Dec 22, 2020 - Judge’s Distribution and Franchise Rulings from the Front Lines by Jeffrey M. Goldstein |

Burger King Franchisee Hoisted on Own Petard

Burger King Corp. v. Berry, No. 1:20-cv-21801-UU, 2020 U.S. Dist. LEXIS 233700 (S.D. Fla. Dec. 9, 2020)

A recent franchise decision by the US District Court for the Southern District of Florida appears to have wrecked a Burger King franchisee’s chances of prevailing in the litigation. Although the franchisee attempted to skewer Burger King by slashing wildly with a general covenant of good faith argument, under the Court’s ruling, the Burger King franchisee ended up hoisted on its own petard given that the franchise agreement explicitly accorded to the franchisor complete discretion regarding assistance and training.

Excerpts of Case

Burger King Corp. v. Berry

United States District Court for the Southern District of Florida

December 9, 2020, Decided; December 10, 2020, Entered on Docket

Case No. 1:20-cv-21801-UU

Counsel:

For FRANCHISEE

Darryl D. Berry, Capital Restaurant Group, LLC, a Georgia limited liability company, Defendants, Counter Claimants: Robert Mitchell Einhorn, LEAD ATTORNEY, Michael Daniel Braunstein, Zarco Einhorn Salkowski & Brito, P.A., Miami, FL.

For FRANCHISOR

Burger King Corporation, Plaintiff, Counter Defendant: Jessica Serell Erenbaum, LEAD ATTORNEY, Michael D Joblove, Genovese Joblove & Battista, Miami, FL.
Judges: URSULA UNGARO, UNITED STATES DISTRICT JUDGE.
Opinion by: URSULA UNGARO

Opinion

ORDER GRANTING IN PART MOTION TO DISMISS SECOND AMENDED COUNTERCLAIM

…
ANALYSIS
A. The Second Amended Counterclaim Fails to Comply with this Court’s Order, D.E. 37.

The Second Amended Counterclaim is full of allegations that the Court ordered Counterclaimants to omit from their Second Amended Counterclaim. For example: Compare Countercl. ¶ 43 (“BKC also engaged in a scheme and plan to divert advertising and marketing efforts away from the Charleston market . . .”), with D.E. 37 at 10-12, 27 (dismissing without leave to amend the Counterclaimants’ breach of [*8] contract claim as to Sections 6(F) and 9(B) of the Agreement concerning marketing and advertising, and cautioning Counterclaimants to “severely narrow their second amended counterclaim and include only the information relevant to their surviving claims”). Accordingly, all allegations that do not directly concern whether BKC breached Section 6(H) and Section 15 the Agreement (concerning whether BKC unreasonably withheld consent or disapproval of the sale to Kingdom Restaurants) are STRICKEN. The Court is inclined to strike the entire Second Amended Counterclaim—further leniency will NOT be permitted.

Count 1 Fails to State a Claim for Breach of Section 6(H) of the Agreement Regarding Ongoing Support

In its Order dismissing the amended counterclaim, the Court found that the Counterclaimants’ allegations failed to state a cause of action, but granted them leave to amend the counterclaim to specifically allege what “particular” support they believe they were entitled to under Section 6(H) but did not receive. D.E. 37 at 13. In the Second Amended Counterclaim, the Counterclaimants respond to the Court’s question with two examples: (1) “on December 13, 2016, CRG scheduled a one-day holiday training session that was to be conducted by BK representative, [*9] Ben Wasser. CRG rented meeting space at the Charleston Convention Center and all 24 restaurants managers and district leaders were scheduled to attend the major training session. Despite BKC’s directive and prior notice to allot two . . . hours of time for the training session, Wasser only presented a 15-minute ‘training’ that was extremely basic, useless, and unreasonable”; and (2) “in October 2017, CRG requested Chef Product Holding Systems Training. The Chef Product Holding System was designed to manage production, improve food costs, and provide customers a fresh hot product. Despite Mr. Berry’s repeated requests BKC executives (both electronically and personally), BKC never provided a date for the training and did not provide any of this training to CRG.” Countercl. ¶¶ 25-28.

The alleged occurrence of these two instances fails to constitute a material breach of the Agreement. Section 6(H) only requires that BKC provide, “in its sole reasonable discretion, such ongoing support as BKC deems reasonably necessary to continue to communicate and advise franchisee as to the BURGER KING System.” D.E. 27-1 at 16-17 (emphasis added). There is nothing in the Agreement requiring that a specific training [*10] session be two hours, or requiring BKC to provide training for a Chef Product Holding System upon Berry’s request.

Judges in this District have reviewed the very contractual language relied on by the Counterclaimants and have routinely rejected “ongoing support” claims like the one at issue here. As set forth in Burger King Corporation v. E-Z Eating 8th Corp., 2008 U.S. Dist. LEXIS 126239, 2008 WL 11330723 (S.D. Fla. May 22, 2008):

Defendants’ breach of contract claim is based on BKC’s failure to provide services in accordance with section 6(I) of the franchise agreement.² ] This section states that BKC agrees to provide: “Such ongoing support as BKC deems reasonably necessary to continue to communicate and advise FRANCHISEE as to the Burger King System including the operation of the Franchised Restaurant.” Other courts reading this same provision of BKC’s franchise agreement have found that franchisees cannot sue BKC under this provision of the contract for failure to provide services. In Burger King Corp. v. Hinton, 203 F. Supp. 2d 1357, 1360 (S.D. Fla. 2002), . . . the franchisee specifically referred to section 6 of the franchise agreement, arguing that BKC breached its obligation to support them. Id. at 1360. . . .The court in Hinton noted that “Section 6(I) only obligates BKC to provide the support BKC ‘deems reasonably necessary to continue to communicate and advise FRANCHISEE as to the Burger King System.'” [*11] Id. at 1362. Accordingly, the court concluded that, because BKC maintains the sole reasonable discretion to determine the way in which it provides the enumerated services in the Franchise Agreement, Defendants’ breach of contract claim based on section 6(I) of the contract was barred. Id.

E-Z Eating, 2008 U.S. Dist. LEXIS 126239, 2008 WL 11330723 at *6 (franchise agreement did not contain an obligation to provide ongoing support, and contract claim was therefore barred); Hinton, 203 F. Supp. 2d at 1362 (as a matter of law, the fact that BKC maintained sole reasonable discretion to determine the way in which it provides services in franchise agreement barred franchisee’s claim for breach of contract for failure to provide general services); see also America’s Favorite Chicken Co. v. Cajun Enters., 130 F.3d 180, 182 (5th Cir. 1997) (affirming dismissal of breach of contract claim where franchise agreement vested complete discretion in company to provide assistance in operation of franchises). Here, because the specific actions complained of are not required by the parties’ agreements, and because BKC maintains the sole reasonable discretion to determine the way in which it provides the enumerated services in the Agreement, the Counterclaimants’ claim that BKC breached Section 6(H) of the Agreement fails as a matter of law.

Count 1 States a Claim for Breach of Section 15 of the [*12] Agreement Regarding Whether BKC Acted Unreasonably in Withholding Consent or Disapproval of the Sale of the Franchised Restaurants to Kingdom Restaurants

The Second Amended Counterclaim cures the deficiency addressed by the Court in docket entry 37. D.E. 44 ¶¶ 68-70 (alleging that “BKC wholly failed and refused to reasonably consider the proposed transaction and to communicate to CRG its approval thereof on or before December 3, 2019. Such failure to utilize reasonable efforts to consider and approve the proposed transaction within the timeframe required under Section 15(F) constitutes a material breach of the Franchise Agreements, which resulted in CRG losing the potential sale to Kingdom Restaurants due to BKC bad faith and intentional refusal to consider the same.”). Notably, BKC never challenged the sufficiency of this claim. D.E. 21 at 11 (“BKC acknowledges that in paragraphs 79-83 of the Counterclaim, Berry alleges that BKC delayed consenting to the proposed sale of the Restaurants to Kingdom Restaurants. . . Only that alleged breach, in Paragraphs 95 and 102(iii) is sufficient to state a breach of contract and implied covenant of good faith.”). Now, however, BKC seeks to dismiss this claim [*13] because although the Second Amended Counterclaim “included additional allegations regarding timing, those allegations are not incorporated into the breach of contract claim. (See [DE 44] at ¶ 78 (only incorporating paragraphs 1-66), ¶ 68-70).” D.E. 45 at 11. The Court perceives this error in the Second Amended Complaint to be a scrivener’s error and interprets the breach of contract claim to incorporate paragraphs 68 through 70 of the Second Amended Counterclaim.

Count 2 Fails to State a Claim

With respect to Count 2 concerning Section 6(H) of the Agreement, it fails for the same reasons that Count 1 fails. See, e.g., Hogan v. Praetorian Ins. Co., No. 1:17-CV-21853-UU, 2018 U.S. Dist. LEXIS 232708, 2018 WL 8266803, at *7 (S.D. Fla. Jan. 11, 2018) (“A party cannot be charged with violating the implied duty of good faith and fair dealing by performing in a manner expressly permitted under the contract.”).

As to Section 15 of the Agreement, Florida law is clear that there is no separate claim for breach of the implied covenant of good faith and fair dealing. Burger King Corp. v. Weaver, 169 F.3d 1310, 1317 (11th Cir. 1999) (no independent cause of action exists under Florida law for breach of the implied covenant of good faith and fair dealing); Burger King Corp. v. Agad, 941 F. Supp. 1217, 1222 (N.D. Ga. 1996) (parties “cannot use the implied covenant of good faith and fair dealing to second guess . . . [*14] legitimate business decisions” expressly permitted by a contract).

Further, claims of implied duty of good faith and fair dealing that are duplicative of breach of contract claims are subject to dismissal. As the court in Shibata v. Lim, 133 F. Supp. 2d 1311 (M.D. Fla. 2000) explained:

[A] breach of the implied duty may be dismissed as redundant where the conduct allegedly violating the implied covenant is duplicative of the companion cause of action alleging breach of contract. Sauer v. Xerox Corp., 95 F. Supp. 2d 125, 131 (W.D. N.Y 2000); Geler v. National Westminster Bank USA, 770 F. Supp. 210, 215 (S.D.N.Y. 1991); see also Ebrahimi v. City of Huntsville Bd. of Educ., 114 F.3d 162, 167 (11th Cir. 1997) (suggesting that dismissal is the appropriate method for a duplicative cause of action); Fikes v. City of Daphne, 79 F.3d 1079, 1083 n. 6 (11th Cir. 1996) (discussing the inherent authority of the district court to narrow issues in a case); Marx v. Gumbinner, 855 F.2d 783, 792 (11th Cir. 1988) (noting that district courts may invoke their inherent power to narrow the issues for trial). Thus, a party can maintain a claim for breach of the implied duty only if it is based on allegations different than those underlying the accompanying breach of contract claim. If the allegations do not go beyond the statement of a mere contract breach and, relying on the same alleged acts, simply seek the same damages or other relief already claimed in a companion contract cause of action, they may be disregarded as superfluous as no additional claim is actually stated.

Shibata, 133 F. Supp. 2d at 1318 (emphasis added). [*15] Here, the allegations as to Count 2 are substantively identical to those relating to Count 1. While the Counterclaimants allege that BKC’s breach of Section 15 was made in “bad faith” and was an “intentional refusal” to consider the sale to Kingdom Restaurants, such conclusory allegations do not convince the Court that Count 2 is not duplicative of Count 1. Countercl. ¶¶ 68-70. Therefore, Count 2 is dismissed with prejudice.

²Section 6(H) of Berry’s Franchise Agreements is identical to Section 6(I) of the franchise agreements in Hinton and E-Z Eating.