalties in the amount of $1,261,026.00. The plaintiff shall file a memorandum in support of its request for prejudgment interest within ten (10) days of the date of entry of this order on the docket. The plaintiff shall also file an application for attorney fees and expenses in accordance with Rule 13 (e), Local Rules of Court. Finally, the preliminary injunction granted by this Court's order of April 8, 1998 (Docket Entry No. 55) is made permanent.

It is so ORDERED.

MEMORANDUM

The Court has jurisdiction based on diversity of citizenship and the amount in controversy. 28 U.S.C. § 1332 (a)(1).

For the reasons discussed below, the motion shall be granted.

I.

The plaintiff, Shoney's Inc., is a Tennessee corporation which is in the restaurant business and grants franchises to individuals, allowing them to use the Shoney's System to operate restaurants under the Shoney's name. The defendant, Jim Morris, was employed by Shoney's from 1960 through 1984.

In 1984, Mr. Morris entered into his first franchisee license agreement with Shoney's for a restaurant in Kentucky. Between 1984 and 1993, Mr. Morris entered into five additional license agreements so that he had a total of three license agreements for Shoney's restaurants in Illinois and three license agreements for Shoney's restaurants in Kentucky. Mr. Morris closed all six of his restaurants in 1997 without executing the standard termination agreement, which included a mutual release. Shoney's filed this suit against Mr. Morris on January 5, 1998, alleging breach of contract under each of the licenses. Shoney's contends that Mr. Morris closed his restaurants without permission and without executing the termination agreement and owes Shoney's money as to each of the restaurants and damages for future royalties. Mr. Morris contends that Shoney's breached the license agreements first by causing or permitting the decline of the value, reputation, and sales of Shoney's and thus forcing him to close all the restaurants before the license agreements expired. Accordingly, Mr. Morris denies liability under each of the licenses and has filed a counterclaim under the Madisonville, Kentucky, license agreement for breach of contract and fraud.

Shoney's seeks damages under each of the licenses for breach of contract, and also requests prejudgment interest, attorneys' fees, and expenses. Shoney's also moves for dismissal of Mr. Morris' counterclaim and for the preliminary injunction issued by this Court with respect to the sign at the Madisonville, Kentucky, restaurant to be made permanent.

II.

In order to prevail on a summary judgment motion, the moving party bears the burden of proving the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265, 274 (1986); Davidson Jones Dev. Co., 921 F.2d at 1349;Street v. J.C. Bradford Co., 886 F.2d 1472, 1479 (6th Cir. 1989). A dispute about the material fact must be genuine, that is, "the evidence is such that a reasonable jury could return a verdict for the non-moving party." Liberty Lobby, 477 U.S. at 248, 106 S.Ct. at 2510, 91 L.Ed.2d at 211-12. Since the preponderance of the evidence standard is used in this determination, more than a mere scintilla of evidence in support of the plaintiff's position is required. Id. at 252, 106 S.Ct. at 2512, 91 L.Ed.2d at 214.

Once a motion for summary judgment has been made, "the nonmoving party bears the responsibility to demonstrate that summary judgment is inappropriate under Rule 56(e)." Davidson Jones Dev. Co., 921 F.2d at 1349. The non-moving party may not merely rest on conclusory allegations, but must respond with affirmative evidence supporting its allegations and establishing the existence of a genuine issue of material fact. Celotex, 477 U.S. at 324, 106 S.Ct. at 2553, 91 L.Ed.2d at 274;Cloverdale Equip. Co. v. Simon Aerials, Inc., 869 F.2d 934, 937 (6th Cir. 1989). While the disputed issue does not have to be resolved conclusively in favor of the non-moving party to defeat summary judgment, sufficient evidence supporting the claimed factual dispute "must be shown," thereby requiring resolution of the parties' differing versions of the truth by a jury or judge. Liberty Lobby, 477 U.S. at 249, 106 S.Ct. at 2510, 91 L.Ed.2d at 212; First Nat'l Bank v. Cities Serv. Co., 391 U.S. 253, 289, 88 S.Ct. 1575, 1592, 20 L.Ed.2d 569, 592 (1968).

III. A. Choice of Law

The plaintiff asserts that Tennessee law applies in this case. A federal court applies "the law of the state in which it sits, including that state's choice of law provisions." Davis v. Sears, Roebuck and Co., 873 F.2d 888, 892 (6th Cir. 1989). In Bright v. Spaghetti Warehouse, Inc., No. 03A01-9708-CV-00377, 1998 WL 205757, at *5 (Tenn.Ct.App. Apr. 29, 1998), the Tennessee Court of Appeals noted that "Tennessee will honor a choice of law clause if the state whose law is chosen bears a reasonable relation to the transaction and absent a violation of the forum state's public policy." The plaintiff asserts that Tennessee law applies to the Kentucky license agreements because these agreements choose Tennessee law to apply to the contractual relationship of the parties.See Declaration of Beverly J. Donahue (filed July 10, 1998; Docket Entry No. 104) exhibit A, ¶ 33; exhibit F, ¶ 33; exhibit H, ¶ 31. Likewise, the Illinois license agreements choose Tennessee law. Id. exhibit C, ¶ 33; exhibit D, ¶ 33; exhibit J, ¶ 31.

In his response, the defendant cited a long list of cases with no discussion whatsoever as to how these cases support his contention that Illinois law applies to the breach of contract claims on the Illinois license agreements and Kentucky law applies to the breach of contract claims on the Kentucky license agreements and the counterclaim. The defendant later submitted a Seventh Circuit case in which the Court disregarded the choice of law provision in the license agreement, which stated that the contract would be governed by Texas law, and instead held that "Illinois, like many other states, has made it clear that parties cannot opt out of the coverage of the [Illinois Franchise Disclosure] Act for Illinois franchisees." To-Am Equip. Co., Inc. v. Mitsubishi Caterpillar Forklift Am., Inc., 152 F.3d 658, 662 (7th Cir. 1998).

First, the Court notes that, although the defendant submits To-Am Equip. Co. for the Court's consideration, he fails to submit any case from Tennessee that holds that the Illinois Franchise Disclosure Act would apply to a breach of contract claim when the license agreement contains a choice of law provision to the contrary. Second, even if the Act were to apply to the plaintiff's breach of contract claim under the Illinois license agreements, the defendant has failed to discuss its application to those license agreements and how it would change the outcome of the claims at issue. Accordingly, the Court will apply Tennessee law to the plaintiff's breach of contract claims under both the Kentucky license agreements and the Illinois license agreements. The plaintiff also contends that because Tennessee law applies to the Kentucky license agreements, Tennessee law also applies to the counterclaim as well, since it arises from the Madisonville, Kentucky, license agreement. The comments to Section 201 of the Restatement (Second) Conflict of Laws (1971) state that "questions involving the effect of misrepresentation, duress, undue influence and mistake upon a contract are determined by the law chosen by the parties, if they have made an effective choice." The comments go on to say that

[t]he fact that a contract was entered into by reason of misrepresentation, undue influence or mistake does not necessarily mean that a choice-of-law provision contained therein will be denied effect. This will only be done if the misrepresentation, undue influence or mistake was responsible for the complainant's adherence to the provision.

B. Shoney's Claim

Shoney's moves for summary judgment on its claim that Mr. Morris breached all six of the license agreements by closing his restaurants without permission where the term of the agreements was twenty years. Accordingly, Shoney's claims that it is entitled to not only accounts payable, such as commissary invoices, equipment invoices, shopper invoices, royalty fees, and advertising fees, but also future royalties.

1. Mr. Morris' first defense

In response, Mr. Morris asserts that "Shoney's breached its six franchise agreements by causing or permitting the decline of the value and reputation of its trade name `Shoney's,' causing a reduction in sales at both company-owned and franchisee-operated stores." Defendant's brief (Docket Entry No. 122) at 6-7. The defendant contends, therefore, that Shoney's breach relieved him of any obligations under the license agreements and that Shoney's is not entitled to damages. The Court notes that even if a decline in reputation and reduction in sales occurred, the Court is at a loss to discern how this resulted in a breach of contract on the part of Shoney's. Mr. Morris argues that the "franchise agreements require both Shoney's, as the franchisor, and the franchisees to maintain the value and reputation of Shoney's trade name `Shoney's' by continuing to maintain high standards for food quality, operational execution, service and cleanliness." Id. at 6. However, Mr. Morris has failed to point out such a specific requirement on the part of Shoney's in the license agreements.

The first page of each of the license agreements states that the Shoney's restaurants

and the products sold therein have a reputation for excellence that has been acquired and is being maintained by continuing research and advertising programs and by requiring all parties licensed to use the Shoney's System to maintain high standards of quality and service.

Declaration of Donahue (Docket Entry No. 104) at exhibits A (with modification), C-D, F, H, J (emphasis added). From this provision, the Court does not glean any requirement on the part of the franchisor to "maintain high standards for food quality, operational execution, service and cleanliness." Defendant's brief (Docket Entry No. 122) at 6.

In his response, Mr. Morris cites to the deposition testimony of Robert Langford, the chief operating officer of Shoney's until April, 1998; Micky Skelton, a senior director of franchise development and administration until April, 1998; and Robert Nicoletti, Shoney's current vice president of franchise operations, in support of his argument that the agreements contained such a requirement. However, when Mr. Langford was asked whether Shoney's had a "corresponding duty to maintain the same high standards of quality and excellence and service for its company-owned stores" as the franchisees, he testified, "I don't see that obligation imposed as a result of that paragraph." Declaration of Terry Morris (Docket Entry No. 126) exhibit E at 47. Mr. Langford went on to say that although he believes that Shoney's had an obligation to maintain a high level of reputation for its company-owned stores, "as it references that paragraph I don't see that duty implied." Id.

Although Mr. Skelton and Mr. Nicoletti testified that they agreed that Shoney's had an obligation to maintain the same high standards for quality and service with respect to the company-owned stores, their statements do not mean that such an obligation was a contractual requirement under the license agreements. Id. exhibit D at 31; exhibit B at 17-18. The Court will not read such a requirement into these license agreements. See CMS Enter. Group v. Ben Jerry's Homemade, Inc., [1995-1996 Transfer Binder] Bus. Franchise Guide (CCH) ¶ 10,748 (Pa. Ct. Common Pleas Aug. 3, 1995).

Accordingly, the Court finds that no such requirement exists on the part of Shoney's, the franchisor, in the license agreements and that only the licensees or franchisees are specifically required to "use the Shoney's System to maintain high standards of quality and service." Declaration of Donahue (Docket Entry No. 104) at exhibits A, C-D, F, H, J. As the Court does not find that Shoney's somehow breached the license agreements, the Court finds that there is no genuine issue of material fact on this issue.

2. Mr. Morris' second defense

First, Mr. Morris argues that "Shoney's used the future royalties clauses to coerce franchisees who cease unprofitable operations to provide it with a full release for causing the franchisees to become unprofitable." Defendant's brief (Docket Entry No. 122) at 8. Thus, Mr. Morris argues that the clauses act as a penalty and are "void and unenforceable, as against public policy, under the law of Tennessee."Id. at 9. Mr. Morris cites three cases in support of his argument, but none of these cases discuss future royalty clauses in license agreements.

The plaintiff, however, cites McGann v. United Safari, Inc., 694 S.W.2d 332 (Tenn.Ct.App. 1985), in which the Tennessee Court of Appeals enforced the royalties provision in the license agreement. In addition, in Franchise Management Unlimited, Inc. v. America's Favorite Chicken, 561 N.W.2d 123 (Mich.Ct.App. 1997), appeal granted, No. 108904 (Mich. Apr. 1, 1998), the court upheld the requirement in the franchise agreement that the franchisee execute a release as a condition to transferring the franchise to another party.

Although Mr. Morris argues that Shoney's policy of requiring a release as part of the termination agreement is not disclosed in the franchise agreement or offering circulars, the Court notes that under the franchise agreement, Shoney's has no obligation to relinquish its right to future royalties. The franchise agreements state that future royalties will be due for the remaining term of the license if a restaurant is closed early. As noted by the plaintiff, the termination agreement simply "represents a modification of the License Agreement." Plaintiff's memorandum (Docket Entry No. 165) at 7. Accordingly, the Court rejects Mr. Morris' argument that the future royalties clauses at issue are unenforceable as against public policy.

Second, Mr. Morris argues that "the arrangement employed by Shoney's, particularly where the practice of using the termination agreements and mutual releases in this fashion is not disclosed to the franchisees in either the franchise agreements or the offering circulars, is also unconscionable and unenforceable." Defendant's brief (Docket Entry No. 122) at 10. The defendant cites no Tennessee cases on point in support of his argument. He does cite the case of Postal Instant Press, Inc. v. Sealy, 51 Cal.Rptr.2d 365 (Cal.Ct.App. 1996), in which the California Court of Appeals held that the franchisor was not entitled to future royalties where the franchisor, and not the franchisee, elected to terminate the contract instead of merely suing for past unpaid royalties and continuing to maintain the franchise. The court specifically noted that it would not "consider whether a franchisor would be entitled to `lost future profits' damages if the franchisee rather than the franchisor unilaterally canceled the franchise agreement." Id. at 369 n. 2. The court further refused to adopt the franchisee's argument that "it is unfair and uneconomic to force franchisees to remain linked to a sinking franchisor by requiring them to continue paying royalty fees if they elect to terminate the franchise agreement." Id. at 375 n. 10. Accordingly, the Court rejects the defendant's argument that the future royalties clauses are unconscionable.

Finally, Mr. Morris argues that "the combination of the future royalties clauses and the termination agreements with the mutual releases are void and unenforceable because the provisions in the standard franchise contract drafted by Shoney's (the franchise contracts are non-negotiable) fail to meet the reasonable expectations of the parties under Restatement of Contracts (Second) § 211." Defendant's brief (Docket Entry No. 122) at 10. Mr. Morris simply cites cases from the Eighth Circuit, Ninth Circuit, and the Texas state court with no discussion whatsoever as to how these cases support his position. Nor does the Court understand how these cases support his position after reviewing the cases. The Court finds no justification for the defendant's bald statement that the clauses are void and unenforceable because they fail to meet the reasonable expectations of the parties. Accordingly, the Court finds that the future royalties clauses in the six license agreements are enforceable.

C. Counterclaim

Shoney's also moves for summary judgment on the defendant's counterclaim concerning the Madisonville, Kentucky, license agreement. Mr. Morris states in his response to the plaintiff's motion for summary judgment the following bases for his counterclaim:

In 1990 and 1991, Shoney's represented to Jim Morris and other franchisees that it was continuing to expand the number of Shoney's company-owned and franchised restaurants throughout the United States, aggressively, by adopting Project 500, under which it planned to open 500 new company-owned and franchised Shoney's stores each year for five years. At the same time, Shoney's concealed from Jim Morris that it had entered into the recapitalization program of 1988 because it had concluded that it was in a mature market, that future expansion should be very limited, and that as a result it was paying all of its net worth, and borrowing any additional sums, to make a cash dividend to its shareholders which reduced its net worth from a positive $300,000,000.00, approximately, to a negative $379,000,000.00 approximately. Jim Morris would not have entered into the Madisonville, Kentucky franchise agreement if he had known the concealed, existing, fact that Shoney's had concluded that it was in a mature market, and that future growth should occur very slowly and cautiously. Defendant's response (Docket Entry No. 121) at 6-7 (emphasis in original).

The plaintiff moves for summary judgment on the grounds that the integration clause in the Madisonville license agreement bars the defendant's counterclaim. The Madisonville agreement provides:

Entire Agreement. This agreement and any addendum hereto contains the entire agreement between the parties hereto relating to the operation of the restaurant at the Franchised Site and there are no representations, inducements, promises, agreements, arrangements or undertakings, oral or written, relied upon by the parties other than those set forth herein. No agreement of any kind relating to the matters covered by this agreement shall be binding upon either party unless and until the same is made in writing and executed by all interested parties.

. . . .

IN ADDITION, LICENSEE ACKNOWLEDGES THAT LICENSOR AND ITS REPRESENTATIVES HAVE MADE NO REPRESENTATIONS TO LICENSEE OTHER THAN OR INCONSISTENT WITH THE MATTERS SET FORTH IN THE UNIFORM FRANCHISE OFFERING CIRCULAR PROVIDED TO LICENSEE, AND THAT LICENSEE HAS UNDERTAKEN THIS VENTURE SOLELY IN RELIANCE UPON THE MATTERS SET FORTH IN THE UNIFORM FRANCHISE OFFERING CIRCULAR AND LICENSEE'S OWN INDEPENDENT INVESTIGATION OF THE MERITS OF THIS VENTURE.

Declaration of Donahue (Docket Entry No. 104) exhibit H at ¶¶ 34 and 35(b) (capitalization in original). The defendant cites three cases in support of his argument that "the anti-fraud language in the Madisonville, Kentucky franchise agreement does not bar the fraud counterclaim. Defendant's brief (Docket Entry No. 122) at 5. However, all of these cases are product liability cases, and their applicability to the facts in this case is limited."

The plaintiff, on the other hand, cites to Sub Station II. Inc. v. Banasiak, 1984 Tenn. App. LEXIS 2962 (Tenn.Ct.App. June 15, 1984), in which the franchisee alleged that the franchisor fraudulently induced him to enter the agreement based on an oral representation that an attempt was being made to franchise many stores in the area so that the stores could jointly advertise and buy food at a lower cost. Id. at *26-27. The court held:

If testimony is offered to prove that a party to the written integration made extrinsic promises, warranties, or other undertakings by which his duties, liabilities, or other kinds of burdens would be increased, without any consideration other than that which is expressed in the writing, the testimony is ordinarily said to be excluded by the "parol evidence rule." Parties would ordinarily include such additional promises and warranties, if in fact made, in the writing itself. They form part of the equivalent, bargained for and given in exchange for the express consideration; and the purpose for which the parties execute the writing is to state what the bargain was.

The plaintiff requests damages for accounts due in the amount of $91,823.92. The defendant admits in his response to the plaintiff's statement of undisputed facts (filed August 10, 1998; Docket Entry No. 123) that

he did not pay invoices totaling $91,823.92 for commissary charges, royalties and advertising charges on his six franchise stores, following the closing of those six stores, as reflected in the second paragraph/schedule of Statement No. 65, but disputes that he owes these amounts because Shoney's owes him a far greater amount for causing his six stores to become unprofitable and forcing him to close.

The plaintiff also requests damages for future royalties in the amount of $1,261,026.00. As the Court has found that Mr. Morris' defense that the future royalties clauses are unenforceable is without merit, Shoney's is entitled to future royalties. However, as Mr. Morris has not stated whether he has any opposition to the amount requested for future royalties, the defendant shall file a response to the plaintiff's request for future royalties in the amount of $1,261,026.00.

Furthermore, the plaintiff requests prejudgment interest, as well as attorneys' fees and expenses, but has not briefed these issues. Accordingly, the plaintiff shall file a memorandum in support of its request for prejudment interest. The plaintiff shall also file an application for attorney fees and expenses in accordance with Rule 13 (e), Local Rules of Court.

E. Injunctive Relief

The plaintiff also requests that the "preliminary injunction entered with respect to the sign at the Madisonville restaurant be made permanent." Plaintiff's memorandum (Docket Entry No. 99) at 20. The defendant responds that "[t]he no-compete clauses, however, expire one year after the franchise contracts are terminated," and thus, a permanent injunction should not be granted. Defendant's brief (Docket Entry No. 122) at 12.

It is true that Paragraph 18 of the Madisonville license agreement is a non-competition provision and essentially states that the licensee agrees that it will not engage in any food service business similar to the food service business operated under the Shoney's System within two and a half miles of a Shoney's restaurant for a period of 12 months. Declaration of Donahue (Docket Entry No. 104) exhibit H, ¶ 18. However, Shoney's does not ask the Court to extend the time under this non-competition provision. Shoney's simply asks the Court to make permanent the preliminary injunction the Court granted as to the sign at the Madisonville restaurant.

In the Court's memorandum granting the preliminary injunction (entered April 8, 1998; Docket Entry No. 54), the Court noted that it was paragraph 20 of the license agreement that was at issue. Paragraph 20 states that the "[l]icensee shall . . . discontinue at the Franchised Site all use of the trade names, trademarks and service marks which are connected with the Shoney's System, and the use of any and all signs . . . bearing such trade names, trademarks and service marks, or any reference whatever thereto." Declaration of Donahue (Docket Entry No. 104) exhibit H, ¶ 20. That same provision also prohibits the licensee from assisting a nonlicensee in the construction or equipping of any premises incorporating the distinctive features" that Shoney's has originated and developed and which are identifying characteristics of the business. Id.

By enforcing this provision and making the preliminary injunction permanent, the Court does not prohibit Mr. Morris from opening a restaurant at the site of the Madisonville restaurant. The permanent injunction simply prohibits Mr. Morris from resurrecting the BROADY'S road sign at the Madisonville restaurant, which mirrored the Shoney's sign in color, font and arrangement of the letters and was the subject of the preliminary injunction. Accordingly, the preliminary injunction granted by order of this Court entered on April 8, 1998 (Docket Entry No. 55), will be made permanent.

IV.

The Court finds that there is no genuine issue of material fact as to the defendant's liability under the six license agreements for breach of contract or as to the future royalties clauses under the six license agreements. The Court also finds an absence of a genuine issue of material fact as to the defendant's counterclaim against the plaintiff. Accordingly, for the reasons stated above, the plaintiff's motion for summary judgment shall be granted on its claims against the defendant and on the defendant's counterclaim against the plaintiff.

In addition, the Court finds that Shoney's shall recover from Mr. Morris $91,823.92 for accounts due under the six franchise agreements. The Court also finds that the future royalties clauses in the six franchise agreements are enforceable, and thus, Mr. Morris shall file a response to the plaintiff's request for future royalties in the amount of $1,261,026.00. The plaintiff shall file a memorandum in support of its request for prejudgment interest and an application for attorneys' fees and expenses in accordance with Rule 13(e), Local Rules of Court.

Finally, the Court finds that the preliminary injunction granted by this Court's order of April 8, 1998 (Docket Entry No. 55) shall be made permanent.

An appropriate order shall be entered.