Summary
holding that where a merger clause is included in the written contract, alleged collateral promises will not be enforced through fraud because under fraud the reliance must be reasonable
Summary of this case from Papa John's International, Inc. v. Dynamic Pizza, Inc.Opinion
5:99-CV-274
January 17, 2003
ORDER
Now before the Court are Defendants' various motions for summary judgment. These include (1) Defendants' Motion for Summary Judgment on Damages (Dkt. No. 229); (2) Motion for Summary Judgment on Plaintiffs' Claims Eleven and Twelve-related to marketing (Dkt. No. 230); (3) Defendants' Motion on Claims of Plaintiff Flavio Olivarez, Count Thirteen (Dkt. No. 231); (4) Defendants as Counter Claimants for Summary Judgment on its Contract Claims (Dkt. No. 232); and (5) Defendants' Motion for Summary Judgment on Nonstrategic Market Claims, Counts One Through Ten (Dkt. No. 234). These are collectively referred to as "Defendants' Motions for Summary Judgment".
For the reasons set forth below, the Court will grant summary judgment for Defendants on many of Plaintiffs' claims. However, some issues still remain for trial; therefore, the trial of this case will proceed on Thursday, January 23, 2003. Additionally, the Court will deny Defendants' summary judgment motion on its own breach of contract claims as counter-plaintiff. Lastly, Defendants' motion for summary judgment as to Mr. Olivarez's independent claims will be denied.
I. BACKGROUND
This is an action by a group of more than forty franchisees against their franchisor. These franchisees operated in several states, including: Alabama, Mississippi, Texas, Arkansas, and Louisiana. The crux of the Plaintiffs' complaints are that Baskin Robbins, USA, Co. ("Baskin Robbins") decided not to renew their franchise agreements and that Baskin Robbins supposedly mishandled funds in a common advertising fund. Other significant complaints that derive from this main theme are that Baskin Robbins prevented the franchisees from selling their franchises to third parties by informing them that they would not be renewed.
Also, Plaintiffs assert that Baskin Robbins had a duty to disclose certain information of which it had knowledge to current and prospective franchisees. This information allegedly included the knowledge that single brand formats would be phased out and that certain "nonstrategic" areas would also be phased out, through redirecting marketing efforts and nonrenewal of franchise agreements. Lastly, Plaintiffs appear to claim that their franchises were, or soon will be, terminated in a manner contrary to promises made to them and allegedly in violation of California statutory franchise law.
For additional background, the Court would refer to its previous Order of September 18, 2000.
The Court heard oral argument on summary judgment motions in this case on January 16, 2003. During that hearing, the Court specifically inquired into what initially appeared to be troublesome choice of law issues. Happily, during that hearing, the parties indicated the following: no substantive difference exists in any the laws of the relevant states that would change this Court's analysis. Significantly, the parties' agreement allows this Court to examine the heart of the summary judgment matters without being ensnared in the time consuming task of separate analysis of the laws of seven different jurisdictions. As such, the Court relies on the parties' representations that whatever law the Court were to apply, from any of the jurisdictions, the analysis would be the same.
Thus, it appears the Court may assume not only that no material conflict exists, see, e.g., Creavin v. Moloney 773 S.W.2d 698, 702 (Tex.App.-Corpus Christi 1989, writ denied); Humphrey v. Bullock, 666 S.W.2d 586, 589 (Tex.App.-Austin 1984, writ ref'd n.r.e.) (courts presume no conflict between Texas law and other forums unless specifically noted by parties), but that it may look to the law of any of the states whose law would potentially apply to aid in the disposition of this case. The parties' agreement and representations made of record admit as much.
II. SUMMARY JUDGMENT STANDARD
Summary judgment is appropriate when the movant is able to demonstrate that the pleadings, affidavits, and other evidence available to the Court establish that there are no genuine issues of material fact, and the moving party is entitled to judgment as a matter of law. FED. R. Civ. P. 56(c). The movant bears the responsibility of informing the district court of the basis for its motion and identifying those portions of the pleadings, depositions, answers to interrogatories and admissions on file, together with affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact. Topalian v. Ehrman, 954 F.2d 1125 (5th Cir. 1992), cert. denied, 506 U.S. 825 (1992).The nonmovant is not required to respond to a motion for summary judgment until the movant first meets its burden of demonstrating that there are no factual issues warranting trial. Ashe v. Corley, 992 F.2d 540 (5th Cir. 1993). Once the movant has shown the absence of material fact issues, however, the opposing party has a duty to respond, via affidavits or other means, asserting specific facts showing that there is a genuine issue for trial. FED. R. Civ. P. 56(e). It is not enough for the party opposing summary judgment to rest on mere conclusory allegations or denials in his pleadings. Topalian, 954 F.2d at 1131. The nonmovant must point out, with factual specificity, evidence demonstrating the existence of a genuine issue of material fact on every component of the nonmovant's case. Dunn v. State Farm Casualty Co., 927 F.2d 869, 872 (5th Cir. 1991). In assessing the proof, the court views the evidence in the light most favorable to the nonmovant. Matshusita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986). If the nonmoving party fails to make a sufficient showing on an essential element of his case with respect to which he has the burden of proof, the moving party is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
Moreover, "unsubstantiated assertions are not competent summary judgment evidence." Id. And "Rule 56 does not impose upon the district court a duty to sift through the record in search of evidence to support a party's opposition to summary judgment." See Ragas v. Tennessee Gas Pipeline Co., 136 F.3d 455 (5th Cir. 1998) (citing Skotak v. Tenneco Resins, Inc., 953 F.2d 909, 915-16 n. 7 (5th Cir.) cert. denied, 506 U.S. 832 (1992); see also LOCAL COURT RULE CV-56(c) (the court will assume that the facts as claimed and supported by admissible evidence by the moving party are admitted to exist without controversy, except to the extent that such facts are controverted in the "Statement of Genuine Issues" filed in opposition to the motion, as supported by proper summary judgment evidence. The court will not scour the record in an attempt to determine whether [it] contains an undesignated genuine issue of material fact. . . .).
III. DISCUSSION
From a broad perspective, the Court notes that this action is primarily based on a disagreement between two parties to a franchise agreement. With this realization, the Court concludes that what likely is, in most respects, no more than a contract dispute, should not be transformed into tort litigation lightly. See, e.g., Broussar v. Meineke Discount Muffler Shops. Inc., 155 F.3d 331 (4th Cir. 1998) (refusing to uphold judgment against franchisor on breach of fiduciary duty and violation of deceptive trade practices act grounds where crux of dispute centered on contract). Therefore, many of Plaintiffs' claims must fail because they merely attempt to redefine a simple alleged breach of contract as a tortious act. And it is generally accepted that a franchisor-franchisee relationship does not, by itself, create fiduciary duties between them.See Dr. Pepper Botthng Co. v. Del Monte Corp. (N.D. Tex 1990) 1990 WL 291495 (applying California law) (citing Premier Wine Spirits v. B. J. Gallo Winery, 846 F.2d 537, 540 (9th Cir. 1988); Boat and Motor Mart v. Sea Ray Boats, Inc., 825 F.2d 1285, 1292 (9th Cir. 1987). Absent those heightened duties, Plaintiffs' tort claims largely distill into simple breach of contract claims. Nevertheless, the Court will address several particular areas and otherwise note why summary judgment there is appropriate, as follows.
A. Non Strategic Marketing: Counts I, II, III, VIII
Plaintiffs claim that Baskin Robbins had a duty to disclose certain information to them and that the failure to do so amounted to fraud. Plaintiffs claim that Baskin Robbins knew that certain store formats were unviable, but did not disclose the same. They also allege that Baskin Robbins knew it intended on phasing out "nonstrategic locations," but failed to inform prospective and current franchisees of this alleged intention.
Significantly, the presumption of such a duty to disclose is premised on the existence of a fiduciary relationship. But the parties' contractual relationship did not by itself create such a relationship.See id; Cajun Enterprises, Inc. v. Copeland, 130 F.3d 180, 186 (5th Cir. 1997) (franchisor/franchisee not automatically in fiduciary relationship under Louisiana law); Crim Truck Tractor v. Navistar Intern, 823 S.W.2d 591 (1992) (longstanding, cordial business relationship between franchisor/franchisee not sufficient to warrant attachment of fiduciary duties). And even if a trust were created as to advertisement funds, it hardly follows that fiduciary duties attached to every other aspect of the parties' relationship not attendant to maintaining that advertisement fund. Therefore, absent a duty to disclose, Plaintiffs' Fraud claim must fail.
Even assuming Baskin Robbins did have such a duty, Plaintiffs do not meet their summary judgment burden on this issue. They cannot show that Baskin Robbins had knowledge of prior or present facts that it should have disclosed, even assuming a duty to disclose existed, which it did not. This is so for two reasons.
First, Plaintiffs failed to follow the applicable Local Court Rules that require the statement of all controverted facts to accompany their response to Defendants' summary judgment motion. See LOCAL COURT RULE CV-56(c). Second, aside from the failure to follow local rules, Plaintiffs' evidence adduced during the oral hearing and otherwise also fails to meet their summary judgment burden. Plaintiffs point to only two pieces of evidence that it says warrant an inference that Baskin Robbins knew and intended to engage in action to cull the market from nonstrategic locations.
The first bit of evidence is a 1985 market plan created by five company employees and ten franchisees in and for the Chicago area market. The second bit, say Plaintiffs, is the fact that Baskin Robbins halted national advertising in the late 1990's in favor of concentrating on larger, metropolitan markets. Plaintiffs argue that the inference permissibly drawn from this evidence suggests Baskin Robbins intended to pull out of nonstrategic markets but failed to disclose the same.
Significantly, Baskin Robbins resumed national marketing in 2000. That fact seriously undermines the inference Plaintiffs argue should attach to the late 1990's decision to stop such marketing. And the Court concludes that the Chicago plan, standing alone, is not sufficient evidence on this point. In sum, no reasonable jury could make the series of inferential leaps Plaintiffs demand based on this paltry evidence, to conclude that Baskin Robbins failed to disclose a material fact. Thus, even assuming a duty to disclose existed, which it did not in this arm's length transaction, Defendants' still deserve judgment as a matter of law in their favor as to Plaintiffs' "nonstrategic market" allegations.
The record, including Mr. Tim Hunt's deposition, and otherwise will not support Plaintiffs' contentions that Baskin Robbins began considering the "nonstrategic markets plan" in 1998.
B. California Statutory Law
The parties do not dispute that no franchisees operated a franchise in California. Nor do they dispute that none resided in California. With these two simple predicates, the Court concludes that Plaintiffs' causes of action under California's franchise statutes must fail. See Cal. Bus. Prof. Code § 20015 (West 1989); Dr. Pepper Bottling Co. v. Del Monte Corp., 1990 WL 291495 (N.D. Tex. 1990) (applying California law) (California franchise acts do not apply to franchisees who neither operate nor reside in California).
Likewise, Plaintiffs' arguments that these statutory schemes were somehow incorporated into the contract's terms are without merit. The choice of law provision, which is the only one that could be read to accomplish such a feat, clearly excepts the statutes at issue from applying. Therefore, this exception refuses any contrary interpretation, and all Plaintiffs' claims under that statute must be dismissed.
It is also, thus, not relevant whether the Court applies California law for this purpose, as even in doing so, the Court would also have to apply the exclusion.
C. Promissory Estoppel
Plaintiffs claim is that Baskin Robbins made promises outside the written contract in direct contradiction to the written agreement's terms. In short, they allege that they were promised that their franchises would be perpetual, so long as they did not materially breach their obligations. Defendants point out that the only evidence of this that Plaintiff raises at all is contained in the Plaintiffs' own affidavits filed in opposition to this summary judgment motion. Indeed, Defendants note that at least some Plaintiffs gave contrary evidence at their deposition. Defendants also note that each affidavit is identical as to form and content on this point.
The Court does not believe that these self serving affidavits are competent summary judgment evidence that would allow Plaintiffs to survive on this claim. Even so, the general rule is that where a merger clause is included in the written contract, alleged collateral promises will not be enforced, through fraud or otherwise. This is because, whether under a fraud theory or a promissory estoppel theory, the Plaintiffs' reliance on the statement must have been reasonable. See Rosenberg v. Pillsbury Co., 718 F. Supp. 1146 (S.D.N.Y. Jul 28, 1989) (NO. 85 CIV 10072 (WCC)) (applying Massachusetts law); see also Cajun Enterprises, Inc. v. Copeland, 130 F.3d 180, 186 (5th Cir. 1997) (no reasonable reliance in face of integration/disclaimer clause). And in the face of a merger and integration clause, as is present in these agreements, and absent fraud apparent from the underlying document, no reliance on these non-written assertions can be reasonable as a matter of law. See id. ("In the current matter, plaintiffs' alleged reliance on defendants' alleged misrepresentations was unreasonable as a matter of law, because the alleged misrepresentations were not contained in the franchise agreement. The franchise agreement, as well as the offering circular which preceded it, both contain detailed, explicit integration and disclaimer clauses."). Therefore, because Plaintiff cannot prove reliance and otherwise fail to meet their summary judgment burden, Defendants should be granted summary judgment on this claim.
D. Louisiana and Texas Statutory Law-Deceptive Trade Practices
Plaintiffs allege that Baskin Robbins "withheld material information regarding their intent to renew the franchises of [Lousiana] Plaintiffs despite their knowledge of the falsity, deception, and unfairness inherent in their conduct." See Plaintiffs' Seventh Amended Complaint (Dkt. No. 227). This assertion merely mirrors the fraud claims discussed before. And as a simple contract dispute is really the heart of this dispute, the Court believes that these statutory violations of a consumer protection law cannot succeed See, e.g., Broussar v. Meineke Discount Muffler Shops, Inc., 155 F.3d 331 (4th Cir. 1998); see also Cajun Enterprises, Inc. v. Copeland, 130 F.3d 180, 186 (5th Cir. 1997) (tortious interference claim that failed, as it does here, could not be revisited as LUTPA claim, see infra Part III, E)
Nonetheless, the Court is also persuaded that Plaintiffs have failed to meet their summary judgment burden of showing that they are "consumers" as required by law. In general, to recover under a DTPA, one must be a "consumer," which means the claimant must have sought or acquired goods or services by purchase or lease, and must show that these same goods or services formed the basis for the DTPA complaint. Melody Home Mfg. Co. v. Barnes, 741 S.W.2d 349, 351-52 (Tex. 1987); Cameron v. Terrell Garrett, Inc., 618 S.W.2d 535, 539 (Tex. 1981). The DTPA excludes those transactions that convey wholly intangible property rights. Texas Cookie Co. v. Hendricks Peralta, 747 S.W.2d 873, 876. The question of whether a plaintiff is a consumer under the DTPA is a question of law for the court. Holland Mortgage Inc. Corp. v. Bone, 751 S.W.2d 515, 517 (Tex.App.-Houston [1st Dist.] 1987, writ ref'd n.r.e.).
In their Seventh Amended Complaint, Plaintiffs allege that Baskin Robbins withheld material information regarding their intent not to renew the franchise agreements, "which information caused . . . Plaintiffs to enter into transactions for the purchase of Defendants products and services which these Plaintiffs would not have entered into, had they know the Defendants did not intend to renew their franchises." Seventh Amended Complaint at ¶ 109. Plaintiffs rely on Texas Cookie Co., arguing that they are consumers under the DTPA because they are suing over the provision of goods and services.
In Texas Cookie Co., the appellees claimed, among other things, that the appellants provided them with inadequate training in cookie baking and inadequate batter. While the court acknowledged that the DTPA "excludes those transactions which convey wholly intangible rights," a more "difficult case arises when the intangible transferred carries with it a host of collateral services on which the customer relies." Id. at 876-77. The court further stated when a transaction's central objective is the acquisition of an intangible, Texas law requires a plaintiff to produce uncontroverted evidence "that a collateral service was an objective of the transaction and not merely incidental to the performance of a transaction excluded under the DTPA." Id. at 877, quoting Federal Deposit Ins. Co. v. Munn, 804 F.2d 860, 865 (5th Cir. 1986). The court inTexas Cookie Co. concluded the services were clearly an objective of the transaction and not merely incidental to it.
The Court finds Plaintiffs' claims under the DTPA distinguishable from those involved in Texas Cookie Co. The purchaser of an intangible right is usually not a consumer under the DTPA, unless qualifying collateral services are an objective of the transaction and not merely incidental to the purchase. "In other words, the goods or services acquired must form the basis of the DTPA claim." Fisher Controls International Inc. v. Gibbons, 911 S.W.2d 135, 139 (Tex.App.-Houston [1st Dist.] 1995).
Although Plaintiffs make a general allegation as to their decision to purchase ice-cream related products, as consumers, from Baskin Robbins, Plaintiffs have failed to produce "uncontroverted evidence . . . in order to establish as a matter of law" that the collateral goods or services were an objective of the transaction, not merely incidental to the purchase, and form the basis of the DTPA claim. See Munn, 804 F.2d at 865. The Court holds that, as a matter of law, Plaintiffs are not consumers under either version of the DTPA. Neither statute will bear such strain so as to stretch to encompass a franchise agreement that deals with the right to use trade names, marks and the like.
E. Tortious Interference with Contract/Interference
A plaintiff must demonstrate the existence of five elements to establish a claim for prospective interference with economic advantage: (1) an economic relationship with probable future benefits; (2) knowledge of the relationship; (3) intentional commission of acts designed to disrupt the relationship; (4) actual disruption; and (5) damages. "Where the interference occurred as the result of the exercise of a contractual right, there is generally no claim." See Dr. Pepper Bottling Co. v. Del Monte Corp. (N.D. Tex 1990) 1990 WL 291495 (applying California law) (citing C. Pappas Co. v. E. J. Gallo Winery, 610 F. Supp. 662, 667 (E.D. Ca. 1985), aff'd, 801 F.2d 399 (9th Cir. 1986) (table)).
In this case, Baskin Robbins had the following right, as indicated by standard section 18.7 of the typical franchise agreement: "BASKIN ROBBINS may withhold its consent to transfer of an interest referred to in Section 18.1 arbitrarily and for any reason whatsoever or may condition any consent in their sole discretion." See, e.g. Plaintiffs' Consolidated Response to Defendants' Motions for Summary Judgment, Exhibit B, section 18.7 (Dkt. No. 259). Thus, Baskin Robbins' conduct could not give rise to a tortious interference claim as to Plaintiffs because they had an absolute right not to allow the transfer. F. What Remains
Thus, inasmuch as Plaintiffs have asserted a cause of action under Louisiana statutory law (LUPTA), this conclusion as to tortious interference precludes revisiting the same under the statutory scheme.
Above, the Court explains why most of Plaintiffs' claims should not proceed. That begs the question as to what remains. In short, Plaintiffs claims surrounding the alleged Trust account, i.e. the National Advertising Fund, should proceed.
First, the Court believes that the face of the agreement and the Defendants' consolidation of the fund with other funds creates a fact question as to whether the contract was breached. Therefore, Plaintiffs should be allowed to present evidence for a factual determination of whether Defendants did breach standard section 12.1-12.5. See, e.g. Plaintiffs' Consolidated Response to Defendants' Motions for Summary Judgment, Exhibit B, section 12.1-12.5 (Dkt. No. 259).
Second, conflicting evidence exists as to whether the parties created a trust in the form of the National Advertising Fund. Defendants have called it a trust, though this is not conclusive. They represented to the IRS that its assets were not its own by virtue of its being a trust. And the contract appears to separate beneficial from legal ownership of the same.
On the other hand, certain contractual language purports to avoid creating fiduciary duties. This seems to contradict what was effected through the sections dealing with the advertising fund. And while the contract may indeed be successful at avoiding attaching fiduciary duties to most aspects of the parties' relationship, it is hardly dispositive as to whether the legal effect of section 12 is the creation of a trust, to which certain fiduciary duties would attach, at least in relation to the administration of the advertising fund. Thus, it appears at least a fact issue remains as to the intent of the parties and whether they succeeded in creating a legal trust in the form of the advertising fund.
In sum, Plaintiffs will be allowed to proceed to trial on the factual contentions that allege section 12.1-12.5 of the contracts were breached. Whether those facts sound in contract or possibly in tort will be determined, if required, at the conclusion of the trial, either by directed verdict or in the Court's findings of fact and conclusions of law. If liability is proven at trial, possible remedies might include an accounting, restitution to the National Advertising Trust Fund, and any other provable contract damages.
IV. CONCLUSION
Most of Plaintiffs' claims fail because they attempt to transform a contract dispute into a tort action. Those claims that merely restate a breach of contract, especially those dependant on finding a broad fiduciary relationship between the parties, will be dismissed.
Additionally, Defendants' attack on Plaintiffs' lack of evidence to support their various "nonstrategic market" allegations is largely persuasive. Plaintiffs have failed to shoulder their summary judgment burden of showing a material issue of fact that Baskin Robbins knew of information it should have disclosed to the franchisees. To this extent, it is
ORDERED that Defendants' Motions for Summary Judgment (Dkt. Nos. 230, 231, and 234) are GRANTED IN PART and DENIED IN PART. However, it is further
ORDERED that Defendants' Motion for Summary Judgment on Damages (Dkt. No. 229) is DENIED. Damages are best evaluated during the bench trial of the case. The Court will address damages in its findings of fact and conclusions of law, as may be necessary. Additionally, it is
ORDERED that Defendants' Motion regarding Flavio Olivarez's claims is GRANTED IN PART and DENIED IN PART. The motion is granted to the extent is deals with the general claims discussed and dismissed in the Court's opinion above; but it is denied to the extent Mr. Olivarez's independent claim for breach of contract, based on the delayed opening of his store.
Lastly, Plaintiffs' claim related to the noncompetition clauses is not before the Court on summary judgment. As such, Plaintiffs' claim for declaratory judgment on that clause remains for trial.