Clark v. America's Favorite ( 1997 )

REVISED
United States Court of Appeals,
Fifth Circuit.
No. 96-30364.
Rogers W. CLARK, Jr., Roger R. Burney, Franchise Management
Unlimited, and Seven Mile Catering, a Michigan co-partnership,
Plaintiff-Appellants,
v.
AMERICA'S FAVORITE CHICKEN COMPANY, a foreign corporation and
Canadian Imperial Bank of Commerce, a foreign corporation, jointly
and severally, Defendants-Appellees.
April 22, 1997.
Appeal from the United States District Court for the Eastern
District of Louisiana.
Before HIGGINBOTHAM, DAVIS and BARKSDALE, Circuit Judges.
W. EUGENE DAVIS, Circuit Judge:
Appellants, owners of several Popeyes Fried Chicken franchises
in Detroit, Michigan, appeal from the district court's summary
judgment order dismissing their claims against America's Favorite
Chicken ("AFC") and Canadian Imperial Bank of Commerce ("CIBC").
We affirm.
I.
Beginning in 1978, appellants Rogers Clark, Jr. and Roger
Burney entered into option agreements with Popeyes Famous Fried
Chicken Corporation ("Popeyes"), a corporate predecessor to
appellant AFC. Under these agreements, appellants acquired the
exclusive right to develop Popeyes franchises in a specified area
of inner-city Detroit, Michigan. Over the next thirty-five months,
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Clark and Burney opened nine such franchises. With Popeyes'
consent, several of these stores were opened in close proximity to
Churchs Fried Chicken restaurants, Popeyes' biggest competitor in
the area.
Through a series of mergers in 1989, the Popeyes and Churchs
systems came under common ownership. The new management company,
Al Copeland Enterprises, Inc. ("ACE"), was controlled by Popeyes
president, Al Copeland. Shortly after the merger, ACE implemented
a "Strategic Realignment Plan" designed to increase the
profitability of both systems. The plan reflected the historic
marketing positions of the two systems, with Churchs focused more
on value—"Big pieces, little price"—and Popeyes focused more on
product quality—"Love that chicken." Under this plan, Churchs
would continue to target the "low-end" of the bone-in chicken
market by focusing on value, while Popeyes, which had experienced
significant success with suburban and upscale urban locations,
would continue to focus on the high quality and uniqueness of its
product.
ACE's acquisition of Churchs was financed by a loan from a
banking consortium led by appellee CIBC. In 1991 ACE fell behind on
its loan payments, and CIBC and other creditors forced it into a
Chapter 11 bankruptcy proceeding. ACE emerged from bankruptcy as
AFC, America's Favorite Chicken, with CIBC as the majority
shareholder. The company also had a new management staff chosen by
CIBC. From appellants' perspective, the newly restructured company
continued with little change the realignment and marketing plan
2
adopted by its predecessor.
Appellants claim that the marketing strategy adopted by ACE
and then AFC had a detrimental effect on their business. They
complain that they are forced through the franchise agreements to
carry products, such as fruit cups and specialty salads, which have
little appeal in their low-income, urban market; at the same time,
they claim they are prevented from effectively advertising cheap,
"dark-meat-only" and other chicken-dominated meals, all to the
benefit of the area's Churchs restaurants, which are subject to
none of these constraints. Appellants also allege that AFC has
shared marketing and other trade secrets with competing Churchs
restaurants in their area.
Appellants filed the current lawsuit against AFC and CIBC,
alleging breach of contract, including breach of the implied
covenant of good faith and fair dealing, violation of the Louisiana
Unfair Trade Practices and Consumer Protection Act ("LUTPA"),
promissory estoppel, tortious interference with contract, and abuse
of rights. AFC counterclaimed for an equitable accounting based on
its position as a preferred shareholder in appellant Franchise
Management Unlimited ("FMU"), a corporate franchisee controlled by
Clark and Burney. The district court granted summary judgment in
favor of AFC and CIBC on all claims, and appellants timely
appealed.
II.
Appellants appeal only the district court's grant of summary
judgment on their claims for breach of the implied covenant of good
3
faith and fair dealing, violation of LUTPA, and promissory
estoppel. They also appeal the district court's order awarding AFC
an equitable accounting in its role as a preferred shareholder in
FMU. We conclude that summary judgment was properly granted on
these claims and affirm for essentially the reasons assigned in the
district court's well reasoned opinion of February 8, 1996. We
address in more detail only appellants' claim for breach of the
implied covenant of good faith and fair dealing.
A.
We review the district court's grant of summary judgment de
novo, applying the same standards as did the district court.
Stults v. Conoco, Inc., 76 F.3d 651, 654 (5th Cir.1996). Summary
judgment is appropriate when the record reflects that "there is no
genuine issue as to any material fact and that the moving party is
entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c).
Although the evidence is considered in the light most favorable to
the nonmoving party, once the moving party meets its initial burden
of pointing out the absence of a genuine issue for trial, the
burden is on the nonmoving party to come forward with competent
summary judgment evidence establishing the existence of a material
factual dispute. McCallum Highlands, Ltd. v. Washington Capital
Dus, Inc., 66 F.3d 89, 92 (5th Cir.1995) (citing Little v. Liquid
Air Corp., 37 F.3d 1069, 1075 (5th Cir.1994) (en banc)).
Unsupported allegations or affidavit or deposition testimony
setting forth ultimate or conclusory facts and conclusions of law
are insufficient to defeat a motion for summary judgment. Duffy v.
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Leading Edge Products, Inc., 44 F.3d 308, 312 (5th Cir.1995)
(citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106
S. Ct. 2505, 2509-10, 91 L. Ed. 2d 202 (1986)).
B.
As a general rule, Louisiana recognizes an implied covenant
of good faith and fair dealing in every contract. Brill v. Catfish
Shaks of America, 727 F. Supp. 1035, 1039 (E.D.La.1989); Bonanza
Int'l, Inc. v. Restaurant Management Consultants, Inc., 625 F. Supp.
1431, 1445 (E.D.La.1986). However, as we explained in Domed
Stadium Hotel, Inc. v. Holiday Inns, Inc., 732 F.2d 480, 485 (5th
Cir.1984), "[t]he implied obligation to execute a contract in good
faith usually modifies the express terms of the contract and should
not be used to override or contradict them."
As our observation in Domed Stadium suggests, we begin our
inquiry by examining the express terms of the contract. The
franchise agreements at issue here expressly reserve the right of
the franchisor to develop and establish competing franchise systems
within appellees' territory. Section V.E of the franchise
agreements provides in relevant part:
E. Franchisee understands and agrees that its license under
said Proprietary Marks is non-exclusive to the extent that
Franchisor has and retains the rights under this Franchise
Agreement:
...
2. To develop and establish other franchise systems for the
same, similar, or different products or services utilizing
Proprietary Marks not now or hereafter designated as part of
the system licensed by this Franchise Agreement, and to grant
licenses thereto, without providing Franchisee any right
therein....
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This language unambiguously reserves to AFC the right to enter
appellants' area and compete against them under a different set of
proprietary marks.1 Moreover, the record establishes that
appellants were aware of the significance of this provision, and
their attorney attempted to negotiate its removal from the
franchise agreements. When this attempt failed, appellants signed
the agreement with the provision intact. They cannot now be heard
to argue that actions expressly authorized by this provision
constitute a breach of the implied covenant of good faith and fair
dealing.2
Appellants attempt to avoid the implications of this express
reservation by the franchisor by focusing on the allegedly improper
way in which AFC has operated the two systems. They point to the
alleged "dual-marketing strategy" of positioning Popeyes at the
1
Appellants originally contended that the "develop and
establish" language quoted above did not authorize AFC to "acquire"
an already existing system, however, they appear to have abandoned
this argument in their response brief. In any event, we find no
merit in such a crimped reading of the contract. C.f. Domed
Stadium, 732 F.2d at 484-85 (rejecting argument that reservation by
franchisor of right to "construct and operate" additional hotels
did not include right to acquire and convert existing enterprise).
2
Appellants' reliance on cases such as Scheck v. Burger King
Corp., 756 F. Supp. 543 (S.D.Fla.1991), and In re Vylene Enter.,
Inc., 90 F.3d 1472 (9th Cir.1996), is misplaced for two obvious
reasons. First, neither case deals with Louisiana law, which
arguably would yield a different result in those cases. Second,
neither case concerned a contract with an express reservation by
the franchisor of the right to enter the franchisees' territory and
compete with them under a different set of proprietary marks. C.f.
Domed Stadium, 732 F.2d at 484-85 (rejecting claim for breach of
good faith and fair dealing where franchise agreement reserved the
right of franchisor to "construct and operate one or more [hotel]
at any place other than on the site licensed").
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high end and Churchs at the low end of the bone-in chicken market,
the fact that Churchs restaurants more frequently receive their
advertising coupons around the first of the month when lower-income
families have more disposable income, and the fact that AFC
requires them to carry expensive non-chicken products, while
Churchs operates with a more chicken-dominated menu. They also
point out that Churchs regularly advertises "dark-meat-only"
specials, while AFC has repeatedly prevented them from doing so.
With the exception of some allegations that AFC shared trade
and marketing secrets with competing Churchs restaurants,
appellants allegations of bad faith and unfair dealing amount to
little more than a complaint about the nationwide marketing and
advertising plan AFC adopted for the Popeyes system. Again,
however, the franchise agreements negate these claims. Section
III.B of the agreements requires appellants to contribute 3 percent
of their gross sales to a nationwide advertising fund and makes
clear that the administrator of the fund has sole discretion in the
selection of media and locale for media placement. Moreover, the
agreements make clear that the sole purpose of all advertising
expenditures is to benefit the Popeyes system as a whole, not any
individual franchisee. Section III.B provides:
Franchisee understands that such advertising is intended to
maximize the public's awareness of Popeyes Famous Fried
Chicken restaurants, and that Franchisor accordingly
undertakes no obligation to insure that any individual
franchisee benefits directly or on a pro rata basis from the
placement, if any, of such advertising in his local market.
This provision grants AFC sole discretion over the advertising
fund, and AFC was required only to administer the fund to benefit
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the Popeyes system as a whole, without regard to appellants'
franchises. Accordingly, appellants' contention that the content
and timing of AFC's advertising for the Popeyes system made them
less competitive in their market area does not establish bad faith
or unfair dealing.
The same conclusion applies to AFC's control over appellants'
menu items. Section VII.B.2 of the agreements requires appellants
"to sell or offer to sell all approved [menu] items." The
franchisor is not dealing unfairly or in bad faith in requiring
appellants to carry the same fruit cups and specialty salads as
every other Popeyes franchisee.
In sum, the franchise agreement expressly reserves to AFC the
right to do precisely what appellants now charge it with: to
compete against its franchisees under a different set of
proprietary marks. If, as the franchise agreements make clear, AFC
retains the right to develop and establish competing franchise
systems, it cannot be a breach of good faith or fair dealing for it
to adopt an effective marketing strategy for operating those
systems.
C.
Appellants also have failed to produce any evidence of bad
faith or ill motive on the part of AFC or CIBC. See Brill, 727
F. Supp. at 1041 (noting that "[a] mere failure to fulfill an
obligation, without a showing of intent or ill will, does not
constitute a breach of good faith"); see also American Bank &
Trust of Coushatta v. FDIC, 49 F.3d 1064 (5th Cir.1995) (discussing
8
meaning of "good faith" under Louisiana's Civil Code). First,
appellants do not allege that their Detroit-area Popeyes franchises
or the competing Churchs restaurants have been treated any
differently than their counterparts nationwide. Nor do they allege
that AFC's marketing approach was intended or has the effect of
injuring the Popeyes franchise system, and they have pointed to no
reason—economic or otherwise—why AFC would favor the Churchs system
over the Popeyes system. They simply complain that AFC's marketing
strategy for the Popeyes system has made them less competitive in
their individual market.
Second, appellants have failed to show any evidence that AFC
improperly manipulated the two systems. To the contrary,
uncontroverted summary judgment evidence established that the
marketing departments for the Popeyes and Churchs systems are
carefully segregated, that marketing policy for the two systems,
other than in the broadest of senses, is made independently, and
that no confidential sales information is shared between the
systems. Appellants' unsupported allegations that AFC was leaking
confidential marketing information to competing Churchs restaurants
in their area falls far short of creating a genuine issue of
material fact.3 See Duffy v. Leading Edge Products, 44 F.3d 308,
3
For example, while appellants allege that a manager of a
local Churchs restaurant regularly had knowledge about the sales of
one of their Popeyes franchises, they have produced no evidence to
show that AFC was the source of the information. Appellants also
allege that area Churchs restaurants were aware of their
introduction of a new product, chicken tenderloins, and introduced
a similar tenderloin product at the same time. Far from suggesting
that AFC leaked this information to area Churchs owners, the record
reflects that the Popeyes system launched its nationwide roll-out
9
312 (5th Cir.1995) ("[C]onclusory allegations unsupported by
concrete and particular facts will not prevent an award of summary
judgment."); see also Galindo v. Precision American Corp., 754
F.2d 1212, 1216 (5th Cir.1985).
III.
Because the actions appellants complain of are authorized by
the franchise agreements, and because appellants have failed to
produce any evidence of bad faith or ill motive, the district
court's grant of summary judgment in favor of AFC and CIBC was
proper. We reject the remainder of appellants contentions on
appeal for the reasons articulated by the district court.
AFFIRMED.
of its tenderloin product well in advance of the incident about
which appellants complain and that appellants chose not to
participate in the promotion for several months. That appellants
waited to push the new product until their competitor had time to
introduce a similar one is hardly evidence of bad faith on the part
of AFC.
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