America's Favorite Chicken Co. v. Cajun Enterprises, Inc. , 130 F.3d 180 ( 1997 )

REVISED
United States Court of Appeals,
Fifth Circuit.
No. 96-30957.
AMERICA'S FAVORITE CHICKEN COMPANY, Plaintiff-Appellee,
v.
CAJUN ENTERPRISES, INC.; et al., Defendants,
Cajun Enterprises, Inc.; Harriet Sandy Anaya, individually,
Defendants-Appellants,
v.
Alvin C. Copeland; New Orleans Spice Company; My Favorite Year,
Inc., Third Party-Defendants-Appellees.
Dec. 17, 1997.
Appeal from the United States District Court for the Eastern
District of Louisiana.
Before GARWOOD, DUHÉ and DeMOSS, Circuit Judges.
PER CURIAM:
Appellants Cajun Enterprises, Inc. ("CEI") and Harriet Anaya1
appeal the district court's dismissal of their counterclaims and
third party demands. We affirm.
BACKGROUND
In the mid-1980s, Appellee America's Favorite Chicken Company
("AFC") licensed four Popeye's Fried Chicken Franchises to CEI, a
California corporation, for operation in the San Francisco area.
The franchise agreements required CEI, inter alia, to pay royalties
to AFC and to make contributions to an advertising fund that would
1
Anaya was CEI's president and the personal guarantor of CEI's
obligations under the franchise agreements. Unless otherwise
indicated, references to "CEI" include Anaya as well.
serve the entire Popeye's nationwide franchise system. AFC sued
CEI in 1989 to recover past due royalties and advertising
contributions.
CEI filed a series of counterclaims against AFC, alleging
various fraud, breach of contract, and state statutory claims under
both Louisiana and California law. CEI also made third party
demands against Alvin C. Copeland, Sr., New Orleans Spice Company
("NOSC"), and My Favorite Year, Inc. ("MFY"), alleging intentional
interference with contract.
The district court granted in part AFC's motions for summary
judgment, dismissing CEI's claims under the California Franchise
Investment Law ("CFIL"), the Louisiana Unfair Trade Practices Act
("LUTPA"), and several fraud and breach of contract claims. The
court also dismissed all third party claims against NOSC and MFY.
Several fraud and breach of contract claims went to the jury,
however, as well as the tortious interference claim against
Copeland. The jury found in favor of AFC on its claims and in
favor of AFC and Copeland on all of CEI's counterclaims and third
party claims. CEI now appeals.
DISCUSSION
I.
CEI claims that AFC breached the franchise agreements by
failing to allocate sufficient advertising funds to CEI's local
market. The district court dismissed this claim based on language
in the franchise agreements vesting in AFC complete discretion over
advertising fund allocation. We agree with the district court.
The franchise agreements commit advertising placement to the "sole
discretion" of AFC. See Clark v. America's Favorite Chicken Co.,
110 F.3d 295, 298 (5th Cir.1997). Furthermore, AFC's discretion is
not overridden, as CEI contends, by any language either in the
Uniform Offering Circulars submitted to CEI or in Popeye's
Confidential Operations Manual. Those documents actually
underscore the fact that advertising fund distribution is a
"corporate decision" committed wholly to AFC's discretion.
II.
The district court granted AFC's motion for summary judgment
on CEI's claim that AFC breached the franchise agreements by
failing to provide "continuing advisory assistance" in the
operation of the franchises. Again, we agree with the district
court that the franchise agreement vested complete discretion in
AFC over this matter. The agreements provide that AFC "will make
available such continuing advisory assistance ... as [AFC] may deem
appropriate." (emphasis added).
We also reject CEI's contention that AFC's deficient advisory
assistance violated the "implied covenant of good faith and fair
dealing" implied in every Louisiana contract. See La. Civ.Code
Ann. art. 2055 (West 1987); La. Civ.Code Ann. art.1965
(repealed)(West 1977). In American Bank & Trust of Coushatta v.
F.D.I.C., 49 F.3d 1064 (5th Cir.1995), we found that to prove a
breach of the implied covenant of good faith and fair dealing under
current Louisiana law, a plaintiff must show an "intentionally
malicious failure to perform." Id. at 1068; see also La. Civ.Code
Ann. art.1997 cmt. c (West 1987). CEI's evidence, particularly the
testimony of former AFC Franchise District Manager Mary Ann Grybow,
fails to demonstrate AFC's intentionally malicious failure to
render advisory assistance.
III.
The district court dismissed CEI's claim under the CFIL, Cal.
Corp.Code § 31.000 et seq., based on its finding that Louisiana,
rather than California, law applied to this issue.2 CEI maintains
that the district court erred in applying Louisiana law because the
parties' choice of law clause does not apply to the CFIL claims and
because California has a greater interest in having its law applied
to this issue. We decline to reach the conflict of laws issue
because we find that, in any event, CEI could not prevail on its
CFIL claims.
We note initially that the parties' choice of law clause does
not mandate application of Louisiana law to this issue. The choice
of law clause in the franchise agreements provides that the
"Franchise Agreement[s] shall be interpreted and construed under
the laws of the State of Louisiana, which shall prevail in the
event of any conflict of laws." On its face, the choice of law
clause is restricted to the interpretation or construction of the
franchise agreements. Caton v. Leach Corp., 896 F.2d 939, 943 & n.
3 (5th Cir.1990); AAA Delivery, Inc. v. Airborne Freight Corp.,
646 So. 2d 1113, 1116 (La.App. 5th Cir.1994). See also Dollar
Systems, Inc. v. Avcar Leasing Systems, Inc., 890 F.2d 165, 171
(9th Cir.1989). Since the CFIL claims do not implicate the
2
It is somewhat ambiguous whether the district court applied
Louisiana law based on the parties' choice of law clause or based
on an interest analysis under the Restatement (Second) of
Conflicts. This is immaterial, however, since we find that
applying California law to this dispute would not avail CEI.
interpretation or construction of the franchise agreements, they
are not governed by the narrow choice of law clause present here.
See Cottman Transmission Systems, Inc. v. Melody, 869 F. Supp. 1180,
1188 n. 4 (E.D.Pa.1994).
CEI seeks damages and rescission of the franchise agreements
under CFIL §§ 31,300 and 31,301. CEI must show that AFC
"willfully" made an "untrue statement of material fact" in an
application, notice or report filed with the California
Commissioner of Corporations (or willfully omitted a material fact
therein). CFIL § 31,200. Alternatively, CEI must show that AFC
offered or sold a franchise in California "by means of any written
or oral communication not enumerated in Section 31,200 which
includes an untrue statement of material fact" (or omits a material
fact therefrom). CFIL § 31,201. Specifically, CEI contends that
AFC violated the CFIL by (1) failing to disclose "certain material
civil actions" filed against AFC; (2) falsely representing that it
had not, within the last ten years, been subject to any "material
complaint or legal proceeding"; (3) falsely representing that it
did not provide prospective franchisees with sales and profit
forecasts; and, (4) omitting to state that it provided such
information to prospective franchisees.3
We find that, even if allowed to proceed under the CFIL, CEI
could not prevail. The posture in which CEI presents its CFIL
claims shows that they are largely a recapitulation of the
3
CEI alleges that these false representations and material
omissions occurred both in AFC's registration with the California
Commissioner of Corporations and in the Offering Circulars and
other materials provided to CEI.
Louisiana fraud claims already presented to the jury. The jury
specifically found that AFC's failure to disclose franchise-related
litigation was not material to CEI. Further, as the district court
found, the disclaimer clause in the franchise agreements states
that CEI was not induced to execute the agreements by any
extra-contractual representations. The misrepresentations and
omissions upon which CEI bases its CFIL claims thus could not have
been "material."
We therefore affirm the district court's dismissal of the CFIL
claims, albeit for different reasons.
IV.
CEI argues the district court erred when it applied Louisiana
law to CEI's intentional interference with contract claims and when
it dismissed third-party defendants NOSC and MFY on finding that
Louisiana does not recognize an intentional interference claim
against corporate defendants. CEI alleged that Al Copeland, NOSC
and MFY engaged in a scheme to inflate the prices of Popeye's
products that CEI was contractually bound to purchase, thus making
CEI's performance of the franchise agreements more burdensome. The
jury exonerated Al Copeland on the tortious interference claim.
We assume without deciding that California's more expansive
tortious interference claim would encompass actions against NOSC
and MFY, see, e.g., Pacific Gas and Electric Company v. Bear
Stearns & Company, 50 Cal. 3d 1118, 270 Cal. Rptr. 1, 791 P.2d 587,
589-90 (Ca.1990), because we find, in any event, that Louisiana law
should apply to this issue and, further, that Louisiana would not
recognize a cause of action against NOSC and MFY under these facts.
Because CEI filed its third party demands before January 1,
1992, we apply Louisiana's pre-codification conflicts law to this
issue. See Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487,
61 S. Ct. 1020, 85 L. Ed. 1477 (1941); Book IV, La. Civ.Code
Ann.(West 1994); 1991 La. Acts No. 923, § 4. Before Louisiana's
conflicts codification, Louisiana courts generally applied a
combination of Professor Brainerd Currie's "interest analysis" and
the "most significant relationship" test of the Restatement
(Second) of Conflicts. Jagers v. Royal Indemnity Company, 276
So. 2d 309, 312-13 (La.1973); Sandefer Oil & Gas v. AIG Oil Rig of
Texas, Inc., 846 F.2d 319, 322-24 (5th Cir.1988).
We find that this case presents a "true conflict." See
Sandefer Oil & Gas, 846 F.2d at 322-23; see generally B. Currie,
Selected Essays on the Conflict of Laws (1963). California has an
interest in applying its expansive tortious interference law to
protect California franchisees, while Louisiana has a
countervailing interest in applying its limited cause of action to,
and thus shielding from unrecognized liability, Louisiana
corporations. See 9 to 5 Fashions, Inc. v. Spurney, 538 So. 2d 228,
234 (La.1989); Brinkley & West, Inc. v. Foremost Insurance Co.,
499 F.2d 928, 934 (5th Cir.1974); Ardoyno v. Kyzar, 426 F. Supp.
78, 82 (E.D.La.1976).
We are persuaded that, with respect to this issue, Louisiana
has the "most significant relationship" to the parties and the
transactions allegedly giving rise to liability. See Restatement
(Second) of Conflicts §§ 6 and 145 (1971). Louisiana's limited
tortious interference action is, in part, a rule proscribing
certain conduct. See 9 to 5 Fashions, 538 So. 2d at 231. The state
in which such conduct took place (i.e., the alleged overpricing
scheme occurring in Louisiana) is therefore an important contact
for conflicts purposes. See Restatement, § 145 cmt. e. We are
further guided by the more recent expressions of Louisiana's
conflicts policies contained in Book IV of the Louisiana Civil
Code. Although Louisiana's Conflicts articles technically do not
apply to an action filed before January 1, 1992, we are at least
persuaded by article 3543, which would apply Louisiana law to an
"issue of conduct and safety" where the injury-causing conduct
occurred in Louisiana and was caused by a Louisiana domiciliary.
La. Civ.Code Ann. art. 3543 & cmt. a (West 1994); see Symeon
Symeonides, Louisiana Conflicts Law: Two "Surprises", 54 La.L.Rev.
497, 595 n. 41 (1994).
Louisiana's recent recognition of the tortious interference
action, after nearly one hundred years of disallowing it, also
evidences a policy of cautious expansion of the tort and a
reluctance to apply wholesale its "rather broad and undefined"
common law version. See 9 to 5 Fashions, 538 So. 2d at 234, quoting
W. Page Keeton et. al, Prosser & Keeton on the Law of Torts § 129,
at 979 (5th ed.1984). Thus, quite apart from its interest in
deterring tortious conduct, Louisiana also has an interest in
shielding its domiciliary corporations from expansive tortious
liability Louisiana has not yet adopted, particularly for conduct
occurring within its borders.
We recognize California's interest in providing redress to its
domiciliary franchisees allegedly injured there. We find,
nonetheless, that Louisiana has the more "significant
relationship"4 to the parties and the transaction where the issue
involves Louisiana's limited tortious interference action,
defendants domiciled in Louisiana, and, most importantly, allegedly
tortious conduct occurring within Louisiana.5 We thus find that
Louisiana law should apply to CEI's tortious interference claims
against NOSC and MFY.
Our Court and various Louisiana courts of appeal have
uniformly recognized the narrowness of Louisiana's tortious
interference action. See, e.g., American Waste & Pollution Control
Co. v. Browning-Ferris, Inc., 949 F.2d 1384, 1386-87 (5th
Cir.1991); White v. White, 641 So. 2d 538, 541 (La.App. 3d
Cir.1994); Tallo v. The Stroh Brewery Co., 544 So. 2d 452, 453-55
(La.App. 4th Cir.1989). Even Louisiana appellate courts purporting
to "expand" the cause of action have done so within the limited
confines of the 9 to 5 Fashions decision. See, e.g., Guilbeaux v.
4
While we are guided by its reasoning, we distinguish Brinkley
& West on its facts. That case involved Louisiana plaintiffs suing
for interference occurring in other states with contracts perfected
and to be performed outside Louisiana. Brinkley & West, 499 F.2d
at 934-35 & n. 28. Compare Ardoyno, where the district court found
Louisiana law applicable to a tortious interference claim on a
contract with a Mississippi domiciliary "made and performable"
within Louisiana. Ardoyno, 426 F. Supp. at 81-82. While not
precisely on point, Ardoyno is closer to the present situation,
given that the franchise agreements were at least in part made and
"performable" in Louisiana.
5
The district court allowed the tortious interference action
to proceed against Al Copeland, Sr., the owner of NOSC and MFY.
Deposition testimony in the record showed that the alleged
price-inflation scheme was carried out largely pursuant to
Copeland's directives. Thus, it seems that California's deterrence
and compensation policies were at least partially vindicated in
this case; the jury, however, found that Copeland's actions did
not unjustifiably burden CEI's franchise agreements with AFC.
The Times of Acadiana, 693 So. 2d 1183, 1186 (La.App. 3d Cir.1997);
Neel v. Citrus Lands of Louisiana, Inc., 629 So. 2d 1299, 1301
(La.App. 4th Cir.1993). Under the present facts, CEI's tortious
interference claim against NOSC and MFY does not fall within the
narrow parameters set forth by the Louisiana Supreme Court in 9 to
5 Fashions, see 538 So. 2d at 234, and not since broadened.
We have recognized that before a Louisiana court will allow a
tortious interference action, the plaintiff must identify a duty
existing between it and the alleged tortfeasor, the violation of
which would give rise to delictual liability. See American Waste,
949 F.2d at 1390; see also 9 to 5 Fashions, 538 So. 2d at 231;
Spencer-Wallington, Inc. v. Service Merchandise, Inc., 562 So. 2d
1060, 1063 (La.App. 1st Cir.1990). For example, a corporate
officer owes a duty to a third person contractually related to the
corporation to refrain from intentional actions that would make the
corporation breach the contract or render its performance more
burdensome. See 9 to 5 Fashions, 538 So. 2d at 231.
CEI has not identified any duty owed it by either NOSC or MFY
that would bring those corporations within the purview of
Louisiana's tortious interference cause of action. While NOSC and
MFY may have been closely affiliated to AFC through Al Copeland,
Sr., CEI has not demonstrated, nor can we discern, any relationship
between the alleged tortfeasors and CEI that would give rise to the
requisite duty. See American Waste, 949 F.2d at 1390. We believe
that a Louisiana court would have done what the district court here
did: allow the tortious interference claim to proceed against the
corporate officer, Al Copeland, Sr., whose duty it was not to
interfere with the franchise agreements between AFC and CEI. The
jury found Copeland had not interfered with the franchise
agreements, and we decline to allow CEI to relitigate the same
issue against different defendants, particularly when deposition
testimony in the case indicated any alleged overpricing scheme was
done pursuant to Copeland's own guidelines.
Thus, we affirm, for slightly different reasons, the district
court's dismissal of CEI's tortious interference claims against
NOSC and MFY.
V.
CEI based its LUTPA claims against AFC on the overpricing
scheme allegedly orchestrated by AFC, NOSC and MFY. The district
court read the LUTPA limitations period6 as "peremptive" and
dismissed the claims as time-barred. CEI argues the district court
erred by not considering that the allegedly tortious scheme was a
"continuing violation" that did not abate until 1994; only at that
time, according to CEI, did the one-year LUTPA period begin to run.
The district court relied on Neill v. Rusk, 745 F. Supp. 362,
365 (E.D.La.1988) in holding that the "continuing violation"
doctrine did not apply to the LUTPA peremptive period. Two recent
Louisiana appellate decisions, however, have found that where a
6
The LUTPA limitations period reads:
The action provided by this section shall be prescribed
by one year running from the transaction or act which
gave rise to this right of action.
La. Stat. Ann. 51:1409(E)(West 1987). Louisiana courts have
interpreted this period to be peremptive rather than
prescriptive. See, e.g., Spencer-Wallington, 562 So. 2d at
1063.
violation of LUTPA is "continuing" (i.e., where the violation gives
rise to a new cause of action every day), the peremptive period
does not begin to run until the violation ceases. See Benton,
Benton and Benton v. Louisiana Public Facilities Authority, 672
So. 2d 720, 723 (La.App. 1st Cir.1996); Fox v. Dupree, 633 So. 2d
612, 615 (La.App. 1st Cir.1993).
We assume without deciding that the "continuing violation"
doctrine applies to the LUTPA peremptive period, because we find,
in any event, that CEI's LUTPA claims would fail on the merits. A
trade practice is unfair "when it offends established public policy
and when the practice is unethical, oppressive, unscrupulous, or
substantially injurious to consumers...." American Waste, 949 F.2d
at 1391, quoting Roustabouts, Inc. v. Hamer, 447 So. 2d 543, 548.
What constitutes an unfair trade practice is determined by the
courts on a case-by-case basis. American Waste, 949 F.2d at 1391.
While CEI's LUTPA claims are rather amorphous, the only
allegations that could possibly survive the one-year limitation
period (aided by the "continuing violation" doctrine) are those
surrounding the alleged overpricing scheme. These claims
essentially revisit CEI's tortious interference claims, albeit
against a different defendant. As we have observed supra, the jury
has already rejected CEI's tortious interference claims against the
only possible defendant under Louisiana law. We decline to allow
CEI to rehash those claims against different parties, nor do we
accept its implicit invitation to recognize a cause of action under
LUTPA not otherwise actionable under Louisiana law. See American
Waste, 949 F.2d at 1392.
We thus affirm, for alternate reasons, the district court's
dismissal of CEI's claims under LUTPA.
VI.
The district court granted AFC's motion for summary judgment
on CEI's fraud claims based on allegations that AFC fraudulently
induced CEI to enter the franchise agreements by misrepresenting
sales figures, expenses and profits regarding the San Francisco
area stores. The court found that the integration/disclaimer
clauses in the franchise agreements prevented CEI from justifiably
relying on any extra-contractual representations allegedly made by
AFC. CEI argues that the integration/disclaimer clauses cannot
insulate AFC from its own fraudulent misrepresentations.
We need not address the effect of those clauses, because we
find that the allegedly fraudulent statements made to CEI are not
actionable as a matter of law. Under Louisiana law, a cause of
action exists for fraudulent misrepresentation of past or present
facts; "unfulfilled promises or statements as to future events,"
however, cannot be the basis for a fraud action. Watermeier v.
Mansueto, 562 So. 2d 920, 923 (La.App. 5th Cir.1990)(emphasis
added); see La. Civ.Code Ann. arts.1953 et seq. (West 1987).
According to CEI, AFC stated that CEI could expect sales
similar to those in the Washington, D.C. area given the demographic
similarities between the markets, and that sales would definitely
increase in the San Lorenzo Store if CEI ran it properly.7 These
statements are nothing more than projections of future events and,
7
CEI does not allege that AFC misrepresented present sales
figures for any of the locations.
as such, are not actionable as fraud under Louisiana law. We
therefore affirm, for alternate reasons, the district court's grant
of summary judgment.
The district court also granted AFC summary judgment as to
CEI's claims that AFC committed fraud by failing to disclose
certain equipment problems with one of the locations and by failing
to inform CEI that a competitor of Popeye's was planning to
relocate next to another location. Under Louisiana law, "[t]o find
fraud from silence or suppression of the truth, there must exist a
duty to speak or to disclose information." Greene v. Gulf Coast
Bank, 593 So. 2d 630, 632 (La.1992). Such a duty could arise from
statute, or from a special relationship between the parties, such
as a fiduciary relationship. Id. at 633. We have observed before,
however, that a franchisor and a franchisee are not ordinarily
considered fiduciaries in Louisiana. See, e.g., Delta Truck &
Tractor, Inc. v. J.I. Case Co., 975 F.2d 1192, 1205 (5th Cir.1992).
We agree with the district court that CEI has failed to
identify any duty on AFC's part that would have required it to
disclose the facts CEI complains of. First, as already discussed,
CEI and AFC were not in a fiduciary relationship. Second, CEI is
a relatively sophisticated consumer with the ability to
independently investigate the condition of the locations it planned
to take over. See Greene, 593 So. 2d at 633. Finally, AFC was only
indirectly involved in the purchase of the two locations in
question; CEI actually bought them from a third-party franchisee,
Natraj Corporation.
Since we find AFC had no duty to disclose the information, we
affirm the district court's grant of summary judgment in favor of
AFC.
VII.
For the foregoing reasons, we AFFIRM the district court's
dismissal of, and grant of summary judgment on, CEI's counterclaims
and third party demands.