Opinion
15-P-172
01-27-2016
DRL, LLC, & another v. DUNKIN' BRANDS, INC., & another.
NOTICE: Summary decisions issued by the Appeals Court pursuant to its rule 1:28, as amended by 73 Mass. App. Ct. 1001 (2009), are primarily directed to the parties and, therefore, may not fully address the facts of the case or the panel's decisional rationale. Moreover, such decisions are not circulated to the entire court and, therefore, represent only the views of the panel that decided the case. A summary decision pursuant to rule 1:28 issued after February 25, 2008, may be cited for its persuasive value but, because of the limitations noted above, not as binding precedent. See Chace v. Curran, 71 Mass. App. Ct. 258, 260 n.4 (2008).
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
The plaintiffs, DRL, LLC (DRL), and Poquoson Donuts, LLC, appeal from the judgments of dismissal following a five-day bench trial. The gravamen of the plaintiffs' claim was based on the alleged breach of the implied covenant of good faith and fair dealing by the two defendants, Dunkin' Brands, Inc., and Dunkin' Donuts Franchising, LLC (collectively, defendants or Dunkin'). The plaintiffs maintain that the Superior Court judge erred in three ways. First, the plaintiffs argue that the judge's finding that the defendants' breach of the implied covenant of good faith and fair dealing was not the proximate cause of the plaintiffs' damage was against the weight of the evidence. Second, the plaintiffs contend that the judge abused his discretion by denying the plaintiffs' motion to amend their complaint to add a G. L. c. 93A claim. Third, the plaintiffs argue that the judge abused his discretion when he denied the plaintiffs' motion for a new trial.
We note that the plaintiffs state the wrong standard of review. A judge's findings of fact are not set aside unless clearly erroneous. See Mass.R.Civ.P. 52(a), as amended, 423 Mass. 1402 (1996). See also T.W. Nickerson, Inc. v. Fleet Natl. Bank, 456 Mass. 562, 569 (2010) ("The standard of review is well established. The findings of fact of the judge are accepted unless they are clearly erroneous").
Facts. We summarize the judge's comprehensive findings. Other evidence is discussed in conjunction with the specific issues raised. DRL was formed by four individuals: Greg Daley, (Daley), Chahine Lahlou (Lahlou), and Todd and John Racioppi (Racioppis). Daley had conducted business with Dunkin' as a franchisee and also had been an employee of Dunkin'. Lahlou had been an employee of Dunkin' for twenty-four years; he began as a counterperson and worked his way up to company management to become a regional manager. The Racioppis worked in a family heating and air conditioning installation and residential construction business. The Racioppis had no experience with any food-related business before entering into DRL.
The judge made extensive findings of fact following a five-day bench trial with numerous witnesses and exhibits.
Daley reconnected with the Racioppis at a school reunion in 2007. The Racioppis learned that Daley was a Dunkin' franchisee, and they developed a plan to open Dunkin' stores in Virginia. The Racioppis and Daley recruited Lahlou to be the ground operations manager for the stores they planned to open. They then approached Dunkin' about opening stores in Virginia. The DRL partners divided responsibilities in the venture. Daley was the official contact person for Dunkin', and was to handle larger business responsibilities with Dunkin', including complying with significant business reporting and accounting. The Racioppis were to oversee the construction and to provide capital. Lahlou was to be the on-the-ground manager. This required him to relocate to Virginia. He signed an employment agreement for a fifteen-year term at $100,000 per year.
Dunkin' and DRL entered into a store development agreement (SDA) to open twenty stores in Virginia. The parties also entered into a franchise agreement. Several Dunkin' managers were involved in the planning of locations and the attendant logistical matters, including Deb Mauro (Mauro), the region's development manager; Michael Bouley (Bouley), the region's operations manager; and Larry Book (Book), the region's director of development.
DRL and Dunkin' management officials spent several weeks trying to find a suitable first location. DRL found a potential site for its first store in Yorktown. Mauro agreed with DRL's positive assessment of the Yorktown location and gave a verbal approval to begin work. After DRL hired an architect whom it paid a few thousand dollars, Mauro informed DRL that her superiors at Dunkin' were refusing to approve the Yorktown site because it was two miles, on the other side of a divided highway, from an existing Dunkin' franchise.
Daley was aware that Dunkin' required formal written approval of the location.
DRL continued to look for a location for its first store. However, it was late on the deadline to open the first store. Although Dunkin' gave DRL an extension, DRL was under significant pressure from Dunkin' to find its initial store location. Mauro suggested DRL look to the small city of Poquoson. In September, 2008, DRL and Dunkin' formally agreed that Poquoson would be the first location under the twenty-store franchise agreement.
DRL formed the entity Poquoson Donuts, LLC, to hold the lease for the store premises.
Construction proceeded at the Poquoson location, and it opened on December 8, 2008. While Lahlou was working at the store on opening day, one of the customers stated that she was happy that a Dunkin' Donuts store was back at that location. Lahlou told her she must be mistaken because the DRL partners were never told of a prior store at that location. Lahlou then asked Mauro and Bouley if there had been a store at that location before and they both told him, "No." However, one week prior to the Poquoson store opening, on December 1, 2008, Bouley had sent an e-mail to other members of the Dunkin' regional executive staff, including Mauro and Book. In the e-mail, Bouley advised that Dunkin' would want to make sure that DRL's Poquoson store not open until absolutely ready because the brand had a "terrible reputation" in that market with the current franchisee and the past franchisee.
The previous franchisee operated at the site from 1991 to 1995. Dunkin' terminated its agreement with the previous franchisee because it defaulted on its payments to the franchisor. Dunkin' then sued the franchisee's principals under a personal guaranty, securing a personal judgment against them for roughly $350,000.
By early January of 2009, sales at the Poquoson location had dropped well below the break-even point. This led the DRL partners to approach Dunkin' and request to be relieved of certain contract terms that were affecting DRL's profitability; Dunkin' refused. DRL then requested permission to close the store and transfer its equipment to a more promising site, CNU, which was under construction. Dunkin' again refused.
The judge determined there were several reasons for the Poquoson store's unprofitability. First, the store was operating during the economic downturn prevalent during the years 2008 and 2009. Second, the store began operations at a time of year when sales in the business were typically lower. Finally, there were several issues intrinsic to DRL's operations of the Poquoson store that also played a strong role, including high costs for baked products and certain other fixed costs, as well as Lahlou's high managerial salary and expense for the costs of an automobile, while DRL continued to operate just one store.
DRL specifically requested that the Poquoson store be allowed to close earlier than 11:00 P.M. and to reduce the number of bakery products it was required to purchase and have on display.
Dunkin' put Daley in touch with a group that Dunkin' had created in response to the national economic downturn during this time period called the "franchise financial solutions team" (FFST). The FFST could propose financial relief in the form of modifications to royalty amounts due to Dunkin' as well as deferral of amounts past due to Dunkin'. However, in order to be eligible for this relief, FFST required a complete profit and loss statement. Because DRL was unable ever to produce a complete profit and loss statement, it never received any benefits from FFST.
At one point DRL's accountant did forward profit and loss statements, but they were only for a portion of the time period requested. Furthermore, Lahlou reported to Jean Mazotta of the FFST that he distrusted DRL's accountant's figures and believed them to be inaccurate.
By the middle of 2009, Dunkin' executives were convinced that DRL would be unable to carry on. Dunkin' began to explore whether other entities in the area could be brought in to operate the CNU and the Poquoson locations. In a letter dated July 15, 2009, counsel for Dunkin' formally notified DRL that it was in default of its obligations for a balance of $11,438.32 and provided it with notice of its right to cure. In a letter dated July 20, 2009, Dunkin' notified DRL that the parties' SDA was being terminated for noncompliance. When DRL took no action to address the previous correspondence, Dunkin' served DRL with a formal notice dated August 18, 2009, that its franchise agreement was now terminated and that DRL must close the Poquoson store.
The plaintiffs brought an action against the defendants based on a breach of the implied covenant of good faith and fair dealing. After a five-day bench trial, the judge determined that the defendants breached the implied covenant of good faith and fair dealing by failing to tell the plaintiffs of the previous unsuccessful franchisee at the Poquoson location. However, the judge determined that the defendants' breach was not the proximate cause of the financial losses that the plaintiffs encountered.
Discussion. A. Proximate cause. The plaintiffs argue that the judge erred in determining that the defendants' breach of the implied covenant of good faith and fair dealing was not a proximate cause of their financial losses. We disagree. Proximate cause constitutes a question of fact unless the effect of the facts established is undisputed. Rule 52(a), as amended, 423 Mass. 1402 (1996), provides in pertinent part, "[f]indings of fact shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to judge the credibility of the witnesses." A judge's findings of fact are accepted unless clearly erroneous. Anastos v. Sable, 443 Mass. 146, 149 (2004). A judge is in the best position to weigh the credibility of the evidence and testimony because of his firsthand view of the presentation of the evidence. New England Canteen Serv., Inc. v. Ashley, 372 Mass. 671, 675 (1977). "A finding is clearly erroneous when 'although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.'" Green v. Blue Cross & Blue Shield of Mass., Inc., 47 Mass. App. Ct. 443, 446 (1999), quoting from Springgate v. School Comm. of Mattapoisett, 11 Mass. App. Ct. 304, 309-310 (1981). We will not reverse even if, when reviewing the record in its entirety, we are convinced we would have weighed the evidence differently; when "there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous." Edinburg v. Edinburg, 22 Mass. App. Ct. 199, 203 (1986), quoting from Anderson v. Bessemer City, 470 U.S. 564, 573-574 (1985).
We believe the judge correctly found no liability for breach of the implied covenant of good faith and fair dealing because causation was too attenuated. See Black's Law Dictionary 250 (9th ed. 2009) ("1. A cause that is legally sufficient to result in liability . . . . 2. A cause that directly produces an event and without which the event would not have occurred").
However, we cannot say that the judge's findings were clearly erroneous. The judge made detailed findings determining that the plaintiffs did not meet their burden to show by a fair preponderance of the evidence that the significant losses in their franchising venture were caused by the defendants' breach of the implied covenant of good faith and fair dealing. The judge found that multiple issues caused the failure of the DRL enterprise. This included the fact that only one person of the four owners of DRL had any experience in ownership and development of a food service business. Moreover, DRL committed itself to a highly ambitious plan to open twenty stores in roughly sixty-two months. The judge also determined that DRL had capitalization issues and never received bank financing although it acknowledged the need for such capital in its business plan. High overhead costs plagued DRL from the beginning, which consisted of Lahlou's high salary and the cost of a vehicle, as well as high costs for baked goods. Finally, the opening of the store took place during the nation's severe economic recession. The judge determined that "in light of the DRL enterprise's multiple deficiencies outlined above, including those relating to its management and financial planning, it cannot be said that DRL has established by a fair preponderance of the evidence that the dereliction or derelictions for which [the defendants] bore responsibility were the cause of its very substantial financial losses." Because the plaintiffs have failed to meet their burden of showing that this finding was clearly erroneous, we will not reverse it. See First Penn. Mort. Trust v. Dorchester Sav. Bank, 395 Mass. 614, 621-624 (1985).
B. Motion to amend. A different judge did not abuse his discretion by denying the plaintiffs' motion to amend their complaint to add a G. L. c. 93A claim. "[A] motion to amend should be allowed unless some good reason appears for denying it." Hamed v. Fadili, 408 Mass. 100, 105 (1990), quoting from Castellucci v. United States Fid. & Guar. Co., 372 Mass. 288, 289 (1977). Such reasons include "undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, [and] futility of the amendment." Castellucci, supra at 290. It was well within the judge's discretion to deny the motion based solely on the basis of unexcused delay. The plaintiffs' motion was filed one year and four months after the filing of the complaint and nearly one year after the expiration of the tracking deadline for rule 15 motions. Another basis upon which a judge may deny a motion to amend a complaint is futility. Although the judge found a breach of the implied covenant of good faith and fair dealing, the inability to establish causation that plagued that claim would have been fatal to a G. L. c. 93A claim.
C. Motion for a new trial. The judge did not abuse his discretion when he denied the plaintiffs' motion for a new trial. The plaintiffs raised this issue in their brief in the statement of issues section, but they do not advance this argument anywhere else in their brief or reply and, therefore, it is not sufficiently briefed within the meaning of Mass.R.A.P. 16(a)(4), as amended, 367 Mass. 921 (1975). See Murphy v. I.S.K.Con. of New England, Inc., 409 Mass. 842, 864 (1991). However, even if we had considered this challenge we would find that it is without merit. A party can file a motion for a new trial "in an action tried without a jury, for any of the reasons for which rehearings have heretofore been granted in suits in equity." Mass.R.Civ.P. 59(a), 365 Mass. 827 (1974). See Bartley v. Phillips, 317 Mass. 35, 39 (1944) (motion for new trial in nonjury trials may be filed as of right only when sought for mistake of law or for newly discovered evidence). A motion for a new trial is addressed to the trial judge's judicial discretion, and is generally not reversible except for abuse of discretion. See Piedra v. Mercy Hosp., Inc., 39 Mass. App. Ct. 184, 188 (1995). See also L.L. v. Commonwealth, 470 Mass. 169, 185 n.27 (2014) (abuse of discretion only where judge made "clear error or judgment in weighing" factors relevant to decision such that decision falls outside "range of reasonable alternatives" [citations omitted]). Because the plaintiffs cited neither newly discovered evidence nor a mistake of law, the judge did not abuse his discretion by denying the plaintiffs' motion for a new trial.
Judgments affirmed.
Order denying motion for new trial affirmed.
By the Court (Cypher, Trainor & Rubin, JJ.),
The panelists are listed in order of seniority. --------
/s/
Clerk Entered: January 27, 2016.