Cook v. Little Caesar Enter

RECOMMENDED FOR FULL-TEXT PUBLICATION 12 Cook, et al. v. Little Caesar Enterprises No. 99-1163 Pursuant to Sixth Circuit Rule 206 ELECTRONIC CITATION: 2000 FED App. 0147P (6th Cir.) File Name: 00a0147p.06 Michigan courts have held that to maintain a cause of action for tortious interference, a plaintiff must establish that defendant was a “third party” to the contract or business relationship. See Reed v. Michigan Metro Girl Scout Council, UNITED STATES COURT OF APPEALS 201 Mich. App. 10, 12 (Mich. Ct. App. 1993). FOR THE SIXTH CIRCUIT The district court properly held that, because the franchise _________________ agreements gave Little Caesar Enterprises the right, under

; specified conditions, to approve or disapprove any sale of the

 franchises, Little Caesar Enterprises was not a “third party” KEVIN R. COOK and K. COOK  and, consequently, Cook could not maintain a cause of action ENTERPRISES, INC.  for tortious interference. See Cook, 972 F. Supp. at 414-16. Plaintiffs-Appellants,  The franchise agreements included language that any No. 99-1163 proposed sale or transfer of the franchise must be approved by  Little Caesar Enterprises. Cook’s purchase agreement with v. > Aboujaoude was expressly (and properly) conditioned upon  the approval of the transaction by Little Caesar Enterprises. LITTLE CAESAR ENTERPRISES,   Defendant-Appellee.  INC., Little Caesar Enterprises was a party to the contract. Cook cannot establish that Little Caesar Enterprises was a “third  party.” A cause of action for tortious interference is 1 precluded. See Reed, 201 Mich. App. at 12. We therefore do not reach Cook’s contention that Little Caesar Enterprises’ Appeal from the United States District Court “means of interference” with this purchase agreement were for the Eastern District of Michigan at Flint. intentional, improper, and unjustified. No. 95-40234—Paul V. Gadola, District Judge. AFFIRMED. Argued: March 15, 2000 Decided and Filed: April 24, 2000 Before: RYAN, MOORE, and FARRIS,* Circuit Judges.

* The Honorable Jerome Farris, Circuit Judge of the United States Court of Appeals for the Ninth Circuit, sitting by designation.

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_________________ an element required in every claim based on misrepresentations.” Bonfield, 708 F. Supp. at 876. COUNSEL Similarly, the district court noted that reasonable reliance ARGUED: Alan D. Penskar, SMITH, HARRIS, GOYETTE, was required for a fraud action under the Indiana Franchise WINTERFIELD, PENSKAR & FERREHI, Flint, Michigan, Act. See Hardee’s of Maumelle, Ark., Inc. v. Hardee’s Food for Appellants. Irwin Alterman, KEMP, KLEIN, UMPHREY Systems, Inc., 31 F.3d 573, 579 (7th Cir. 1994). In Hardee’s, & ENDELMAN, Troy, Michigan, for Appellee. ON BRIEF: the franchisee alleged that the franchiser had made Alan D. Penskar, SMITH, HARRIS, GOYETTE, misrepresentations about sales estimates and future WINTERFIELD, PENSKAR & FERREHI, Flint, Michigan, opportunities which were not included in the written for Appellants. Irwin Alterman, KEMP, KLEIN, UMPHREY agreement (which included an integration clause). After a & ENDELMAN, Troy, Michigan, for Appellee. bench trial, the franchisee appealed to the Seventh Circuit. On appeal, the court held that “it is simply unreasonable to _________________ continue to rely on representations after stating in writing that you are not so relying.” Id. at 576. OPINION _________________ It was not error to look to case law interpreting the Illinois and Indiana franchise laws. We agree that reasonable or JEROME FARRIS, Circuit Judge. Kevin R. Cook and K. justifiable reliance was necessary for a Michigan Franchise Cook Enterprises, Inc., appeal the district court’s summary Investment Law claim. The existence of an integration clause judgment for defendant Little Caesar Enterprises, Inc., in this in the franchise agreements made Cook’s alleged reliance diversity action arising from the parties’ franchise unreasonable, as the district court concluded. See Cook, 972 agreements. We have jurisdiction pursuant to 28 U.S.C. F. Supp. at 412-14. § 1291. We affirm. Cook’s claim under Section Five of the Michigan Franchise Background Investment Law, which prohibits fraudulent acts and statements in franchise contracts, “is basically a contractual Cook is a Little Caesar franchisee with three restaurants in fraud claim.” General Aviation, Inc. v. Cessna Aircraft Co., Fresno, California. Cook’s basic contention is that although 13 F.3d 178, 183 (6th Cir. 1993). As General Aviation he was promised (1)“the entire territory ‘east of Blackstone in concluded, “this argument simply rehashes the breach of the City of Fresno,’” and (2) that he would “be allowed to contract claim that we have already dismissed.” Id. exclusively develop locations in the nearby cities of Clovis and Sanger,” Little Caesar Enterprises infringed on his F. Tortious interference with contractual and territories by franchising additional restaurants and not advantageous relationships allowing him to open additional restaurants. The franchise agreements, however, provide only that Little Caesar Cook contends that the district court erred by granting Enterprises will not locate other Little Caesar restaurants summary judgment on his tortious interference with within one mile of Cook’s locations. Each franchise contractual and advantageous relationships claim because agreement includes an integration clause with respect to any Little Caesar Enterprises forfeited its status as a party to the prior agreements or promises. sale agreement. We reject the argument.

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fails to create a genuine issue of material fact concerning any A threshold issue involves the application of the parole bad faith on the part of Little Caesar Enterprises. evidence rule to various documents Little Caesar Enterprises provided to Cook prior to his signing the franchise Cook argues that he reasonably relied on Little Caesar agreements and also oral promises that Little Caesar Enterprises’ representations and this reasonable reliance is an Enterprises representatives allegedly made. When Cook element of actionable fraud. Reliance upon oral began investigating franchise opportunities, Little Caesar representations or prior documents, even if false, is Enterprises sent him a dear-prospective-franchisee letter and unreasonable if the party enters into a subsequent agreement. a franchise-offering circular. After meeting with Little Caesar See 3 P.M., Inc. v. Basic Four Corp., 591 F. Supp. 1350, 1366 Enterprises real estate representatives, Cook eventually signed (E. D. Mich. 1984) (interpreting Michigan law and holding a franchise option agreement. Cook alleged that Little Caesar that a plaintiff may not reasonably rely on prior oral representatives, both orally and in written map outlines, set statements that directly contradict the terms of a written aside specific territory exclusively for him. contract). Cook’s signing the franchise agreements precludes his reasonable reliance on the prior representations. Cook opened his first Little Caesar restaurant in November, 1990, for which he signed a franchise agreement on April 8, D. Innocent misrepresentation 1991. Sometime in January or February of 1992, another franchisee opened a Little Caesar restaurant in Clovis, Cook also contends that the district court erred by granting California, just to the east of Fresno which Cook alleges was summary judgment on his innocent misrepresentation claim part of his exclusive territory. In May of 1992, Cook opened because the representations addressed present facts. We his second Little Caesar restaurant. He signed a franchise reject the argument. It finds no support in the record. agreement for this in July of 1992. In May of 1993, Cook signed the franchise agreement for his third Little Caesar E. Michigan Franchise Investment Law restaurant. He also attended two national franchise conventions where his meetings with Little Caesar Enterprises Cook contends that the district court erred by granting representatives, in his view, affirmed his expectation of summary judgment on his Michigan Franchise Investment exclusive territories for his restaurants. Law claim because “reasonable reliance” was not required. We reject the argument. Although there is no direct Michigan In 1994, Cook and Jean Aboujaoude, who is another authority, the district court noted that under the similar Fresno-area Little Caesar franchisee, signed a purchase Illinois Franchise Act any reliance on an alleged agreement for Cook’s three Little Caesar restaurants. Within misrepresentation made prior to signing the agreement was a month, Little Caesar Enterprises disapproved this purchase found to be not reasonable. See Bonfield v. AAMCO agreement, for the alleged reasons that the price was too high Transmissions, Inc., 708 F. Supp. 867, 876-78 (N. D. Ill. and Aboujaoude was not contributing enough capital. 1989) (superseded by statute on other grounds). In Bonfield, a franchisee claimed that he had relied on the franchiser’s In May of 1996, Cook sought approval from Little Caesar alleged misrepresentations made prior to signing the franchise Enterprises to close one of his Little Caesar restaurants. It agreement, even though he acknowledged the existence of an was losing sales, he alleged, to other Little Caesar franchises. integration clause. The Bonfield court granted summary Little Caesar Enterprises rejected Cook’s application for judgment for the franchiser, finding that, under the anti-fraud closure. section of the Illinois Franchise Act, “justifiable reliance [is]

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Cook brought this action in district court on July 12, 1995. C. Fraudulent misrepresentation In a second amended complaint, he alleged seven counts: breach of contract, breach of implied covenant of good faith Cook contends that the district court erred by granting and fair dealing, fraudulent misrepresentation, violation of the summary judgment on his fraudulent misrepresentation claim Michigan Franchise Investment Law, tortious interference because the representations addressed present facts. We with contractual and advantageous relationships, innocent reject the argument. misrepresentation, and he sought a declaratory judgment that Little Caesar Enterprises could not deny him the right to To establish fraud, the allegedly false statements must permanently close one of his restaurants. The district court relate to past or existing facts, not to future promises or granted Little Caesar Enterprises’ motion for summary expectations. See Two Men and a Truck v. Two Men and a judgment on August 7, 1997.1 See Cook v. Little Caesar Truck, 955 F. Supp. 784, 785 n.1 (W. D. Mich. 1997); Haque Enterprises, Inc., 972 F. Supp. 400 (E. D. Mich. 1997).2 The Travel Agency, Inc. v. Travel Agents Int’l, Inc., 808 F. Supp. district court entered judgment on January 7, 1999. Cook 569, 572 (E. D. Mich. 1992). We agree with the district court filed a timely notice of appeal. that Hi-Way Motor Co. v. Int’l Harvester Co., 398 Mich. 330 (Mich. 1976), is “strikingly similar to the instant case.” Standard of Review Hi-Way involved negotiations leading to a franchise agreement, complete with an integration clause. The written We review a district court’s grant of summary judgment de agreement made no mention of some key elements of the novo. See Terry Barr Sales Agency, Inc. v. All-Lock Co., Inc., prior negotiations. See id. at 333-35. In Hi-Way, the court 96 F.3d 174, 178 (6th Cir. 1996). In contract actions, held there was no fraudulent misrepresentation because “an summary judgment may be appropriate when the documents action for fraudulent misrepresentation must be predicated and evidence underlying the contract are undisputed and upon a statement relating to a past or an existing fact. Future there is no question as to intent. See P. F. Manley v. promises are contractual and do not constitute fraud.” Id. at Plasti-Line, Inc., 808 F.2d 468, 471 (6th Cir. 1987) (citation 336. omitted). Normally, however, disputed issues of contractual intent are considered to be factual issues which preclude an The district court properly concluded that Little Caesar award of summary judgment. See id. (citations omitted); see Enterprises representatives’ allegedly false statements referred to events which might happen in the future and not to past or present facts. See Cook, 972 F. Supp. at 410-11. Cook’s 1 amended complaint and opening brief on appeal support the The district court denied summary judgment for Little Caesar conclusion that he is complaining about future promises. The Enterprises on Cook’s seventh claim, seeking a declaratory judgment that Little Caesar Enterprises could not deny him the right to permanently allegations and contentions all concern alleged representations close one of his restaurants. See Cook, 972 F. Supp. at 416-17. Because about future events. the language in the franchise agreement addressing the permanent closure of a restaurant was ambiguous, the district court held, there was a material Cook also argues that the district court erred by dismissing issue of fact concerning the parties’ intent on this claim. See id. Cook, out-of-hand the “bad faith” exception to the “past or present however, later dismissed this claim with prejudice “to concentrate on fact requirement” of the fraudulent misrepresentation pursuing the damage claims now before this Court.” Appellants’ Opening Brief at 4. This claim is not part of the present appeal. doctrine. See Hi-Way, 398 Mich. at 337-38 (“a fraudulent misrepresentation may be based upon a promise made in bad 2 faith without intention of performance”). Cook, however, In denying Cook’s motion for reconsideration, the district court corrected some minor clerical errors concerning case names.

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See General Aviation, Inc. v. Cessna Aircraft Co., 915 F.2d also Parrett v. American Ship Building Co., 990 F.2d 854, 1038, 1041 (6th Cir. 1990) (construing Michigan law). In the 858 (6th Cir. 1993) (noting that the interpretation of franchise agreements, Little Caesar Enterprises reserved the ambiguous contract language is usually a factual issue turning right to grant licenses to others subject only to Cook’s on the intent of the parties). “exclusive territory,” which, by the terms of the franchise agreement, was a one-mile exclusive territory. This limitation Discussion was an express term of the franchise agreements and as such, under Michigan law, the implied covenant of good faith and A. Breach of contract fair dealing cannot be employed to override it. See id. Cook contends that the district court erred by granting Cook could not employ the implied covenant of good faith summary judgment on his breach of contract claim because, and fair dealing to override the express term of the franchise since there are material issues of fact regarding the meaning agreements which allowed Little Caesar Enterprises to license of the franchise agreements, the court must consider parole franchises outside of Cook’s one-mile exclusive territories. evidence and look to the parties’ intent. We reject the The district court did not err. See Cook, 972 F. Supp. at argument. 409-10. Michigan follows the parole evidence rule which does not Cook specifically contends that to the extent that Little permit extrinsic evidence to be used to contradict the terms of Caesar Enterprises made the manner of its performance a a written contract that was intended to be the final and matter of its own discretion, the implied covenant would complete expression of the parties’ agreement.3 See apply. See Burkhardt v. City Nat’l Bank of Detroit, 57 Mich. American Anodco, Inc. v. Reynolds Metals Co., 743 F.2d 417, App. 649, 652 (Mich. Ct. App. 1975) (“Where a party to a 422 (6th Cir. 1984). The court must first find, however, “that contract makes the manner of its performance a matter of its the parties intended the written instrument to be a complete own discretion, the law does not hesitate to imply the proviso expression of their agreement as to the matters covered. that such discretion be exercised honestly and in good faith.”). Extrinsic evidence of prior or contemporaneous agreements Cook argues that Little Caesar Enterprises had discretion in or negotiations is admissible as it bears on this threshold three ways because: (1) the franchise agreements are silent as question of whether the written instrument is such an to where Little Caesar Enterprises can locate franchises ‘integrated’ agreement.” NAG Enters., Inc. v. All State Indus., outside of the one-mile radius of Cook’s restaurants, (2) the Inc., 407 Mich. 407, 410 (Mich. 1979) (per curiam). franchise option agreement referred to an “approximate” one Recently, the Michigan Court of Appeal has held “that when mile radius, and (3) the dear-prospective-franchisee letter the parties include an integration clause in their written promised to allocate one restaurant for a minimum of 15,000 contract, it is conclusive and parole evidence is not admissible population. It does not follow that, because the franchise to show that the agreement is not integrated except in cases of agreements prohibit Little Caesar Enterprises from locating fraud that invalidate the integration clause or where an other franchises within the one-mile radius, Little Caesar agreement is obviously incomplete ‘on its face’ and, Enterprises cannot place other franchises outside this radius even though it did not expressly reserve the right to do so. The parole evidence rule bars consideration of matters not 3 As noted by the district court, Michigan law permits parties to incorporated into the written agreement. choose which state’s law will govern their contract and, here, the franchise agreements provide that Michigan law should govern. See Cook, 972 F. Supp. at 406.

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therefore, parole evidence is necessary for the ‘filling of Cook’s contention that the trial court is bound by a previous gaps.’” UAW-GM Human Resources Ctr. v. KSL Recreation decision in Eberhardt v. Comerica Bank, 71 B. R. 239 (E. D. Corp, 228 Mich. App. 486, 502 (Mich. Ct. App. 1998) Mich. 1994), is of no consequence. In Eberhardt, the court (quoting 3 Corbin, Contracts, § 578, p. 411). held that the presence of an integration clause was not conclusive “when the contract is a pre-printed form drawn by The record supports the conclusion that the franchise a sophisticated seller, and presented to the buyer without any agreements were intended to be complete expressions of the negotiations.” Eberhardt, 71 B. R. at 243. There, the court parties’ agreements and they are not ambiguous. See Cook, looked to all writings and oral statements to ascertain the 972 F. Supp at 408. Each franchise agreement: (1) provided parties’ intentions. See id. at 243-44. Eberhardt, however, Cook with only an exclusive territory of the geographical area involved a situation where both parties agreed that the pre- within a one-mile radius of each restaurant, and (2) included printed term was not consistent with the essence of the an integration clause and acknowledgment by Cook that he contract. A non-party creditor sought to enforce the provision had no knowledge of any representations by Little Caesar of the contract. See id. The distinction is pivotal. representatives that are contrary to the terms of the agreement. Cook could not use parole evidence to elude the clear Cook’s further contention that the district court erred by provisions of the franchise agreements. basing its decision on the “officer approval” requirement of Kovacs v. Electronic Data Sys. Corp., 762 F. Supp. 161 Cook’s bare allegation that he was promised “the entire (E. D. Mich. 1990), is without merit. The contract at issue in territory ‘east of Blackstone in the City of Fresno,’” is Kovacs included language that required approval of an EDS insufficient to create a genuine issue of material fact since the officer to modify the contract. See id. at 164. Cook’s plain language of the franchise agreements specifically franchise agreements include language that any change or provides otherwise. Cook’s allegation is based entirely on modification must be “in writing and signed by both parties documents received prior to his signing the first franchise to this Agreement.”5 agreement and oral representations allegedly made by Little Caesar representatives prior to and after his signing of the first B. Breach of implied covenant of good faith and fair franchise agreement.4 The franchise agreements provide only dealing that Little Caesar Enterprises will not establish other Little Caesar restaurants within one mile of Cook’s locations. Each Cook contends that the district court erred by granting agreement also includes an integration clause with respect to summary judgment on his breach of implied covenant of good any prior agreements or promises, indicating that the parties faith and fair dealing claim because Little Caesar Enterprises intended the written franchise agreements to be complete undertook discretionary actions which injured Cook. We expressions of their agreements. See NAG, 407 Mich. at 410. reject the argument. There is no evidence of fraud or that the agreements are incomplete. See UAW-GM, 228 Mich. App. at 502. The obligation of good faith cannot be employed, in interpreting a contract, to override express contract terms.

4 Unlike the alleged prior representations, the franchise agreements 5 do not provide that: (1) territories would have a minimum of 15,000 In arguing that “the District Court erred by confusing Morley Bros. population, (2) Cook would have an exclusive territory east of Blackstone, with Kovacs,” Appellants’ Opening Brief at 25, Cook ignores the district or (3) Cook would have future options to open restaurants in Clovis and court’s acknowledgment of this error, and its correction, in the denial of Sanger. Cook’s motion for reconsideration.