EXISTENCE OF DELAWARE DEALER/FRANCHISE TERMINATION, FRAUD AND NON-RENEWAL LAWS
AND FRANCHISE INDUSTRY-SPECIFIC LAWS
In Delaware, the following Dealer/Franchise Termination and Non-Renewal Laws, Fraud, and Franchise Industry-Specific Laws exist:
– Delaware Does Not Have a Disclosure/Registration Franchise Law
– Delaware Has a Relationship/Termination Franchise Law
– Delaware Does Not Have a General Business Opportunity Franchise Law
– Delaware Does Not Have an Alcoholic Beverage Wholesaler/Franchise Law
– Delaware Has an Equipment Dealer/Franchise Law
– Delaware Does Not Have a Gasoline Dealer/Franchise Law
– Delaware Does Not Have a Marine Dealer/Franchise Law
– Delaware Has a Motor Vehicle Dealer/Franchise Law
– Delaware Does Not Have a Motorcycle Dealer/Franchise Law
– Delaware Does Not Have a Recreational and Power Sports Vehicle Dealer/Franchise Law
– Delaware Does Not Have a Restaurant Liability Law
Delaware’s franchise relationship law governs dealer and franchise terminations and non-renewals. The law is called the Delaware Franchise Security Law (“DFSL”).
The operative provision in the DFSL is Sec. 2552, which is captioned “Unjust Termination of, or Failure to Renew, a Franchise.” This provision governs franchise terminations by declaring in subsection (a) that “Termination of a franchise by a franchisor shall be deemed to be "unjust," or to have been made "unjustly," if such termination is without good cause or in bad faith.” The subsection then states the obverse that “Any termination of a franchise which is not unjust shall be deemed to be ‘just,’ or to have been made ‘justly.’” The DFSL also proscribes renewal conduct, by declaring that “The failure of a franchisor to renew a franchise shall be deemed to be "unjust," or to have been made "unjustly," if such failure to renew is without good cause or in bad faith.” Symmetrically, the statute provides that “Any failure to renew a franchise which is not unjust shall be deemed to be ‘just,’ or to have been made ‘justly’."
Section 2552(c) also addresses franchise agreements that are silent regarding conditions of termination by stating that “A provision of a franchise which permits a franchisor to terminate that franchise, which provision does not specify the grounds upon which such termination may be made, shall be construed to permit the franchisor to make only a just termination.” The statute contains a parallel provision regarding non-renewals when it states that “A provision of a franchise which permits a franchisor to fail to renew that franchise, which provision does not specify the grounds upon which such failure to renew may be made, shall be construed to permit the franchisor only justly to fail or refuse to renew.”
Covering any potential analytical gaps, the DFSL also explicitly renders void and unenforceable two types of clauses, including “A provision in a franchise permitting a franchisor to make an unjust termination of a franchise” and “A provision in a franchise permitting a franchisor unjustly to fail or refuse to renew a franchise.”
Finally, after providing general definitional parameters for “just” and “unjust” franchisor conduct, the DFSL flat-out bans terminations that unjustly terminate a franchisee as well as non-renewals that unjustly fail or refuse to renew a franchise. The Act also strangely includes a unique prohibitive directive that “No franchisor may unjustly refuse to deal with a franchised distributor with whom the franchisor has been dealing for at least 2 years.”
The main guts of the DFSL also extend to regulating franchisor conduct relating to rents charged to franchisees, to wit “Notwithstanding any terms of the franchise agreement to the contrary, no franchisor who leases real or personal property to a franchised distributor may charge the franchised distributor a rent or other charge for the use or occupancy of such real or personal property which is unreasonable or excessive in light of the franchisor's interest in such real or personal property, and the purpose to which the real or personal property is being used.” Relatedly, the DFSL also proscribes franchisor refusals to “renew a lease for real or personal property except upon the payment of a rent or other charge which is unreasonable or excessive in light of the use to which the property has been placed by the franchisor and/or the interest of the franchisor in the real or personal property shall be deemed to be an unjust termination of the franchise.”
The DFSL also provides remedies to aggrieved franchisees for unjust franchisor conduct, including when a franchisor: (1) unjustly terminates a franchise, or (2) unjustly fails or refuses to renew a franchise, or (3) threatens, or attempts, or gives notice that it intends to attempt unjustly to terminate a franchise, or (4) threatens, or attempts, or gives notice that it intends to attempt unjustly to refuse to renew a franchise. In such cases, the Act provides that “the franchised distributor whose franchise is threatened shall be entitled to recover damages from the franchisor and, in addition, shall be entitled to secure in the Court of Chancery of this State, subject to general equitable principles, an order enjoining such termination or, in case of a failure or refusal to renew, a mandatory order for renewal of the franchise.”
The Act also provides specifically for emergency injunctive relieve by stating that “Pending the issuance of such an order, the franchised distributor shall be entitled to an order enjoining such termination pendente lite, or in case of a failure or refusal to renew, a mandatory order extending the franchise pendente lite. Any such order, whether final or pendente lite, shall contain provisions directing the franchisor to sell or consign to the franchised distributor the products covered by the franchise and/or to license to the franchised distributor the trademarks or trade names covered by the franchise, and otherwise to deal with the franchised distributor under the terms of the franchise so terminated.”
And, the DFSL also specifies types of damages that shall be awarded as a result of certain types of prohibited conduct by a franchisor: “Without limiting any other provisions of this chapter, if a franchisor unjustly refuses to deal with a franchised distributor with whom the franchisor has been dealing for at least 2 years, the franchised distributor shall be entitled to recover damages from the franchisor pursuant to subsection (a) of this section plus all other damages (including, without limitation, loss of profits) allowed under the law of this State; and, in addition, shall be entitled to secure in the Court of Chancery of this State an order directing the franchisor to deal with the franchised distributor on fair and competitive terms. Pending the issuance of such final order, the franchised distributor shall be entitled to secure such a mandatory order pendente lite.”
Further, the DFSL provides for damages, other than the above, including, but not limited to: (1) A fractional portion of the franchised distributor's tangible assets (both real and personal) in this State used with respect to the terminated or unrenewed franchise, including, but not limited to, sales outlets and facilities, offices, warehouses, trucks and the furnishing, equipment and accessories therein; the numerator of the fraction shall consist of the franchised distributor's gross sales (in the most recently completed fiscal year) within this State attributable to the terminated or unrenewed franchise, and the denominator of the fraction shall consist of the franchised distributor's total gross sales (in the most recently completed fiscal year) in this State; and (2) Loss of goodwill; and (3) Loss of profits, which loss shall be presumed to be no less than 5 times the profit obtained by the franchised distributor, by virtue of the terminated franchise, in the most recently completed fiscal year; and (4) All other damages allowed under the law of this State; and (5) The reasonable counsel fees and expenses incurred in the action or actions brought pursuant to this chapter.
Last, the DFSL includes a provision “Notice Required to Terminate or Elect Not to Renew a Franchise”, which states that “Notwithstanding any provision in a franchise agreement which provides otherwise, any termination of a franchise or election not to renew a franchise must be made on at least 90 days notice.”
In Delaware, the following Dealer/Franchise Termination, Fraud and Non-Renewal Laws, and Franchise Industry-Specific Laws, are identified as follows:
Delaware State Franchise Disclosure/Registration Laws
Delaware Has No Franchise statute of general applicability regarding Disclosure and Registration
Franchisors must comply with the FTC franchise disclosure rule
Delaware State Franchise Relationship/Termination Laws
Franchise Security Law
Delaware Code Annotated, Title 6, Subtitle II, Chap. 25, Sec. 2551 through 2556
Delaware State Business Opportunity Laws
Delaware Has No Franchise statute of general applicability regarding Business Opportunity
Business opportunity sellers must comply with the FTC business opportunity rule
Delaware Alcoholic Beverage Wholesaler Laws
Delaware Has No Franchise-Specific Laws in this Market Area
Delaware Equipment Franchise/Dealer Laws
Delaware farm, construction, and industrial equipment Franchise/Dealer law
Del. Code Ann. Title 6, Chap. 27, §2720 to §2727
Delaware Gasoline Franchise/Dealer Laws
Delaware Has No Franchise-Specific Laws in this Market Area
Delaware Marine Franchise/Dealer Laws
Delaware Has No Franchise-Specific Laws in this Market Area
Delaware Motor Vehicle Franchise/Dealer Laws
Delaware motor vehicle Franchise/Dealer law
Del. Code Ann. Title 6, Chap. 49
Delaware Motorcycle Franchise/Dealer Laws
Delaware Has No Franchise-Specific Laws in this Market Area
Delaware Recreational and Powersports Vehicle Franchise/Dealer Laws
Delaware Has No Franchise-Specific Laws in this Market Area
Delaware Has No Franchise-Specific Laws in this Market Area
In re Kirkwood Kin Corp. v. Dunkin' Donuts, Inc., 1997 WL 529587,Del.Super. (1997) (“plaintiffs contend that Dunkin' violated 6 Del. C. § 2552(j) by charging excessive rent in light of Dunkin's interests and purposes in the property. … Dunkin' asserts that summary judgment is appropriate with respect to on this count on any of several grounds. The first ground put forth by Dunkin' is that charging unreasonable and excessive rent alone is not a violation of the Franchise Security Law. Specifically, Dunkin' argues that the “remedies” section of the statute does not provide a cause of action based on the charging of unreasonable or excessive rent: (a) If a franchisor (1) unjustly terminates a franchise, or (2) unjustly fails or refuses to renew a franchise, or (3) threatens, or attempts, or gives notice that it intends to attempt unjustly to terminate a franchise, or (4) threatens, or attempts, or gives notice that it intends to attempt unjustly to refuse to renew a franchise, then the franchised distributor whose franchise is threatened shall be entitled to recover damages from the franchisor.... (b) [...] if a franchisor unjustly refuses to deal with a franchised distributor with whom the franchisor has been dealing for at least 2 years, the franchised distributor shall be entitle to recover damages from the franchisor pursuant to subsection (a) of this section plus all other damages ... allowed under the law of this State.... 6 Del. C. § 2553. Dunkin' argues that a claim for the payment of unreasonable or excessive rent only accrues when it is charged in conjunction with a refusal or threatened refusal to renew. Plaintiffs argue that Dunkin's reading “totally emasculates” the statute and that it is absurd to suggest that charging excessive rent is illegal if demanded upon renewal of a lease but legal if demanded in the initial term. In other words, the dispute between the parties centers on whether the first sentence of subsection (j) confers an independent cause of action, since plaintiffs in Count I only allege the charging of an excessive and unreasonable rent. The Court concludes that the statute is meant to confer protection against the charging of an unreasonable or excessive rent only in the context of an already-existing franchise agreement or an accompanying sublease. That is, contrary to plaintiffs' assertions, it is not at all absurd to suggest that charging excessive rent is illegal if demanded upon renewal of a lease but legal if demanded in the initial term. The preamble to the Franchise Security Act indicates otherwise.
In re Kirkwood Kin Corp. v. Dunkin' Donuts, Inc., 1997 WL 529587, Del.Super (1997)( charging excessive rent is illegal if demanded upon renewal of a lease but legal if demanded in the initial term based on the legislative history of the DFSA, specifically. The The preamble to the Franchise Security Act indicates otherwise AN ACT ... TO PROTECT FRANCHISED DISTRIBUTORS FROM UNJUST TERMINATION OF, OR FAILURE OR REFUSAL TO RENEW THEIR FRANCHISES. … “As the title and preamble make clear, the protections of this statute are intended to protect franchised distributors only from “unjust termination of, or failure or refusal to renew their franchises.” The General Assembly was concerned with the unjust, inequitable, and coercive practices of franchisors in the context of an already-existing franchise relationship, that is, at a time when the economic balance of power rests with the franchisor. See Globe Liquor Co. v. Four Roses Distillers Co., Del.Supr., 281 A.2d 19, 23, cert. denied, 404 U.S. 873, 92 S.Ct. 103, 30 L.Ed.2d 117 (1971) (recognizing that the purpose of the Act was to protect a franchisee who is “economically dependent upon the sale of the [franchisor's] products and who has used his efforts in promoting them”); Paradee Oil Co. v. Phillips Petroleum Co., Del. Ch., 320 A.2d 769, 775 (1974), aff'd, Del.Supr., 343 A.2d 610 (1975) (citing Globe Liquor and the preamble to the Act). Once the franchise is in place, the franchisee presumably goes to great lengths and expends great amounts of time and money to ensure the success of his venture and to create a “favorable market” for the franchisor. It is in this sense that the franchisee builds up the “equity” and “fruits of [his] labor” from the franchise relationship. Prior to entering into that relationship, there is no huge inequity in the balance of power. Any potential franchisee from whom an unreasonable and excessive rent is charged as a condition of entering into the franchise relationship is free to walk away from the bargaining table. In fact, the simple laws of economics would suggest that any franchisor who constantly charges unreasonable and excessive rents as a condition of granting the franchise will quickly discover that it has few takers. Charging excessive and unreasonable rents, alone, may violate some other law, but it does not violate the Franchise Security Act. This reasoning is supported by the language of all of §§ 2552 and 2553. First, § 2552 is titled “Unjust termination of, or failure to renew, a franchise.” Second, the entire tenor of § 2552 is to speak consistently of either the termination of or the failure to renew a franchise. To attribute to the first sentence of § 2552(j) the independent cause of action which plaintiffs propose would render that sentence out of place with the remainder of the section, especially since the lead-in “Notwithstanding” clause appears to refer to an existing agreement. Third, nowhere in § 2553, the “remedies” portion of the subchapter, is a remedy given for only the charging of unreasonable or excessive rent. See 6 Del. C. § 2553, quoted supra. Rather, the damages recoverable pursuant to this chapter, described in part in subsection (c), employ phrases such as “used with respect to the terminated or unrenewed franchise” and “loss of profits ... by virtue of the terminated franchise.” 6 Del. C. § 2553(c)(1), (3)”).
In re Kirkwood Kin Corp. v. Dunkin' Donuts, Inc., 1997 WL 529587, Del.Super (1997)(“In the Court's opinion, the language of §§ 2552 and 2553, read in conjunction with the title and preamble of 57 Del. Laws ch. 693 and relevant case law, does not grant a franchisee a cause of action for the charging of unreasonable or excessive rent absent threatened, attempted, or actual termination or nonrenewal of the franchise. Since Count I of the Second Amended Complaint does not plead or allege the charging of such rent under any of those circumstances, it fails to state a cause of action under the Franchise Security Law.”)
In re Kirkwood Kin Corp. v. Dunkin' Donuts, Inc., 1997 WL 529587, Del.Super (1997)(“plaintiffs allege that Dunkin' violated 6 Del. C. § 2552(j) by refusing to renew the sublease in 1986 and 1987 except upon payment of unreasonable and excessive rent, which constitutes an unjust termination entitling plaintiffs to damages under 6 Del. C. § 2553. Such a claim clearly states a cause of action under the statute. … Plaintiffs' second argument for the inapplicability of the statute of limitations is that Dunkin's charging of an allegedly unreasonable and excessive rent were monthly, “continuing” abuses that toll the statute of limitations. As with the contracts under seal claim, Judge Silverman ably addressed this issue in his opinion on Dunkin's first motion: Plaintiffs in the instant case provide no evidence of the chronology underlying their claims. They simply serialize Dunkin' alleged wrongs-calling Dunkin's charging of allegedly excessive rent, and operation of the Pike Creek and O'Hanlon franchises, “monthly” and “daily” abuses, respectively-and demand application of the continuing wrong doctrine. This begs the question, as “continuing wrong” status turns on the substantive nature of the contract and the alleged wrongs.... The Court will allow the parties to provide additional facts directed towards resolving whether Plaintiffs' claims challenge the initial formation of the franchise and lease agreements, or subsequent events (or both). If it turns out that Plaintiffs' claims involve nothing more than complaints regarding the formation of the contracts, they will be considered time-barred, pursuant to Kahn [v. Seaboard Corp., Del. Ch. 625 A.2d 269 (1993)4].... Mem. op. at 21-22 (Docket No. 63). However, neither party has provided any additional evidence with respect to this count regarding the nature of the 1986 and 1987 lease agreements.”)
In re Kirkwood Kin Corp. v. Dunkin' Donuts, Inc., 1997 WL 529587, Del.Super (1997)( “Plaintiffs nonetheless argue (1) that the monthly charging of unreasonable or excessive rent constitutes a continuing wrong sufficient to toll the statute of limitations applicable to its Franchise Security Law claim in Count II, and (2) that the claims involve “the very essence of contracts.” Given Judge Silverman's ruling, plaintiffs' argument must be rejected, and the Court does so here. As the Court noted with respect to Count I, charging an unreasonable or excessive rent, without more, is not a violation of the Franchise Security Law and therefore cannot be the substantive basis of these contracts. It is, instead, the refusal to renew the franchise, except upon payment of such rent, that is the wrongful act at issue in Count II. That wrongful act occurs at the time of the alleged refusal to renew, since plaintiffs' real complaint concerns what Dunkin' allegedly did, that is, demanded, at the time of renewal. Accord Simmons v. Mobil Oil Corp., 9th Cir., 29 F.3d 505, 511 (1994) (holding “[i]t is the nonrenewal of [the franchise agreement] that [[plaintiff] complains of, because his claim arises from what he alleges Mobil did at the time of renewal,” and rejecting as time-barred the franchisee's excessive rent claim). Consequently, under the Court of Chancery's decision in Kahn, and consistent with the law of this case, the Court rules that the wrongs alleged here occurred at the contract formation stage. As a result, plaintiffs have failed to bring their claim within the three-year statute of limitations period of 10 Del C. § 8106. Count II is consequently time-barred.”)
In re Kirkwood Kin Corp. v. Dunkin' Donuts, Inc., 1997 WL 529587, Del.Super (1997)(Counts III, IV, V, VII, and VIII of the Second Amended Complaint allege that Dunkin' engaged in attempted and actual unjust terminations of the franchise in violation of the Franchise Security Law. Plaintiffs allege attempted unjust terminations by (1) granting nearby franchises when Dunkin' knew or should have known that granting these franchises would harm plaintiffs' business (Count III); (2) granting special incentives and exception to the O'Hanlon shop which Dunkin' knew or should have known would harm plaintiffs' business (Count V); and (3) granting nearby franchises and charging unreasonable and excessive rents, which caused a decline in business, which in turn caused plaintiffs' nonpayment, which in turn caused Dunkin's attempted termination (Count VII). Plaintiffs allege actual unjust termination by (1) granting nearby franchises and charging unreasonable and excessive rent, which caused a decline in business, which in turn caused nonpayment, which in turn caused Dunkin's unjust termination.”) The gist of these counts concerns not so much Dunkin's actual “termination” of the franchise, but rather its actions before then. In other words, Dunkin' never actually tried to “terminate” the franchise by word, that is “officially” until August 1993, but the effect of its prior deeds was to terminate plaintiffs' franchise. This may best be described as a “constructive” or “de facto ” termination. This Court, in its earlier opinion on Dunkin's prior motion, assumed without deciding that an unjust termination could be effected constructively, finding that there was insufficient evidence in the record to decide at that time. Upon further review, the Court concludes that the Franchise Security Law does permit a cause of action for constructive or de facto termination.”)
In re Kirkwood Kin Corp. v. Dunkin' Donuts, Inc., 1997 WL 529587, Del.Super (1997)( “Admittedly, 6 Del. C. §§ 2552 and 2553 appear to concern, as Dunkin' argues, only actual, attempted, or threatened termination or non-renewal of the franchise relationship. This might suggest that only an affirmative termination, such as the August 24, 1993 letter from Dunkin', qualifies, since nowhere in the Franchise Security Law is a cause of action expressly given for a constructive termination or an attempted constructive termination. Such a position, however, exalts form over substance and in many respects does violence to the intent of the General Assembly in enacting the Franchise Security Law. The Franchise Security Law's purpose, generally speaking, is to remedy the imbalance of power in the franchise relationship by adding a few statutory pounds to the franchisee's side of the scales. To hold that only a formal termination affords a franchisee the protections of the Franchise Security Law would very well render those protections illusory. It “otherwise would allow franchisors to accomplish indirectly that which they are prohibited from doing directly.” Petereit v. S.B. Thomas, Inc., 2d Cir., 63 F.3d 1169, 1182 (1995), cert. denied, 517 U.S. 1119, 116 S.Ct. 1351, 134 L.Ed.2d 520 (1986) (construing Connecticut's franchise law). Actions sanctified by such a holding would “epitomize the very abuse of power which the statute seeks to prevent.” Id. In the Court's opinion, the question that the Franchise Security Law really asks is whether the actions alleged are so egregious as to amount to a repudiation of the contract. This will permit a factual review of each claim on its merits, with particular attention paid both to the motivations and the actions of the franchisor. It seems to the Court that if, in fact, Dunkin' did undertake to destroy plaintiffs' franchise, causing plaintiffs to lose so much money that they were forced to default and give Dunkin' a pretext for terminating the franchise, the Franchise Security Law not only gives, but demands that plaintiffs be afforded a remedy.”)
That being said, the Court has grave doubts concerning whether plaintiffs will in fact be able to recover. There are a fair number of anomalies in plaintiffs' position. For example, if Dunkin' were indeed perpetrating a “scheme to obtain Plaintiffs' business”9 by charging excessive rent and granting competing franchises, then why would Dunkin' grant plaintiffs the opportunity to open a satellite franchise in downtown Wilmington? Why would Dunkin' tell O'Connor to pay himself a more generous salary as a reward for his hard work if Dunkin' was trying to drive him out of business? If the impact of the other shops' openings was, as O'Connor testified, “dramatic and immediate,” then why did plaintiffs not attempt to invoke the adverse impact procedures Dunkin' had in place? If plaintiffs are convinced that Dunkin' had a scheme to force them into default, then why did O'Connor answer “no” when asked if he had any evidence to suggest that Dunkin' was, in fact, attempting to perpetrate just such a scheme?10 How could a national plan to convert all Mr. Donut franchises to Dunkin' franchises be undertaken with the purpose of destroying plaintiffs' franchise? Plaintiffs may have a tough row to hoe, but they will get their chance. Summary judgment with respect to each of the unjust attempted and actual termination claims in Counts III, IV, V, VII, and VIII of the Second Amended Complaint is hereby DENIED. COUNT VI -- Plaintiffs allege in Count VI of the Second Amended Complaint that Dunkin' engaged in an “unjust refusal to deal” with them in violation of 6 Del. C. § 2552(i) of the Franchise Security Law. Specifically, plaintiffs allege that O'Connor requested a meeting with Dunkin' to discuss and resolve the rent and competing shop problems plaintiffs were experiencing, but Dunkin' allegedly refused to meet with plaintiffs and instead terminated the franchise agreements, brought the termination actions, and refused to allow plaintiffs to sell all or part of the business. Section 2552(i) states that “[n]o franchisor may unjustly refuse to deal with a franchised distributor with whom the franchisor has been dealing for at least 2 years.” The Court of Chancery has interpreted this subsection to “cover a situation where the franchisor has not taken specific action to terminate the franchise but is attempting to purge itself of the relationship simply by refusing to deal with the franchise distributor any longer .” Del-Way Petroleum Co. v. Phillips Petroleum Co., Del. Ch., C.A. No. 4802, Brown, V.C., 3 Del. J. Corp. L. 565, 1977 WL 2568 at *4 (Mar. 10, 1977). This reasoning comports with the title to § 2552: “Unjust termination of, or failure to renew, a franchise.” It also makes sense as a practical matter, since it would seem pointless to require a franchisor to continue to deal with a franchisee against whom it has already chosen to pursue the ultimate remedy of terminating the franchise.
A review of this case indicates that Dunkin' did not, in fact, refuse to deal with plaintiffs within the meaning of the Franchise Security Law. O'Connor himself testifies by affidavit that he did not contact Tom McHugh, his representative at Dunkin', to discuss and resolve the rent and competing shop issues until after he had received Dunkin's termination notices in August 1993. See O'Connor Aff. at 13 (Docket No. 123). Since this section is meant to cover situations where Dunkin' has not taken specific action to terminate a franchise, the fact that the actions alleged here all occurred after that specific action was taken renders them insufficient to support a cause of action for violation of 6 Del. C. § 2552(i). In light of plaintiffs' failure to offer any other evidence indicating that Dunkin' unjustly refused to deal with plaintiffs prior to its taking specific action to terminate the franchises, they have failed to state a claim under § 2552(i). Summary judgment as to Count VI of the Second Amended Complaint is GRANTED. COUNT IX -- In Count IX of the Second Amended Complaint, plaintiffs allege that Dunkin' failed to offer plaintiffs the opportunity to mediate their dispute prior to resorting to the courts, as they were contractually obligated to do under a Mediation Agreement between Dunkin' and the Center for Public Resources, Inc. (“CPR”), to which plaintiffs are third-party beneficiaries. Pursuant to the Mediation Agreement, Dunkin' voluntarily agreed to a mediation process designed to help franchisors and franchisees resolve disputes without resorting to litigation. According to plaintiffs, Dunkin' did not inform plaintiffs of the existence of this agreement, nor did Dunkin' ever offer plaintiffs the opportunity to mediate their dispute even after O'Connor first made contact with Tom McHugh in August 1993. As a result, plaintiffs allege that they suffered damages, including attorney's fees, costs, and expenses incurred in defending this litigation. The Court dealt with this claim in its June 30, 1995 opinion. In that opinion, the Court noted that Dunkin's own evidence indicated that Dunkin' did not notify plaintiffs of the possibility of mediation through the CPR program until the time when this litigation was filed. The Court assumed without deciding that Dunkin' did not notify plaintiffs of the opportunity to mediate in a timely fashion, but ruled nevertheless that summary judgment was appropriate with respect to that claim: This count] essentially is a damage claim for Plaintiffs' having lost an opportunity to mediate certain complaints before they filed suit. Only through speculation could damages be awarded on that basis. Specifically, for Plaintiffs to recover, the fact-finder would have to conclude that Plaintiffs would have succeeded in mediation, Dunkin' would have accepted the result and would not have exercised its appeal rights, or [if it did] that such an appeal would have failed, since the mediation process contemplated by the CPR program is non-binding.... Damage claims cannot rest on such a tenuous foundation. See, e.g., American Gen. Corp. v. Continental Airlines Corp., Del. Ch., 622 A.2d 1, 7 (1992), aff'd, [Del. Supr.,] 620 A.2d 856 (1992). Moreover, while the Court will not weigh the evidence now, Dunkin's contention that the parties eventually tried mediation without success lends support to the notion that Plaintiffs cannot establish a claim in [this count]. Mem. op. at 10-11 (Docket No. 63). In light of the fact that no additional evidence has been presented with respect to this claim, the Court has no reason to depart from its prior holding. For the same reasons expressed in that opinion, summary judgment is GRANTED with respect to Count IX of the Second Amended Complaint. COUNT X -- Count X of the Second Amended Complaint alleges a claim of fraudulent misrepresentation against Dunkin'. Plaintiffs claim that Dunkin' fraudulently misrepresented to them that it would help them “promote and further the business and profitability of Kirkwood” and also “not take any action detrimental to Kirkwood's business interests.” At deposition, O'Connor was asked to describe these alleged representations with more specificity and replied with the following.
I remember sitting down in my living room with Allen Lauer, who the title then was district sales manager.... I was very apprehensive over the extent to which I could remodel, the impact of this percentage rent.... [H]e took my sales up to that point and with a modest percent increase each year, which I had been more than doing to that point, he extrapolated on up past $2, 000 [A.D.2000] and said, I can remember the quotes, Look at where you will be so many years down the road. And the other comment I can remember hearing was you were the only one on Kirkwood Highway. Really trying to reassure me that I could handle both of these. O'Connor Dep. of July 18, 1996 at 29, Ex. 1F, Dunkin' Mot. for Summ. J. (Docket No. 115). But they had advice for you. They can give you help while you are working for them. So I felt secure in that. That was the first of what I would consider representations. And the second one was when Allen Lauer gave me his projection and I can still hear the words, it will be on my gravestone: You will be the only one on Kirkwood Highway. O'Connor Dep. of July 18, 1996 at 461, Ex. 1G, Dunkin' Mot. for Summ. J. (Docket No. 115). In response to a question asking for every representation, especially by a Dunkin' employee, that plaintiffs' business would grow and continue to be profitable, O'Connor stated the following: I can't give times, dates, and places. But there were times when every district sales manager I had was optimistic about with hard work and honesty that you can make a business really grow into something and make it a family business.... Rich Markell, totally forgot that he was one of the early characters back in '84. Might have been my first district sales manager.... Then there was John Campbell before it from Concord Pike, Allen Lauer, Tom McHugh, Bob Nelson. I could be leaving somebody else out. I mean, there were times when they all talked about being a Dunkin' Donut franchisee. I mean you go to ad committees meetings. This is what you can do. This what you can do to be profitable and all of that. We are here to help you. Other than that, I can't give specifics on it. O'Connor Dep. of July 18, 1996 at 463-64, Ex. 1G, Dunkin' Mot. for Summ. J. (Docket No. 115).
Plaintiffs claim that it was the representations and assurances made by Dunkin's employees that caused them to execute the lease and franchise agreements. Additionally, plaintiffs allege that these statements were false because Dunkin' charged plaintiffs unreasonable and excessive rent, licensed two competing Dunkin' franchises, failed to consult with plaintiffs about the impact of these new franchises, failed to offer those franchises to plaintiffs, granted special concessions to O'Hanlon, and terminated plaintiffs' franchise in bad faith and without good cause. One of Dunkin's arguments in favor of summary judgment on this claim is that the integration clauses of the franchise agreements bar the use of parol evidence regarding representations or assurances relating to the contract matter. While this general statement of the law is correct, it omits a well-recognized exception to the parol evidence rule. When a party alleges fraud or misrepresentation, evidence of oral promises or representations made prior to the written agreement will be admitted. Anglin v. Bergold, Del.Supr., 565 A.2d 279 (1989) (ORDER) at 4-5 (citing Scott-Douglas Corp., 304 A.2d at 317). Since at least some of the statements appear to have been made prior to the execution of the franchise and lease agreements, the Court will not grant summary judgment solely on the basis of the parol evidence rule and the integration clauses. Nevertheless, the Court finds that plaintiffs fail to state a claim for fraudulent misrepresentation. The Delaware Supreme Court has repeatedly laid out the elements of this common law cause of action: (1) a false representation, usually one of fact, made by the defendant; (2) the defendant's knowledge or belief that the representation was false, or made with reckless indifference as to the truth; (3) an intent to induce the plaintiff to act or refrain from acting; (4) the plaintiff's action or inaction taken in justifiable reliance upon the representation; and (5) damage to the plaintiff as a result of such reliance. Gaffin v. Teledyne, Inc., Del.Supr., 611 A.2d 467, 472 (1992) .11 The Court has also held that mere expressions of opinion as to probable future events cannot be deemed fraud or misrepresentation. Consolidated Fisheries Co. v. Consolidated Solubles Co., Del.Supr., 112 A.2d 30, 37 (1955). Furthermore, “any complaint alleging fraud must as a consequence include the circumstances involved, i.e., the time, place, and contents of any misrepresentation made, the identity of the person making the same and the benefit sought to be obtained.” Stutchen v. Duty Free Int'l, Inc., Del.Super., C.A. No. 94C-12-194, Toliver, J., 1996 Del.Super. LEXIS 187 (Apr. 22, 1996), mem. op. at 12 (citing Nutt v. A.C. & S., Inc., Del.Super., 466 A.2d 18, 23 (1983), aff'd, Mergenthaler v. Asbestos Corp. of America, Del.Supr., 480 A.2d 647 (1984)). This is an extension of the requirement of Superior Court Civil Rule 9(b) that “in all averments of fraud, negligence, or mistake, the circumstances constituting fraud, negligence, or mistake shall be stated with particularity.” Count X on its face fails to satisfy the requirements of Rule 9(b) and the Court's opinion in Stutchen. Plaintiffs did not allege the time or place of the misrepresentation or the identity of the person making it. Dunkin' did not move to strike the claim, and plaintiffs have since supplemented the claim with selections from O'Connor's deposition testimony. However, even this testimony fails to state a claim. With regard to Mr. Lauer's alleged statements, the Court does not understand exactly how Mr. Lauer could have known in 1987 that Dunkin' would purchase the Mister Donut corporation in 1990 and convert the O'Hanlon shop to a Dunkin' shop in 1993.
Such knowledge is necessary in order to render knowingly false, when made, his alleged statement to O'Connor that plaintiffs would be the only ones on Kirkwood Highway. Additionally, the Court does not see how Lauer's calculation of the percentage rent payments, using the formulas agreed to and clearly stated in the contracts, could have been false. Finally, Lauer's projections as to the growth of plaintiffs' business clearly were nothing more than expressions of opinion as to future events based upon the extrapolation of past data. The statements alleged to other persons are similarly non-actionable. First, O'Connor himself admits that he does not have the time, dates, or places of these alleged misrepresentations. All three are required in order to state a cause of action for fraud. While plaintiffs finally do put some names to the persons making representations, the representations O'Connor has testified to them making are nothing more than puffery, a verbal pat on the back from the franchisor meant to encourage the franchisee. Accord W & G Milford Assocs. v. Jeffcor, Inc., Del.Super., C.A. No. 89C-JN-161, Herlihy, J., 1991 Del.Super. LEXIS 229 (Apr. 12, 1991), letter op. at 4 (regarding statements made to a shopping center tenant). At best, they could perhaps be stated as opinion, which, as the Court has pointed out, is similarly non-actionable. In conclusion, Count X fails to state a cause of action for fraudulent misrepresentation as a matter of law. Summary judgment is GRANTED as to Count X of the Second Amended Complaint. COUNTS XI & XII -- Counts XI and XII of the Second Amended Complaint purport to state claims for tortious interference with existing business relationships and prospective business advantage. They do not, however, identify a specific contract or potential business opportunity allegedly compromised by Dunkin'. As the Court explicitly told plaintiffs in its earlier opinion, these specifics are a prerequisite to proceeding under these tort theories. See June 30, 1995 Mem. op. at 24-25 (Docket No. 63). The Court also told plaintiffs in no uncertain terms that they would have to “cite to actual or potential contracts, other than between themselves, possibly affected by Dunkin's behavior.” Id. at 25. The Court then allowed plaintiffs to amend their complaint so as to provide these specifics. Id. Unfortunately, plaintiffs do not appear to have understood what the Court meant by use of the phrase “specific contract or potential business opportunity.” All that plaintiffs' new but certainly not-improved tortious interference counts do is give a slightly less vague but equally uninformative general description of plaintiffs' operation of the shop.
As this Court told plaintiffs, more is required under Delaware law. In another case, the Court of Chancery cogently explained it in the following manner: [I]nterference with an existing contract requires (a) an intent to induce a breach (b) of an existing contract, (c) proximate causation, and (d) damages.... [A] showing of deliberate interference with a prospective business opportunity requires (a) the reasonable probability of a business opportunity, (b) the intentional interference by defendant with opportunity, (c) proximate causation, and (d) damages.... DeBonaventura v. Nationwide Mut. Ins. Co., Del. Ch., 419 A.2d 942, 947 (1980), aff'd, Del.Supr., 428 A.2d 1151 (1981). Here, plaintiffs have failed to demonstrate to the Court the existence of one single contract or prospective business opportunity. Citations to sales records of plaintiffs' and O'Hanlon's shops are useless because, while they might show damages, they do not show the existence of the contract or prospective business opportunity. This Court told plaintiffs that they needed to provide specific examples, yet plaintiffs failed to do so. As such, plaintiffs have failed (twice) to state a cause of action for either tortious interference with existing contracts or with prospective business opportunities. Summary judgment as to Counts XI and XII of the Second Amended Complaint is GRANTED. COUNT XIII -- Count XIII of the Second Amended Complaint alleges a veritable multitude of violations of an implied covenant of good faith and fair dealing. Plaintiffs assert that Dunkin' violated this covenant by (1) charging unreasonably and excessive rent for the Kirkwood Highway shop, (2) awarding competitive franchises in close proximity to the Kirkwood Highway shop, (3) failing to consult with plaintiffs about the impact of those franchise prior to granting them, (4) failing to offer those franchise to plaintiffs, (5) failing to investigate whether the new franchises would have an adverse impact on plaintiffs, (6) granting special privileges and concessions to the O'Hanlon franchise, which conferred a competitive advantage on O'Hanlon to plaintiffs' detriment, (7) refusing to meet with plaintiffs to discuss and resolve plaintiffs' perceived problems, (8) terminating plaintiffs' franchise, and (9) bringing these termination actions in the courts. An implied covenant of good faith and fair dealing generally exists in every contract. Katz v. Oak Indus., Inc., Del. Ch., 508 A.2d 873, 880 (1986). As the Court of Chancery has held, “[t]his obligation requires a party in a contractual relationship to refrain from arbitrary or unreasonable conduct which has the effect of preventing the other party to the contract from receiving the fruits of the contract.” Wilgus v. Salt Pond Inves. Co., Del. Ch., 498 A.2d 151, 159 (1985). It is simply a reflection of the fact that in many respects the purpose of contract law is to attempt to give effect to the reasonable expectations of the parties. See RESTATEMENT (SECOND) CONTRACTS § 205. One common way of analyzing this covenant “is to ask what the parties likely would have done if they had considered the issues involved.” E.I. DuPont de Nemours & Co. v. Pressman, Del.Supr., 679 A.2d 436, 443 (1996). See also Katz, 508 A.2d at 880 (asking “is it clear from what was expressly agreed upon that the parties who negotiated the express terms of the contract would have agreed to proscribe the act later complained of ... had they thought to negotiate with respect to that matter?”).
However, it is also true that “where the subject at issue is expressly covered by the contract, or where the contract is intentionally silent as to that subject, the implied duty does not come into play.” Dave Greytak Enters., 622 A.2d at 23. After some reflection upon the issue and consideration of the actions which plaintiffs allege constitute violations of the covenant, the Court concludes that with respect to at least some of the alleged actions, the implied covenant of good faith and fair dealing does not provide a remedy independent of the Franchise Security Law. In the Court's opinion, this common law implied covenant of “good faith” and “fair dealing” does not state an independent cause of action with respect to the actual, threatened, or attempted failure to renew or termination of a franchise relationship because the General Assembly expressly wrote that covenant into the Franchise Security Law. The Franchise Security Law expressly prohibits unjust terminations and failures to renew, whether actual, threatened, or attempted, as well as unjust refusals to deal. See 6 Del. C. §§ 2552(g), (h), (i). It defines “unjust” as being without “good cause” or in “bad faith.” See 6 Del. C. §§ 2552(a), (b). An “unjust refusal to deal” by its very terms cannot be said to be either good faith or fair dealing. To the extent, therefore, that plaintiffs make any of these allegations as breaching an implied covenant of good faith and fair dealing, these allegations are part and parcel of the General Assembly's statutory enactment. This encompasses the second, sixth, seventh, eighth, and ninth grounds listed above. Each of these grounds is separately alleged in other counts of the Complaint dealing with the Franchise Security Law,12 and any remedy which plaintiffs seek must be sought under that law. Some of the grounds alleged by plaintiffs, however, are not expressly covered by the Franchise Security Law. As such, application of the covenant as to those grounds is not precluded by the actions of the General Assembly. The Court will address each in turn. Ground 1. Charging Unreasonable and Excessive Rent. Simply stated, the Court cannot find that the mere charging of excessive and unreasonable rent violates the covenant.
First, the Franchise Security Law covers all aspects of the charging of unreasonable and excessive rent once the franchise relationship exists.13 In this respect, the Franchise Security Law covers and precludes this ground. Second, as the Court stated in its treatment of Count I, there is no law or public policy that prevents a potential franchisor from charging whatever rent it wishes to charge, ab initio, that is, as a precursor to entering into the franchise relationship. And the covenant certainly cannot be said to apply here, since no contract yet exists between the two parties. The Court is of the opinion that, as a matter of law, the first alleged ground cannot state a claim for a violation of the covenant. Ground 3. Failure to Consult Prior to Granting the Competing Franchises. As a matter of law, the Court is unable to conclude that the parties, had they discussed this issue prior to entering into the relationship, would have agreed that Dunkin' would have to consult with plaintiffs prior to granting competing franchises. See Pressman, 679 A.2d at 443; Katz, 508 A.2d at 880. First, an opposite conclusion is evident from the arguments presented by Dunkin' in this case. Second, the Franchise Agreement specifically states areas in which Dunkin' agrees to maintain an advisory relationship with the franchisee.14 Third, even if they had consulted, the parties would have had to agree on a definition of “competing franchise.” This obviously entails some notion of territoriality, and it is by no means clear that the parties would have agreed as to a specific territorial radius within which a new franchise would be deemed “competing.”15 Fourth, there is little need to consult on the granting of a competing franchise if such consultation would be of little use. If the existing franchisee has no say or “veto power” over the proposed franchise, what good would prior consultation do, other than perhaps assuage any fears the existing franchisee might have? The Court is unable to conclude that this parental “hand holding” is a requirement of the covenant. For all four reasons the Court concludes that this ground cannot state a claim for a violation of the covenant. Ground 4. Failure to Offer Competing Franchises to Plaintiffs. The Court is similarly unable to conclude, as a matter of law, that the parties, had they discussed the issue, would have agreed that Dunkin' should give plaintiffs what is effectively a right of first refusal on all competing franchises. First, the parties would have had to agree on the definition of a “competing franchise,” which, as the Court stated above, involves other issues upon which the parties would have had to agree. Second, it would have been impossible for Dunkin' to offer the franchises to plaintiffs. The O'Hanlon shop was already owned by Sean O'Hanlon and was not a “new franchise” as the term is generally used, since it became a Dunkin' franchise through the Mr. Donut conversion program. The Pike Creek shop was similarly unavailable to plaintiffs, since the eventual franchisee already had the lease for that site before approaching Dunkin' about opening a franchise. These facts fail to state a claim under the covenant. Ground 5. Failure to Investigate Impact. As a matter of law, this ground fails to constitute a violation of the covenant. The Franchise Agreement contains the procedures by which Dunkin' conducts an adverse impact analysis.16 Dunkin's adverse impact analysis cannot begin until the existing franchisee makes a call to his business consultant concerning the decline in sales. Since the issue is expressly covered by the contract, the implied duty does not come into play. See Dave Greytak Enters., 622 A.2d at 23. However, even assuming, arguendo, that this implied duty did come into play if Dunkin' failed to implement those procedures, the result here is not changed. Plaintiffs claim that O'Connor attempted to invoke the procedures by calling Tom McHugh in August 1993 and that Dunkin' thereafter refused to invoke the designated procedures. It is undisputed, however, that O'Connor did not make that “attempt” until after Dunkin' sent the first notice of termination to plaintiffs. Apparently plaintiffs believe that Dunkin' has a contractual duty to make an adverse impact analysis even after plaintiffs have failed to pay rent due (for whatever reason) and Dunkin' has begun termination proceedings. Suffice it to say that the Court does not share that belief. Since the Franchise Agreement contained procedures for investigating possible adverse impact, there is no implied covenant imposing such a duty. Moreover, since plaintiffs themselves admit that they did not attempt to invoke those procedures until after termination proceedings began, Dunkin' cannot be held responsible for any failure to investigate. Summary. By way of summation on this count, a review of all nine grounds alleged by plaintiffs as constituting a violation of an implied covenant of good faith and fair dealing leads the Court to the conclusion that plaintiffs have failed to state a claim for application of the covenant. Summary judgment on Count XIII of the Second Amended Complaint is GRANTED. COUNT XIV -- In Count XIV of the Second Amended Complaint, plaintiffs allege that Dunkin's obtaining and retaining unreasonable and excessive rental fees constitutes an unjust enrichment for which plaintiffs should be compensated. However, unjust enrichment is a quasi-contract theory of recovery meant to remedy the absence of a formal contract. ID Biomedical Corp. v. TM Technologies, Inc., Del. Ch., C.A. No. 13269, Steele, V.C., 1995 Del. Ch. LEXIS 34 (Mar. 16, 1995), mem. op. at 26 (citing Freedman v. Beneficial Corp., D. Del., 406 F.Supp. 917, 923 (1975)). If a contract “is the measure of [the] plaintiffs' right,” the parties cannot recover under a theory of unjust enrichment. See Wood v. Coastal States Gas Corp., Del.Supr., 401 A.2d 932, 942 (1979); Chrysler Corp. v. Airtemp Corp., Del.Super., 426 A.2d 845, 854 (1980); ID Biomedical Corp., mem. op. at 26-27. Here we have a formal contract between Dunkin' and plaintiffs which governs the relationship between them. As such, no claim for unjust enrichment can exist. Summary judgment is GRANTED as to Count XIV of the Second Amended Complaint. DUNKIN'S COUNTERCLAIM -- As the Court indicated in its earlier opinion, Dunkin's counterclaim essentially repudiates plaintiffs' entire complaint. The crux of Dunkin's Motion for Summary Judgment on the counterclaim is that there is no genuine issue of material fact that plaintiffs stopped making payments for rent and fees under the Franchise Agreements and subleases in 1993. This failure to pay money owed placed them in default under the franchise agreements and their failure to cure the defaults provided grounds for termination. As Dunkin' argues, plaintiffs' first “excuse” for nonpayment, that Dunkin' breached its obligations to plaintiffs, is not a defense to termination because “a franchisor's right to terminate a franchisee exists independently of any claims the franchisee might have against the franchisor.” S & R Corp. v. Jiffy Lube, Int'l, Inc ., 3d Cir., 968 F.2d 371, 375 (1992). In other words, Dunkin' argues that any breach it may have committed against plaintiffs is a separate offense that does not entitle plaintiffs to avoid their own obligations under the agreement. That is, assuming that plaintiffs were the non-breaching party, they may not stop their performance and yet continue to take advantage of the contract's benefits. Id. at 376 (citing Burger King, Inc. v. Austin, S.D. Fla., Bus. Fin. Guide (CCH) ¶ 9788 at 22,089 (Dec. 26, 1990), in which the federal district court ruled against defendants on their allegation that Burger King's failure to give them required real estate assistance entitled them to stop paying royalties but continue to use the Burger King trademark). The Court notes that both the S & R Corp. and Burger King cases cited here are somewhat inapposite, as each involved suits brought for trademark infringement under the Lanham Act. Furthermore, neither case appears to have presented a situation, such as the one here alleged, where the default by the franchisee was alleged to be directly due to the franchisor's breach. Consequently, while the language of these opinions could perhaps be read as widely as Dunkin' reads them, the Court doubts that they really mean to include a situation such as the one alleged by plaintiffs here. Additionally, since the counterclaim is essentially a repudiation of the complaint, summary judgment is a particularly inappropriate remedy when the Court has already denied Dunkin's Motion for Summary Judgment with respect to some of the counts of the complaint. For either reason, summary judgment on the counterclaim must be and hereby is DENIED.”)