UNITED STATES COURT OF APPEALS
for the Fifth Circuit
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No. 96-40735
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YANKEE ENTERPRISES, INC.,
Plaintiff-Appellant-Cross-Appellee,
VERSUS
DUNKIN' DONUTS, INC.,
Defendant-Appellee-Cross-Appellant.
_____________________________________________________
Appeal from the United States District Court
for the Eastern District of Texas
(1:95-CV-136)
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July 8, 1997
Before KING, DAVIS and DeMOSS, Circuit Judges.
DAVIS, Circuit Judge:*
In this litigation between a franchisor and a franchisee,
which resulted in a verdict in favor of the franchisee, we consider
the propriety of the district court’s post verdict orders rejecting
the jury’s award under the Texas Deceptive Trade Practices Act
(“DTPA”) and entering judgment against the franchisor on
franchisee’s breach of contract claim. For the reasons that
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.
follow, we conclude that the evidence will not support any award in
franchisee’s favor.
I.
Dunkin’ Donuts Incorporated (“Dunkin’”) is a franchisor that
franchises donut shops nationwide. Yankee Enterprises (“Yankee”)
is a Dunkin’ franchisee that operates a Dunkin’ Donuts store in
Beaumont, Texas. Dunkin’ divides the nation into five zones:
Northeast, Midwest, Mid-Atlantic, Southeast, and West. Beaumont,
Texas, is located in Dunkin’s West zone. In 1986, Yankee, a
Dunkin’ franchisee since 1972, renewed its franchise for twenty
years. According to the franchise agreement, Dunkin’ promised to
“continue its efforts to maintain high and uniform standards of
quality, cleanliness, appearance and service at all Dunkin’ Donuts
shops.”
In 1994, Yankee brought suit against Dunkin’, asserting that
Dunkin’ had breached the franchise agreement and violated the DTPA.
Yankee contended that Dunkin’ had reduced personnel in the West
zone, failed to properly supervise franchises in the West zone, and
diverted resources and attention away from the West zone to the
Northeast zone. According to Yankee, these actions constituted a
breach of the franchise agreement -- in particular, Dunkin’s pledge
to “continue efforts” to maintain standards -- and a violation of
the DTPA.
2
A jury found that Dunkin’ had failed to comply with the
franchise agreement and had committed violations of the DTPA;
accordingly, the jury awarded Yankee damages. Yankee moved for
entry of judgment on the verdict, and Dunkin’ moved for judgment as
a matter of law. The court granted Dunkin’s motion on the DTPA
claim, but rejected Dunkin’s motion on the breach of contract claim
and entered judgment on the verdict on this claim. Both parties
appealed. We consider their arguments below.
II.
Yankee first argues that the district court erred in granting
Dunkin’s motion for a judgment as a matter of law on Yankee’s DTPA
claim. The jury found that Dunkin’ violated § 17.46 of the DTPA by
engaging in “[f]alse, misleading, or deceptive act or practices in
the conduct of any trade or commerce” and that Dunkin violated §
17.50 of the DTPA by engaging in “unconscionable” activities.
Yankee argues that the record supports the verdict on its §
17.46 misrepresentation claim. According to Yankee, Dunkin’
violated its promise to maintain standards of cleanliness, quality,
and appearance in the West zone by drastically reducing personnel
in the West zone, cutting back supervision of the West zone, and
diverting its financial resources away from the West to the
Northeast zone. In essence, Yankee argues that Dunkin’s conduct
demonstrates that it misrepresented its intention to perform under
the contract. As the Supreme Court of Texas stated in Crawford v.
3
Ace Sign, Inc., 917 S.W.2d 12, 14-5 (Tex. 1996), “[t]o accept this
reasoning, however, would convert every breach of contract into a
DTPA claim.” Crawford instructs that a claim only for breach of
contract is insufficient to violate § 17.46(a) of the DTPA.
Crawford, 917 S.W.2d at 14-5. We conclude that Yankee presented
nothing more than a claim for breach of contract in support of its
§ 17.46(a) misrepresentation action. Accordingly, we affirm the
district court’s order setting aside the jury’s verdict on the
misrepresentation prong of the DTPA claim.
Yankee also argues that the district court erred in setting
aside the jury’s finding that Dunkin’ engaged in unconscionable
activity that was the producing cause of Yankee’s damages in
violation of § 17.50 of the DTPA. The two means of engaging in
unconscionable conduct under the DTPA are: (1) taking advantage of
the lack of knowledge, ability, experience, or capacity of a person
to a grossly unfair degree; or, (2) taking action which results in
a gross disparity between the value received and consideration
paid, in a transaction involving transfer of consideration. See
Tex. Bus. & Com. Code Ann § 17.45.
Yankee asserts that a gross disparity exists between the
franchise it received and the consideration it paid because Dunkin’
did not maintain the standards of quality, cleanliness, and
appearance promised in the franchise agreement. We reject this
claim, without deciding whether Dunkin’ did indeed fail to maintain
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the standards Yankee contracted for, because Yankee produced no
evidence of the value of franchise it received. With no evidence
of the value received, the jury could not determine that there was
a gross disparity between the consideration paid and the value
received.
Yankee also contends that Dunkin used its superior bargaining
power to take advantage of Yankee to a grossly unfair degree.
Under the DTPA it is insufficient for Yankee to show that Dunkin’
treated Yankee unfairly; Yankee must show that the unfairness was
“glaringly noticeable, flagrant, complete, and unmitigated.”
Chastain v. Koonce, 700 S.W.2d 579, 583 (Tex. 1985). Our review of
the record convinces us that any unfairness suffered by Yankee did
not rise to the level of gross unfairness. Thus, we also affirm
the district court’s order setting aside the jury’s verdict for
Yankee on the unconscionability prong of the DTPA claim.1
III.
On cross-appeal, Dunkin’ contends that Yankee presented no
competent evidence to support the jury’s finding that Dunkin’s
breach of the franchise agreement caused Yankee to suffer damages.2
1
The district court’s money judgment in favor of Yankee included the sum
of $132,070 awarded by the jury as part of Yankee’s DTPA claim. This was
apparently an oversight by the district court because including this award is
inconsistent with its order setting aside the jury’s verdict on Yankee’s DTPA
claim.
2
Dunkin also argues that there is insufficient evidence to support the
jury’s conclusion that it breached the franchise agreement. Because we conclude
that jury verdict must be reversed on other grounds, we do not address this
issue.
5
Yankee argued at trial that Dunkin’ had breached its promise in the
franchise agreement to “continue efforts to maintain high and
uniform standards of quality, cleanliness, appearance and service
at all Dunkin’ Donut shops.” More particularly, Yankee argued that
Dunkin’ diverted its attention and resources to the Northeast and
failed to continue efforts in the West zone, where Yankee was
located, and this failure caused Yankee to lose sales.
Yankee began with a suspect causation theory: The reduced
standards of cleanliness in the other stores in the West zone
damaged Yankee’s sales even though Yankee’s store met or exceeded
the high standards in place prior to the alleged breach.3 In
support of this contention, Yankee produced the testimony of John
Croley, its expert witness on damages. Although Yankee contended
that Dunkin’s breach began in 1989 or 1990, Croley compared
Yankee’s average weekly sales for the years 1984 through 1996 to
the sales of the average store in the Northeast zone. Croley
testified that Yankee’s store was comparable to that of the average
store in the Northeast zone because in 1984 Yankee’s average weekly
sales were only $229 less than the average weekly sales of the
Dunkin franchises located in the Northeast zone. Croley testified
that the difference in sales between the “comparable” Northeastern
3
Another Dunkin’ franchisee testified that a customer who had a bad
experience in another Dunkin’ shop in the West zone may not stop at a Dunkin shop
while driving through Beaumont. Other than this vague testimony we find no
support for Yankee’s theory that reduced standards in other shops in the West
caused a substantial sales reduction in Yankee’s shop. No proof was presented
to explain or substantiate the details of this theory.
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stores and Yankee’s store increased from 1984 through 1996. He
attributed this increased difference to Dunkin’s failure to
continue its efforts to maintain high standards in the West zone.
But Yankee’s expert did not fare well in cross examination.
First, the “gap” between the comparable Northeast store and
Yankee’s store existed at least four years before Dunkin’s breach,
which allegedly occurred in 1989 or 1990. It is obvious, and
Croley admitted, that the diminution in sales that occurred from
1984 through 1988 cannot be attributed to an event that took place
in 1989. The expert also admitted he did not consider a number of
factors (other than the difference in standards between Northeast
stores and West stores) that could account for the “gap.” These
factors include, but are not limited to, a difference in management
skill between the hypothetical Northeast store and Yankee’s store;
a difference in market penetration; and a difference in volume of
advertising.
In sum, Croley’s theory, that Dunkin’s breach caused the
“gap,” is nothing more than conjecture and surmise. Because we
conclude that Yankee has produced no credible evidence that the
damages claimed are causally related to Dunkin’s alleged breach of
contract, the judgment predicated on breach of the franchise
agreement cannot stand.
IV.
We conclude that the evidence is insufficient to support the
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jury’s finding that Dunkin’ engaged in conduct that violated the
DTPA. We therefore affirm the district court’s order setting aside
the jury verdict on those claims. We also conclude that there is
no credible evidence to support the jury’s finding that Dunkin’s
alleged breach of contract caused Yankee to suffer damages.4
Accordingly, we reverse the judgment entered on the breach of
contract claim and render a take nothing judgment in favor of
Dunkin’.
AFFIRMED in part, REVERSED and RENDERED in part.
4
It follows from the rejection of Yankee’s breach of contract claim that
the district court correctly denied Yankee’s claim for attorney’s fees.
8