Clark v. America's Favorite

REVISED
United States Court of Appeals,

Fifth Circuit.

No. 96-30364.

Rogers W. CLARK, Jr., Roger R. Burney, Franchise Management
Unlimited, and Seven Mile Catering, a Michigan co-partnership,
Plaintiff-Appellants,

v.

AMERICA'S FAVORITE CHICKEN COMPANY, a foreign corporation and
Canadian Imperial Bank of Commerce, a foreign corporation, jointly
and severally, Defendants-Appellees.

April 22, 1997.

Appeal from the United States District Court for the Eastern
District of Louisiana.

Before HIGGINBOTHAM, DAVIS and BARKSDALE, Circuit Judges.

W. EUGENE DAVIS, Circuit Judge:

Appellants, owners of several Popeyes Fried Chicken franchises

in Detroit, Michigan, appeal from the district court's summary

judgment order dismissing their claims against America's Favorite

Chicken ("AFC") and Canadian Imperial Bank of Commerce ("CIBC").

We affirm.
I.

Beginning in 1978, appellants Rogers Clark, Jr. and Roger

Burney entered into option agreements with Popeyes Famous Fried

Chicken Corporation ("Popeyes"), a corporate predecessor to

appellant AFC. Under these agreements, appellants acquired the

exclusive right to develop Popeyes franchises in a specified area

of inner-city Detroit, Michigan. Over the next thirty-five months,

1
Clark and Burney opened nine such franchises. With Popeyes'

consent, several of these stores were opened in close proximity to

Churchs Fried Chicken restaurants, Popeyes' biggest competitor in

the area.

Through a series of mergers in 1989, the Popeyes and Churchs

systems came under common ownership. The new management company,

Al Copeland Enterprises, Inc. ("ACE"), was controlled by Popeyes

president, Al Copeland. Shortly after the merger, ACE implemented

a "Strategic Realignment Plan" designed to increase the

profitability of both systems. The plan reflected the historic

marketing positions of the two systems, with Churchs focused more

on value—"Big pieces, little price"—and Popeyes focused more on

product quality—"Love that chicken." Under this plan, Churchs

would continue to target the "low-end" of the bone-in chicken

market by focusing on value, while Popeyes, which had experienced

significant success with suburban and upscale urban locations,

would continue to focus on the high quality and uniqueness of its

product.

ACE's acquisition of Churchs was financed by a loan from a

banking consortium led by appellee CIBC. In 1991 ACE fell behind on

its loan payments, and CIBC and other creditors forced it into a

Chapter 11 bankruptcy proceeding. ACE emerged from bankruptcy as

AFC, America's Favorite Chicken, with CIBC as the majority

shareholder. The company also had a new management staff chosen by

CIBC. From appellants' perspective, the newly restructured company

continued with little change the realignment and marketing plan

2
adopted by its predecessor.

Appellants claim that the marketing strategy adopted by ACE

and then AFC had a detrimental effect on their business. They

complain that they are forced through the franchise agreements to

carry products, such as fruit cups and specialty salads, which have

little appeal in their low-income, urban market; at the same time,

they claim they are prevented from effectively advertising cheap,

"dark-meat-only" and other chicken-dominated meals, all to the

benefit of the area's Churchs restaurants, which are subject to

none of these constraints. Appellants also allege that AFC has

shared marketing and other trade secrets with competing Churchs

restaurants in their area.

Appellants filed the current lawsuit against AFC and CIBC,

alleging breach of contract, including breach of the implied

covenant of good faith and fair dealing, violation of the Louisiana

Unfair Trade Practices and Consumer Protection Act ("LUTPA"),

promissory estoppel, tortious interference with contract, and abuse

of rights. AFC counterclaimed for an equitable accounting based on

its position as a preferred shareholder in appellant Franchise

Management Unlimited ("FMU"), a corporate franchisee controlled by

Clark and Burney. The district court granted summary judgment in

favor of AFC and CIBC on all claims, and appellants timely

appealed.

II.

Appellants appeal only the district court's grant of summary

judgment on their claims for breach of the implied covenant of good

3
faith and fair dealing, violation of LUTPA, and promissory

estoppel. They also appeal the district court's order awarding AFC

an equitable accounting in its role as a preferred shareholder in

FMU. We conclude that summary judgment was properly granted on

these claims and affirm for essentially the reasons assigned in the

district court's well reasoned opinion of February 8, 1996. We

address in more detail only appellants' claim for breach of the

implied covenant of good faith and fair dealing.

A.

We review the district court's grant of summary judgment de

novo, applying the same standards as did the district court.

Stults v. Conoco, Inc., 76 F.3d 651, 654 (5th Cir.1996). Summary

judgment is appropriate when the record reflects that "there is no

genuine issue as to any material fact and that the moving party is

entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c).

Although the evidence is considered in the light most favorable to

the nonmoving party, once the moving party meets its initial burden

of pointing out the absence of a genuine issue for trial, the

burden is on the nonmoving party to come forward with competent

summary judgment evidence establishing the existence of a material

factual dispute. McCallum Highlands, Ltd. v. Washington Capital

Dus, Inc., 66 F.3d 89, 92 (5th Cir.1995) (citing Little v. Liquid

Air Corp., 37 F.3d 1069, 1075 (5th Cir.1994) (en banc)).

Unsupported allegations or affidavit or deposition testimony

setting forth ultimate or conclusory facts and conclusions of law

are insufficient to defeat a motion for summary judgment. Duffy v.

4
Leading Edge Products, Inc., 44 F.3d 308, 312 (5th Cir.1995)

(citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106

S.Ct. 2505, 2509-10, 91 L.Ed.2d 202 (1986)).

B.

As a general rule, Louisiana recognizes an implied covenant

of good faith and fair dealing in every contract. Brill v. Catfish

Shaks of America, 727 F.Supp. 1035, 1039 (E.D.La.1989); Bonanza

Int'l, Inc. v. Restaurant Management Consultants, Inc., 625 F.Supp.

1431, 1445 (E.D.La.1986). However, as we explained in Domed

Stadium Hotel, Inc. v. Holiday Inns, Inc., 732 F.2d 480, 485 (5th

Cir.1984), "[t]he implied obligation to execute a contract in good

faith usually modifies the express terms of the contract and should

not be used to override or contradict them."

As our observation in Domed Stadium suggests, we begin our

inquiry by examining the express terms of the contract. The

franchise agreements at issue here expressly reserve the right of

the franchisor to develop and establish competing franchise systems

within appellees' territory. Section V.E of the franchise

agreements provides in relevant part:

E. Franchisee understands and agrees that its license under
said Proprietary Marks is non-exclusive to the extent that
Franchisor has and retains the rights under this Franchise
Agreement:

...

2. To develop and establish other franchise systems for the
same, similar, or different products or services utilizing
Proprietary Marks not now or hereafter designated as part of
the system licensed by this Franchise Agreement, and to grant
licenses thereto, without providing Franchisee any right
therein....

5
This language unambiguously reserves to AFC the right to enter

appellants' area and compete against them under a different set of

proprietary marks.1 Moreover, the record establishes that

appellants were aware of the significance of this provision, and

their attorney attempted to negotiate its removal from the

franchise agreements. When this attempt failed, appellants signed

the agreement with the provision intact. They cannot now be heard

to argue that actions expressly authorized by this provision

constitute a breach of the implied covenant of good faith and fair

dealing.2

Appellants attempt to avoid the implications of this express

reservation by the franchisor by focusing on the allegedly improper

way in which AFC has operated the two systems. They point to the

alleged "dual-marketing strategy" of positioning Popeyes at the

1
Appellants originally contended that the "develop and
establish" language quoted above did not authorize AFC to "acquire"
an already existing system, however, they appear to have abandoned
this argument in their response brief. In any event, we find no
merit in such a crimped reading of the contract. C.f. Domed
Stadium, 732 F.2d at 484-85 (rejecting argument that reservation by
franchisor of right to "construct and operate" additional hotels
did not include right to acquire and convert existing enterprise).

2
Appellants' reliance on cases such as Scheck v. Burger King
Corp., 756 F.Supp. 543 (S.D.Fla.1991), and In re Vylene Enter.,
Inc., 90 F.3d 1472 (9th Cir.1996), is misplaced for two obvious
reasons. First, neither case deals with Louisiana law, which
arguably would yield a different result in those cases. Second,
neither case concerned a contract with an express reservation by
the franchisor of the right to enter the franchisees' territory and
compete with them under a different set of proprietary marks. C.f.
Domed Stadium, 732 F.2d at 484-85 (rejecting claim for breach of
good faith and fair dealing where franchise agreement reserved the
right of franchisor to "construct and operate one or more [hotel]
at any place other than on the site licensed").

6
high end and Churchs at the low end of the bone-in chicken market,

the fact that Churchs restaurants more frequently receive their

advertising coupons around the first of the month when lower-income

families have more disposable income, and the fact that AFC

requires them to carry expensive non-chicken products, while

Churchs operates with a more chicken-dominated menu. They also

point out that Churchs regularly advertises "dark-meat-only"

specials, while AFC has repeatedly prevented them from doing so.

With the exception of some allegations that AFC shared trade

and marketing secrets with competing Churchs restaurants,

appellants allegations of bad faith and unfair dealing amount to

little more than a complaint about the nationwide marketing and

advertising plan AFC adopted for the Popeyes system. Again,

however, the franchise agreements negate these claims. Section

III.B of the agreements requires appellants to contribute 3 percent

of their gross sales to a nationwide advertising fund and makes

clear that the administrator of the fund has sole discretion in the

selection of media and locale for media placement. Moreover, the

agreements make clear that the sole purpose of all advertising

expenditures is to benefit the Popeyes system as a whole, not any

individual franchisee. Section III.B provides:

Franchisee understands that such advertising is intended to
maximize the public's awareness of Popeyes Famous Fried
Chicken restaurants, and that Franchisor accordingly
undertakes no obligation to insure that any individual
franchisee benefits directly or on a pro rata basis from the
placement, if any, of such advertising in his local market.

This provision grants AFC sole discretion over the advertising

fund, and AFC was required only to administer the fund to benefit

7
the Popeyes system as a whole, without regard to appellants'

franchises. Accordingly, appellants' contention that the content

and timing of AFC's advertising for the Popeyes system made them

less competitive in their market area does not establish bad faith

or unfair dealing.

The same conclusion applies to AFC's control over appellants'

menu items. Section VII.B.2 of the agreements requires appellants

"to sell or offer to sell all approved [menu] items." The

franchisor is not dealing unfairly or in bad faith in requiring

appellants to carry the same fruit cups and specialty salads as

every other Popeyes franchisee.

In sum, the franchise agreement expressly reserves to AFC the

right to do precisely what appellants now charge it with: to

compete against its franchisees under a different set of

proprietary marks. If, as the franchise agreements make clear, AFC

retains the right to develop and establish competing franchise

systems, it cannot be a breach of good faith or fair dealing for it

to adopt an effective marketing strategy for operating those

systems.

C.

Appellants also have failed to produce any evidence of bad

faith or ill motive on the part of AFC or CIBC. See Brill, 727

F.Supp. at 1041 (noting that "[a] mere failure to fulfill an

obligation, without a showing of intent or ill will, does not

constitute a breach of good faith"); see also American Bank &

Trust of Coushatta v. FDIC, 49 F.3d 1064 (5th Cir.1995) (discussing

8
meaning of "good faith" under Louisiana's Civil Code). First,

appellants do not allege that their Detroit-area Popeyes franchises

or the competing Churchs restaurants have been treated any

differently than their counterparts nationwide. Nor do they allege

that AFC's marketing approach was intended or has the effect of

injuring the Popeyes franchise system, and they have pointed to no

reason—economic or otherwise—why AFC would favor the Churchs system

over the Popeyes system. They simply complain that AFC's marketing

strategy for the Popeyes system has made them less competitive in

their individual market.

Second, appellants have failed to show any evidence that AFC

improperly manipulated the two systems. To the contrary,

uncontroverted summary judgment evidence established that the

marketing departments for the Popeyes and Churchs systems are

carefully segregated, that marketing policy for the two systems,

other than in the broadest of senses, is made independently, and

that no confidential sales information is shared between the

systems. Appellants' unsupported allegations that AFC was leaking

confidential marketing information to competing Churchs restaurants

in their area falls far short of creating a genuine issue of

material fact.3 See Duffy v. Leading Edge Products, 44 F.3d 308,

3
For example, while appellants allege that a manager of a
local Churchs restaurant regularly had knowledge about the sales of
one of their Popeyes franchises, they have produced no evidence to
show that AFC was the source of the information. Appellants also
allege that area Churchs restaurants were aware of their
introduction of a new product, chicken tenderloins, and introduced
a similar tenderloin product at the same time. Far from suggesting
that AFC leaked this information to area Churchs owners, the record
reflects that the Popeyes system launched its nationwide roll-out

9
312 (5th Cir.1995) ("[C]onclusory allegations unsupported by

concrete and particular facts will not prevent an award of summary

judgment."); see also Galindo v. Precision American Corp., 754

F.2d 1212, 1216 (5th Cir.1985).

III.

Because the actions appellants complain of are authorized by

the franchise agreements, and because appellants have failed to

produce any evidence of bad faith or ill motive, the district

court's grant of summary judgment in favor of AFC and CIBC was

proper. We reject the remainder of appellants contentions on

appeal for the reasons articulated by the district court.

AFFIRMED.

of its tenderloin product well in advance of the incident about
which appellants complain and that appellants chose not to
participate in the promotion for several months. That appellants
waited to push the new product until their competitor had time to
introduce a similar one is hardly evidence of bad faith on the part
of AFC.

10