Opinion
Civil Action No. 3:99-CV-1566-D
May 24, 2001
MEMORANDUM OPINION AND ORDER
This case arises from an unsuccessful attempt by former and present franchisees of KFC Corporation ("KFC") to obtain a "3N1" (KFC, Taco Bell, and Pizza Hut) franchise at a recently-developed outlet mall. Following an earlier decision granting in part KFC's motion to dismiss and dismissing plaintiffs' action against Taco Bell Corporation ("Taco Bell") in its entirety, see Miller v. KFC Corp., 1999 WL 820389 (N.D. Tex. Oct. 13, 1999) (Fitzwater, J.) (" Miller I"), KFC moves for summary judgment as to all remaining claims. For the reasons that follow, the court grants the motion in substantial part, but concludes that parts of two claims remain for trial.
I
Plaintiffs James Miller, Jr. ("Miller") and Joyce E. Miller (collectively, "the Millers") are former KFC franchisees, and Jonathan Kyle Miller, Inc. ("JKM") is a present KFC franchisee. The Millers entered into a Franchise Agreement with KFC to operate a restaurant at 4340 West Illinois in Dallas, Texas ("the West Illinois location"). In 1997 the Millers assigned their rights, title, and interest in the Franchise Agreement to JKM. In addition to permitting JKM to operate the West Illinois location, the Franchise Agreement granted limited rights concerning the construction of new KFC restaurants. Section 19 provided:
The court recounts the evidence favorably to plaintiffs and draws all reasonable inferences in their favor as the summary judgment nonmovants. See Clift v. Clift, 210 F.3d 268, 270 (5th Cir. 2000).
Right to Apply for New Franchised Outlets. Before permitting the establishment of any new franchised outlet (defined below) at a location closer to the Outlet than to any other franchised outlet (except pursuant to commitments made before the Effective Date of this Agreement), KFC shall be obligated to give Franchisee 30 days prior written notice of such proposed action. During such 30-day period, Franchisee may apply to KFC for a franchise to operate an outlet at such proposed new location and KFC shall negotiate in good faith with Franchisee regarding said application, taking into consideration all relevant factors, including, without limitation: (a) the established past and present operational performance and financial capacities of Franchisee, (b) whether he is currently in compliance with financial and other obligations to KFC and under this and other franchise agreements, and (c) efforts of Franchisee that have contributed to the development of consumer demand for Kentucky Fried Chicken locally and elsewhere. As used herein "new franchised outlet" means an outlet not previously in existence, whether franchised or owned by KFC or its affiliates, and which will not be owned by KFC or its affiliates.
D. App. 24. Accordingly, if KFC decided to open a new franchise outlet closer to the West Illinois location than to any other currently existing franchise outlet, KFC was obligated to notify JKM of the proposed action, allow it to apply for an outlet at that location, and negotiate in good faith regarding its application. See id.
KFC, Taco Bell, and Pizza Hut Corporation ("Pizza Hut") are subsidiaries of Tricon Global Restaurants, Inc. ("Tricon"). By late 1997 KFC had decided to enter the Grapevine market in the form of a 3N1 restaurant at Grapevine Mills Mall. Although it originally reviewed the site for a corporate-owned restaurant, it discovered that Larry Durrett ("Durrett), a Taco Bell and KFC franchisee, had the Taco Bell rights for that area. KFC supported Durrett's bid for the Grapevine 3N1.
On January 8, 1998 KFC notified Miller by letter that KFC was considering an outlet in the Grapevine Mills area and, pursuant to § 19, invited him to apply for the right to operate the restaurant. The letter also indicated that "[t]he proposed location may be developed as a KFC/TACO BELL/PIZZA HUT 3N1 outlet if the site is also approved by Taco Bell Corp. and Pizza Hut." D. App. 29. Miller applied for the Grapevine restaurant. Throughout the negotiations, KFC attempted to dissuade him from pursuing the 3N1, but Miller persisted. KFC rejected Miller's first proposed site for the restaurant and offered him a 2N1 (KFC and Taco Bell) at his existing outlet in exchange for forfeiting his § 19 rights. Miller continued to press for the Grapevine 3N1. He was unable to secure the Taco Bell franchise, and Pizza Hut granted him only the right to limited-menu service. KFC ultimately accepted Miller's first proposed Grapevine location, and he opened and is currently operating a 2N1 location featuring KFC and Pizza Hut.
Disappointed by KFC's and Taco Bell's actions concerning the Grapevine 3N1 outlet, plaintiffs filed suit against them in Texas state court. They asserted five causes of action: breach of the KFC Franchise Agreement; tortious interference with prospective business relationships; promissory/equitable estoppel; breach of implied duty of good faith and fair dealing; and violations of the Texas Deceptive Trade Practices-Consumer Protection Act ("DTPA"), Tex. Bus. Com. Code Ann. §§ 17.41-17.826 (Vernon 1987 Pamp. Supp. 2001). Defendants removed the action and filed a motion to dismiss or, alternatively, to strike parts of their complaint. In Miller I the court granted the motion in part and denied it in part. Specifically, it (1) concluded that plaintiffs' "promissory estoppel/equitable estoppel" claim should be referred to as a promissory estoppel claim, Miller I, 1999 WL 820389, at *1 n. 2; (2) dismissed the Millers' breach of contract claim because all contractual rights, title, and interest had been assigned to JKM, id. at *2; (3) declined to dismiss JKM's breach of contract claim, id.; (4) declined to dismiss plaintiffs' claim for tortious interference with prospective business relations, id.; (5) declined to dismiss plaintiffs' promissory estoppel claim, id.; (6) declined to dismiss plaintiffs' claim for breach of implied duty of good faith and fair dealing, id. at *3; (7) and dismissed plaintiffs' claim under the DTP A. The court denied defendants' alternative motion to strike. Id. at*4. Because the court's opinion dismissed the only claim asserted against Taco Bell, the court on November 4, 1999 filed an order dismissing plaintiffs' action against Taco Bell. Nov, 4, 1999 Order.
As in Miller I, the court will refer to plaintiffs' state court petition as their "complaint." See Miller I, 1999 WL 820389, at *1 n. 1.
KFC now moves for summary judgment on the remaining claims.
In addition to plaintiffs' response, brief, and appendix, they have filed a separate "reply to defendant's statement of undisputed facts." This pleading purportedly is submitted "[p]ursuant to Fed.R.Civ.P. 56 and the applicable Local Rules." Ps. Rep. at 1. Rule 56 neither requires nor permits such a pleading. The local civil rules of the court do not do so either. A summary judgment nonmovant must file a response, brief, and appendix. N.D. Tex. Civ. R. 56.7 precludes the filing of any other pleadings or materials except by leave of court. See id. ("Except for the motions, responses, replies, briefs, and appendixes required by these rules, a party may not, without the permission of the presiding judge, file supplemental pleadings, briefs, authorities, or evidence."). Accordingly, the court has not considered the "reply" for any purpose in deciding KFC's summary judgment motion.
II
KFC first seeks summary judgment dismissing JKM's claim that KFC breached the Franchise Agreement.A
The court must as a threshold matter identify the elements of JKM's breach of contract claim that are at issue. In its summary judgment motion, KFC maintains that JKM alleges breach of contract based on KFC's (1) refusing to honor its obligation to grant a 3N1 franchise at the Grapevine Mills Mall, (2) making false and misleading statements to JKM to make it difficult to exercise properly its § 19 rights, (3) failing to keep JKM apprised of growth opportunities, and (4) unreasonably rejecting requests by JKM for new concepts and new sites. See D. Br. at 6. In its response, JKM posits that KFC breached the Franchise Agreement by violating the provision in § 19 that obligated it to negotiate in good faith with JKM regarding its application, see Ps. Br. at 15-17. JKM also asserts that § 19 of the Franchise Agreement, coupled with the January 8, 1998 letter, entitled it to a 3N1. The court will therefore address these components of JKM's breach of contract claim.
Although KFC moves for summary judgment on all components of JKM's breach of contract claim, JKM does not address KFC's arguments or respond with any evidence except as to the two elements noted. Accordingly, KFC is entitled to summary judgment dismissing all bases for JKM's breach of contract claim except as set forth in this memorandum opinion.
KFC argues that false and misleading statements do not constitute a breach of the Franchise Agreement. See D. Br. at 8. JKM responds that, although false and misleading statements are not a per se breach, they may breach contractual provisions that obligate a party to act in good faith. See Ps. Br. at 16. The court will analyze any evidence of false and misleading statements only as support for a breach of the contractual duty to negotiate in good faith.
B
JKM alleges that KFC breached the Franchise Agreement by violating § 19's provision that obligated it to negotiate in good faith. KFC argues that it lacked the power to grant or deny the right to develop the Taco Bell and Pizza Hut portions of the 3N1 outlet, and that it negotiated with JKM and awarded it the right to develop a KFC outlet at Grapevine Mills Mall. Therefore, JKM obtained what it was entitled to seek under § 19: a KFC outlet in Grapevine at the proposed location. See D. Rep. Br. at 6.Except as set forth below, KFC is not entitled to summary judgment on this component of JKM's breach of contract claim. JKM has adduced evidence that KFC intended to open a 3N1 at Grapevine Mills but was aware that JKM would never be able to receive the development rights for this restaurant. Hoping to grant the rights to Durrett, KFC then engaged in efforts to circumvent its § 19 obligations to JKM. According to JKM's proof, KFC rejected the first site that JKM proposed for the Grapevine restaurant. In place of the proposed $500,000 site, KFC suggested a $1.05 million site. Ultimately, KFC reversed course and approved the original site. Miller avers in his affidavit that this reversal forced him to purchase the original site at a substantially higher price. JKM has also introduced evidence in the form of internal KFC e-mails that suggests that KFC hoped to dissuade Miller from pursuing the Grapevine KFC outlet. Under § 19, KFC had an obligation to negotiate in good faith for the right to develop the new location. A reasonable factfinder could conclude that rather than negotiate in good faith with JKM, KFC placed roadblocks in its path so that it would surrender its § 19 rights. It could also conclude that the rejection of the $500,000 site in favor of the more expensive one was a bad faith effort to make the project appear financially infeasible so that JKM would not pursue the franchise. Finally, the factfinder could decide that as a result of KFC's bad faith conduct, JKM suffered damages in the form of a higher purchase price for the original site.
To the extent, however, that JKM relies on an alleged failure to negotiate in good faith for the establishment of a 3N1 outlet, the court grants summary judgment. As the court explains infra at § II(C), § 19 of the Franchise Agreement pertains to KFC's obligation to notify certain KFC franchisees of proposed KFC locations so that they may apply for the right to operate a KFC outlet, and to negotiate with the franchisee-applicant in good faith. KFC cannot be held liable for breaching the Franchise Agreement's good faith proviso on the basis that it did not negotiate in good faith for the establishment of a 3N1 outlet.
See Ps. Br. at 17 ("Because Miller lacked a real chance to obtain the 3nl for which he received notice, KFC violated Section 19's good faith provisions.").
In the January 8, 1998 letter, KFC made clear that while the proposed location may be developed as a 3N1, Taco Bell and Pizza Hut must also approve the site. See P. App. 53.
C
JKM also asserts that, under the Franchise Agreement and January 8, 1998 letter, JKM was entitled to a 3N1. KFC contends in its motion for summary judgment that the Franchise Agreement does not contain any obligation to grant a 3N1. Rather, § 19 only requires KFC to notify franchisees of certain new outlets, permit them to apply for those outlets, and negotiate in good faith for the development of the new outlets. KFC argues that it satisfied these obligations by notifying Miller of the potential Grapevine location in the January 8, 1998 letter, allowing him to apply for the new outlet, and eventually granting him the option to develop the location. It denies that either § 19 or the January 8, 1998 letter obligated it to grant the 3N1, because KFC lacked the authority to develop a Taco Bell or Pizza Hut restaurant.
The court has already concluded that it will give effect to the Franchise Agreement's choice of law clause and apply Kentucky law. See Miller I, 1999 WL 8203 89, at *1. Under Kentucky law, the "construction as well as the meaning and legal effect of a written instrument, however compiled, is a matter of law for the court." Morganfleld Nat'l Bank v. Damien Elder Sons, 836 S.W.2d 893, 895 (Ky. 1992).
JKM's argument that KFC was obligated to give it a 3N1 misinterprets the Franchise Agreement. Section 19 only provides franchisees with rights concerning the development of certain KFC outlets. It does not govern possible opportunities for Taco Bell or Pizza Hut locations. Furthermore, KFC's close corporate relationship with Taco Bell and Pizza Hut does not change its duties under the Franchise Agreement. Even if a factfinder did conclude that throughout the negotiations with JKM, KFC was acting in concert with Taco Bell and Pizza Hut, KFC simply had no duty under § 19 to grant JKM a 3N1 or negotiate in good faith for the 3N1. JKM's failure to obtain the 3N1, therefore, does not flow from a violation of the Franchise Agreement.
Moreover, JKM's reliance on § 19's provision that "all relevant factors" will be considered in the negotiation is mistaken. JKM contends that the January 8, 1998 letter's mention of a possible 3N1 was a relevant factor and suggests that it created a right to a 3N1. This argument misinterprets § 19. Section 19 specifically mentions three nonexclusive "relevant factors," including "(a) the established past and present operational performance and financial capacities of Franchisee, (b) whether he is currently in compliance with financial and other obligations to KFC and under this and other franchise agreements, and (c) efforts of Franchisee that have contributed to the development of consumer demand for Kentucky Fried Chicken locally and elsewhere." D. App. 24. These examples make clear that the "relevant factor" language refers to considerations that KFC may take into account in determining whether to award a franchisee another outlet. It does not operate to confer new rights on an existing franchisee based on actions that KFC took during the course of performing the contract. JKM cannot rely on the "relevant factors" provision to argue that it was entitled to a 3N1 outlet.
Accordingly, the court grants in part and denies in part KFC's motion with respect to JKM's breach of contract cause of action.
III
Plaintiffs allege that KFC tortiously interfered with their prospective business relations with 3N1 customers. To prevail on this claim, plaintiffs must prove that (1) there was a reasonable probability that the plaintiff would have entered into a contractual relationship, (2) the defendant committed a malicious and intentional act that prevented the relationship from occurring, with the purpose of harming the plaintiff, (3) the defendant lacked privilege or justification to do the act, and (4) actual harm or damage resulted from the defendant's interference. Gaia Techs. Inc. v. Recycled Prods. Corp., 175 F.3d 365, 377 (5th Cir. 1999).KFC is entitled to summary judgment dismissing this cause of action because plaintiffs have not introduced evidence that would permit a reasonable trier of fact to find a reasonable probability that plaintiffs would have opened a Grapevine Mills Mall 3N1 from which they would have entered into contractual relationships with customers. In their response to KFC's motion, plaintiffs identify the prospective business relations as their relations with 3N1 outlet patrons. The court has already explained above, however, that KFC did not have authority, and had no contractual duty, to award plaintiffs a franchise for the Taco Bell and Pizza Hut components of a 3N1. Without evidence that would permit a reasonable factfinder to find that plaintiffs would probably have obtained the rights to these two brands — plaintiffs' conclusory assertion to the contrary, see Ps. Br. at 21, is insufficient proof — they cannot base a claim on tortious interference with customers of such an outlet.
The summary judgment nonmovants' failure to adduce proof as to any essential element renders all other facts immaterial. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
Accordingly, KFC is entitled to summary judgment dismissing this claim.
IV
KFC moves for summary judgment dismissing plaintiffs' promissory estoppel claim. It maintains that plaintiffs cannot prove that there was a promise that KFC made or that KFC could have foreseen reliance, and it posits that, because it performed under the agreement and plaintiffs currently operate a 2N1, they have not been damaged.
Under Texas law, to prove their promissory estoppel claim, plaintiffs must establish (1) a promise, (2) foreseeability by the promissor of reliance on the promise, (3) substantial detrimental reliance by the promisee, and (4) a "definite finding that injustice can be avoided only by the enforcement of the promise." Clardy Mfg. Co. v. Marine Midland Bus. Loans Inc., 88 F.3d 347, 360 (5th Cir. 1996). Plaintiffs contend that the January 8, 1998 letter was an offer to provide a Grapevine 3N1 outlet subject only to Taco Bell's and Pizza Hut's respective approvals of a physical location. According to plaintiffs, they accepted KFC's offer by applying and presenting a suitable location. They argue that even if the letter was not a valid, enforceable contract, they justifiably relied on the promise such that it would be inequitable not to enforce it.
Plaintiffs have failed to adduce evidence that would permit a reasonable factfinder to conclude that they justifiably relied on any promise of a Grapevine 3N1. The January 8, 1998 letter merely invites Miller to apply to operate a new KFC franchised outlet. See D. App. 29. The letter notes that "[t]he proposed location may be developed as a KFC/TACO BELL/PIZZA HUT 3N1 outlet if the site is also approved by Taco Bell Corp. and Pizza Hut." Id. Plaintiffs contend that this statement "is an offer to Miller to provide a 3nl subject to approval of the physical site by Taco Bell Corp. and Pizza Hut." P. Br. at 23. This interpretation of the letter is belied, however, by the document's final paragraph, which states:
PLEASE NOTE: THIS IS NOT A GUARANTEE OR ASSURANCE THAT TACO BELL CORP. OR PIZZA HUT WILL APPROVE THE PROPOSED LOCATION. THE APPLICATION RECEIVED BY KFCC, HOWEVER, INDICATES AN INTENTION TO CONSTRUCT AND OPERATE A "3N1" RESTAURANT, IF A FRANCHISE AGREEMENT IS ISSUED BY KFCC AND LICENSE OR FRANCHISE AGREEMENTS ARE ISSUED BY TACO BELL CORP. AND PIZZA HUT.
D. App. 31. Moreover, plaintiffs' reading of the letter is inconsistent with the document's proviso that it is not offering Miller a KFC outlet, but only the opportunity to apply and be considered for one. See id. at 29. A reasonable trier of fact could not find that, despite the explicit conditions in the letter, KFC was unconditionally promising outlets for restaurants owned by separate companies.
Accordingly, the court grants KFC's motion for summary judgment dismissing plaintiffs' promissory estoppel cause of action.
V
Plaintiffs allege that KFC breached an implied covenant of good faith and fair dealing.
A
KFC moves for summary judgment on the ground that because it acted in accordance with the terms of the Franchise Agreement, there can be no breach of the covenant of good faith and fair dealing. In support of this argument, it cites Hunt Enterprises, Inc. v. John Deere Industrial Equipment Co., 18 F. Supp.2d 697 (W.D. Ky. 1997). In Hunt the court held that it was not a breach of good faith for a party to act pursuant to the express terms of a contract. Id. at 700. The defendant in that case had terminated an agreement with the plaintiff. The plaintiff argued that even though the agreement provided for termination without cause, the defendant's exercise of its contractual rights was motivated by bad faith. Id. at 699-700. The court rejected this theory as unsupported by the case law, holding instead that a party does not breach the implied covenant of good faith and fair dealing by acting in accordance with the express terms of the contract. Id. KFC argues that this same principle entitles it to summary judgment. This argument fails, however, because the court has already held supra at § II(B) that a reasonable factfinder could conclude that KFC breached the contract by failing to negotiate in good faith with JKM.
This conclusion refers to whether KFC violated an implied covenant of good faith and fair dealing in the Franchise Agreement. Plaintiffs' claims sounds in contract law, and if they succeed at trial, the contract measure of damages applies. To the extent that plaintiffs state a separate cause of action for the breach of the covenant of good faith and fair dealing, the court will analyze that claim as a tort and apply choice of law principles accordingly.
B
The court holds that KFC is entitled to summary judgment dismissing plaintiffs' independent tort claim for breach of an implied duty of good faith and fair dealing. Under Texas choice of law principles, the court will apply Texas substantive law to this claim. As the court noted in Miller I, the Franchise Agreement contains a choice of law provision calling for Kentucky law. Miller I, 1999 WL 820389, at * 1. Accordingly, the court held that Kentucky law applies to the interpretation of the contract. Id. After applying the most significant relationship test described in Duncan v. Cessna Aircraft Co., 665 S.W.2d 414, 421 (Tex. 1984), the court determined that Texas law controls plaintiffs' other claims. Id.This conclusion also applies to plaintiffs' tort claim for breach of an implied covenant of good faith and fair dealing, even though the claim is related to the contractual relationship between the parties. In Caton v. Leach Corp., 896 F.2d 939, 942-43 (5th Cir. 1990), the Fifth Circuit considered a choice of law question where the parties had entered into a contract with a California choice of law provision. The panel held that where the parties' narrow choice of law provision did not govern the entirety of the parties' relationship, the court should apply the most significant relationship test to determine which state's law to apply to tort claims, including the tortious breach of the duty of good faith and fair dealing. Id. at 943. It defined a "narrow" choice of law provision as one that merely denotes that the chosen state's law should be used to "construe" a contract rather than "to govern, construe, and enforce all of the rights and duties of the parties arising from or relating in any way to the subject matter of this contract." Id. at 943 n. 3 (internal citations omitted). In the instant case, the parties' choice of law clause provides that the agreement "shall be interpreted in accordance with and governed by" Kentucky state law. D. App. 26. It is, therefore, a narrow choice of law clause similar to the provision involved in Caton. As a result, the court will apply the most significant relationship test to this claim rather than defer to a choice of law provision that merely governs the interpretation of the Franchise Agreement. Because the court has already determined that Texas bears the most significant relationship to this dispute, it will apply Texas state substantive law to the plaintiffs' tort claim for the breach of the implied duty of good faith and fair dealing.
C
Texas courts have refused to recognize a general tort duty of good faith and fair dealing outside the context of a special relationship. See Crim Truck Tractor Co. v. Navistar Int'l Transp. Corp., 823 S.W.2d 591, 594 (Tex. 1992) (recognizing that no duty of good faith and fair dealing exists outside of special relationship). Not every agreement gives rise to a special relationship, and the existence of a special relationship is a question of fact. Id. In the present case, the Franchise Agreement specifically states that "[n]o fiduciary relationship exists between KFC and the Franchisee." D. App. 25. Plaintiffs have submitted no evidence to the contrary. Accordingly, in the absence of a special relationship, KFC is entitled to judgment as a matter of law dismissing plaintiffs' tort claim for breach of implied duty of good faith and fair dealing.VI
KFC moves for summary judgment dismissing plaintiffs' claims in counts I and IV of their petition for attorney's fees under Tex. Civ. Prac Rem Code Ann. § 38.001 (Vernon 2001). The court grants this aspect of its motion.
A fee award under § 38.001 would be based on a breach of contract theory. The court has already determined, however, that Kentucky law applies to plaintiffs' contract claim. Under Kentucky law, attorney's fees are not recoverable in the absence of a contractual or statutory basis for them. See CSX Transp., Inc. v. First Nat'l Bank of Grayson, 14 S.W.3d 563, 569 (Ky.Ct.App. 1999). The Franchise Agreement does not provide for a fee award, and plaintiffs have not made a claim for a fee award under any Kentucky state statute.
Accordingly, the court grants KFC's motion and dismisses claims for attorney's fees.