St. Charles v. America's Favorite

PUBLISH

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT FILED
U.S. COURT OF APPEALS
_______________ ELEVENTH CIRCUIT
12/20/99
THOMAS K. KAHN
No. 98-8193 CLERK
_______________
D. C. Docket No. 1:96-cv-1466-JEC

ST. CHARLES FOODS, INC.,

Plaintiff-Appellant,

versus

AMERICA’S FAVORITE CHICKEN COMPANY,

Defendant-Appellee.

______________________________

Appeal from the United States District Court
for the Northern District of Georgia
______________________________
(December 20, 1999)

Before BIRCH and DUBINA, Circuit Judges, and MIDDLEBROOKS*, District
Judge.

BIRCH, Circuit Judge:

*
Honorable Donald M. Middlebrooks, U.S. District Judge for the Southern District of
Florida, sitting by designation.
 St. Charles Foods, Inc. (“SCF”) appeals the district court’s order granting

summary judgment in favor of America’s Favorite Chicken Company (“AFC”) on

SCF’s complaint which alleged breach of contract and denying SCF’s motion to

amend its complaint. SCF argues, first, that summary judgment was improper because

the ambiguity in its contract with AFC would allow a reasonable factfinder to draw

different inferences from the undisputed facts and that the ambiguity should be

construed against AFC as the drafter. Second, SCF argues that the liberal policy of

allowing amendments to complaints under Federal Rule of Civil Procedure 15 requires

that the district court allow SCF to amend its complaint. For the reasons that follow,

we REVERSE the district court’s order and REMAND this case for further

proceedings consistent with this opinion.

I. BACKGROUND

SCF entered into a franchise agreement with Popeye’s Famous Fried Chicken

Corporation (“PFFCC”) in 1982. See R6-78-Adden. 1- Exh. 1. Under this agreement,

SCF built its first Popeye’s restaurant, and PFFCC granted SCF the exclusive right to

develop Popeye’s restaurants within St. Charles Parish, Louisiana, until 2002. In

1987, SCF developed its second Popeye’s restaurant, and PFFCC extended SCF’s

exclusive development rights through 2007. See R6-78-Adden. 2-Exh. 2 at 2.

2
 In 1989, PFFCC acquired the Church’s Fried Chicken brand via a leveraged

buy-out. Because Church’s was a competing restaurant chain, PFFCC assured its

Popeye’s franchisees that they would be given a right of first refusal for any proposed

development within their territory. Al Copeland Enterprises was created as a

successor to PFFCC to manage both the Church’s and the Popeye’s brands. Al

Copeland Enterprises filed for Chapter 11 bankruptcy in 1992. AFC emerged from

the bankruptcy reorganization plan as the successor to Al Copeland Enterprises and

as franchisor of the Popeye’s and Church’s restaurants.

In 1993, the owners of SCF, Richard and Marilyn Englander, began

negotiations to sell SCF and its franchise rights to Edward Carlson, owner of a

separate Popeye’s franchise. Pursuant to a provision in the SCF franchise agreement

granting AFC the right to approve any transfer of ownership, Edward Carlson (“E.

Carlson”) notified AFC of the proposed sale. As a condition to its approval of the

sale, AFC required that SCF execute a new franchise agreement which would

eliminate its exclusive right to develop Popeye’s franchises within St. Charles Parish.

E. Carlson and his son Charles Carlson (“C. Carlson”) (collectively, the

“Carlsons”) were concerned about the loss of SCF’s territorial exclusivity and

engaged in discussions with AFC representatives. As a result of these discussions,

3
AFC agreed to replace SCF’s territorial exclusivity with a right of first refusal on “any

proposed development with St. Charles Parish.” 1SR1-101-Exh. 7. The terms of this

right of first refusal were detailed in a letter dated October 29, 1993, from AFC’s Vice

President of Franchise Administration, Michael Anderson, to E. Carlson. See id. This

letter was written on AFC letterhead, which displayed both the Popeye’s and Church’s

logos. See id. On November 2, 1993, Anderson sent another letter to E. Carlson

stating that “AFC (‘Franchisor’) will grant to St. Charles Foods, Inc. (‘Franchisee’)

a right of first refusal for St. Charles Parish, Louisiana through April 10, 2007.” R6-

78-Adden. 9-Exh. 7-A. The letter explained that “Franchisor will notify [SCF] of any

proposed development within St. Charles Parish, Louisiana and will specify the

number of stores to be developed and timeframe for development. ... If Franchisee

declines to exercise such right [of first refusal], Franchisor has the right to franchise

within St. Charles Parish, Louisiana.” Id. Again, this letter was written on letterhead

displaying both the Church’s and Popeye’s service marks. See id. The Carlsons

interpreted the Letter Agreements1 as providing SCF a right of first refusal for any

proposed development of any AFC brand within St. Charles Parish. See Exh. Dep.

of E. Carlson at 71-72. In accordance with the change from territorial exclusivity to

1
We shall refer to the October 29, 1993 and November 2, 1993 letters collectively as the
“Letter Agreements.”

4
a right of first refusal within the territory, the purchase price for SCF was reduced by

$100,000. See Exh. Dep. of Richard W. Englander, Jr. at 95-102.

In 1995, AFC began discussions with SCF regarding the development of a

Church’s restaurant within St. Charles Parish but ultimately granted the Church’s

franchise to Dugas Oil Company without extending a right of first refusal to SCF. In

response, SCF filed a Petition for Injunctive Relief, Declaratory Judgment and

Damages in Louisiana state court. See 1SR-101-1. The case was removed to federal

court in the Eastern District of Louisiana and then transferred to the Northern District

of Georgia, where the court denied SCF’s motion to amend its complaint, granted

AFC’s motion for summary judgment, and dismissed SCF’s case in its entirety.

The district court found that the contract between SCF and AFC, as

memorialized in the Letter Agreements was “ambiguous as to the scope of the right

of first refusal.” R7-84-8. Applying Georgia law2, the court then attempted to resolve

the contract ambiguity using Georgia’s rules of construction. See id. The district

court determined that the past relationship between SCF and AFC would most likely

suggest that the scope of the right of first refusal was limited to the development of

new Popeye’s restaurants within St. Charles Parish. See id. at 12. Specifically, the

2
Because the parties consented in the Franchise Agreement that it would “be interpreted and
construed under the laws of the State of Georgia,” 1SR-101-Exh. 8-33, the district court applied
Georgia contract law.

5
district court pointed to the facts that SCF had only dealt with AFC as the franchisor

of Popeye’s restaurants, that the territorial exclusivity which the right of first refusal

replaced was limited to Popeye’s restaurants, that SCF lacked evidence indicating that

AFC intended to alter SCF’s franchise relationship by granting it development rights

in the Church’s brand, and that the language in the franchise agreement between the

parties preserved the right for AFC to compete with SCF through other franchise

systems. See id. at 9-11. Finally, the district court denied SCF’s motion to amend its

complaint because its determination that AFC never offered SCF a right of first refusal

for the Church’s brand would dispose of the claims SCF sought to add to its

complaint. Thus, the district court concluded that SCF’s amendment would be futile.

Subsequently, the district court, when considering SCF’s motion to vacate,

found, even after considering three additional depositions, that SCF had failed to meet

the standard required to withstand AFC’s motion for summary judgment. See 2SR-

103 at 4-5. The court sympathized with SCF and noted that AFC’s actions “hardly

seem[] to promote the team spirit;” however, the court remained unconvinced that

SCF’s interpretation of the letters from AFC could be accepted by a reasonable jury.

Id. at 10. Therefore, the district court denied SCF’s motion to vacate its grant of

summary judgment. SCF now appeals.

6
 II. DISCUSSION

On appeal, SCF argues that the district court never made a specific finding that

there was no genuine issue of material fact in dispute but instead made a legal

determination that the contract between SCF and AFC was ambiguous and then

resolved the ambiguity by attempting to ascertain the parties’ intent. Second, SCF

contends that the district court’s weighing of the evidence and the inferences it drew

therefrom were inappropriate on summary judgment. Third, SCF claims that the

district court incorrectly applied the Georgia Rules of Statutory Construction in its

attempt to resolve the contract ambiguity. Finally, SCF argues that because the

district court’s conclusion that AFC did not extend SCF a right of first refusal for both

the Popeye’s and Church’s brands was inappropriate, the court’s conclusion that

SCF’s amendment of its complaint would be futile was also incorrect.

In opposition, AFC suggests that the district court correctly determined that the

contract between AFC and SCF was ambiguous as a matter of law and then, as

required by Georgia law, properly ascertained the parties’ intentions. Moreover, AFC

claims that SCF failed to meet its burden of proof by not submitting any evidence

supporting its interpretation of the scope of the right of first refusal. Finally, AFC

argues that the district court correctly concluded that the amendment would be futile

7
because the district court’s entry of summary judgment on SCF’s existing complaint

was proper and, therefore, AFC’s amended complaint would also fail as a matter of

law.

A. SUMMARY JUDGMENT

We review de novo the district court’s order granting summary judgment. See

Williams v. Vitro Services Corp., 144 F.3d 1438, 1441 (11th Cir. 1998). A motion

for summary judgment should be granted when “the pleadings, depositions, answers

to interrogatories, and admissions on file, together with the affidavits, if any, show

that there is no genuine issue as to any material fact and that the moving party is

entitled to judgment as a matter of law.” Fed. R. Civ. P. 56 (c). There is no genuine

issue for trial “[w]here the record taken as a whole could not lead a rational trier of

fact to find for the non-moving party.” Matsushita Elec. Indus. Co. v. Zenith Radio

Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 1356, 89 L. Ed. 2d 538 (1986). In making

this assessment, we “must ‘view all the evidence and all factual inferences reasonably

drawn from the evidence in the light most favorable to the nonmoving party,’”

Maniccia v. Brown, 171 F.3d 1364, 1367 (11th Cir. 1999) (quoting Stewart v. Happy

Herman’s Cheshire Bridge, Inc., 117 F. 3d 1278, 1285 (11th Cir. 1997)), and “resolve

8
all reasonable doubts about the facts in favor of the non-movant,” United of Omaha

Life Ins. v. Sun Life Ins. Co., 894 F.2d 1555, 1558 (11th Cir. 1990). Further, “[i]f

reasonable minds might differ on the inferences arising from undisputed facts, then

the court should deny summary judgment.” Warrior Tombigbee Transp. Co. v. M/V

Nan Fung, 695 F.2d 1294, 1296-97 (11th Cir. 1983) (finding summary judgment “may

be inappropriate where the parties agree on the basic facts, but disagree about the

factual inferences that should be drawn from these facts”).

Because the parties consented in the Franchise Agreement that it would “be

interpreted and construed under the laws of the State of Georgia,” 1SR-101-Exh. 8-33

at § XXV,¶ A, we apply Georgia contract law. Under Georgia law,

“[t]here are three steps in the process of contract construction. The trial
court must first decide whether the contract language is ambiguous; if it
is ambiguous, the trial court must then apply the applicable rules of
construction (OCGA § 13-2-2)3; if after doing so the trial court

3
O.C.G.A. § 13-2-2 provides nine rules for interpretation of contracts; these rules
provide, in pertinent part:
(1) Parol evidence is inadmissible to add to, take from or vary a written
contract ...;
(2) Words generally bear their usual and common signification. ...;
(3) The custom of any business or trade shall be binding only when it is
of such universal practice as to justify the conclusion that it became, by
implication, a part of the contract. ...;
(4) The construction which will uphold a contract in whole and in every
part is to be preferred, and the whole contract should be looked to in arriving
at the construction of any part;
(5) If the construction is doubtful, that which goes most strongly against
the party executing the instrument or undertaking the obligation is generally
to be preferred;

9
 determines that an ambiguity still remains, the jury must then resolve the
ambiguity.”

Georgia-Pacific Corp. v. Lieberam, 959 F.2d 901, 904 (11th Cir. 1992) (quoting Copy

Systems of Savannah, Inc. v. Page, 197 Ga. App. 435, 436, 398 S.E.2d 784, 785 (

1990); brackets in original). In the case at bar, the district court correctly determined

that the scope of the right of first refusal granted by the Letter Agreements was

ambiguous. See International Bhd. of Boilermakers v. Local Lodge D111, 858 F.2d

1559, 1561 (11th Cir. 1988) (“A contract term is ambiguous if it is reasonably

susceptible of more than one interpretation.”). However, the district court erroneously

concluded that the applicable rules of construction resolved the ambiguity and limited

the right of first refusal to the Popeye’s brand.

As the district court noted, see R7-84 at 8; the “cardinal rule of construction is

to ascertain the intention of the parties,” O.C.G.A. § 13-2-3. See also Georgia-

Pacific, 959 F. 2d at 905 (citing O.C.G.A. § 13-2-3 and Hunsinger v. Lockheed Corp.,

192 Ga. App. 781, 386 S.E.2d 537, 539 (1989)). When attempting to ascertain the

intent of parties to a contract, the court should consider the language of the contract

(6) The rules of grammatical construction usually govern. ...;
(7) When a contract is partly printed and partly written, the latter part
is entitled to most consideration;
(8) Estates and grants by implication are not favored;
(9) Time is not generally of the essence of a contract ....

10
in light of the surrounding circumstances, see Georgia R.R. Bank & Trust Co. v.

Federal Deposit Ins. Corp., 758 F.2d 1548, 1552 (11th Cir. 1985); Paul v. Paul , 235

Ga. 382, 219 S.E.2d 736, 738-39 (1975), including the correspondence between the

parties during the contract negotiations, see Romine, Inc. v. Savannah Steel Co., 117

Ga. App. 353, 160 S.E.2d 659, 660 (1968). Enforcement of the parties’ intent is

superior to the other rules of construction, “if that intention is clear,” the parties used

“sufficient words ... to arrive at the intention,” and “it contravenes no rule of law.”

Hunsinger, 386 S.E.2d at 539 (quoting O.C.G.A. § 13-2-3). If, however, after

applying the rules of construction, the intent of the parties continues to be disputed

and capable of more than one interpretation, then it is a “factual matter for resolution

by the jury and not a matter of law for determination by the court.” Crestlawn

Memorial Park v. Scott, 146 Ga. App. 715, 247 S.E.2d 175, 177 (1978).

The evidence in this case can support the district court’s conclusion that AFC

did not intend to grant development rights in the Church’s brand and, therefore, that

the scope of the right of first refusal was limited to the Popeye’s brand. However,

viewing all the evidence in the light most favorable to SCF, we find that the evidence

also provides sufficient support to allow a rational fact-finder to conclude that AFC’s

grant of a right of first refusal to SCF for “any development,” 1SR-1-101-Exh. 7 and

R6-78 Adden. 9-Exh. 7-A, within St. Charles Parish included both the Popeye’s and

11
the Church’s brands. Specifically, the facts that the Popeye’s franchisees believed

they already had a right of first refusal covering the Church’s brand and that the

Church’s logo was printed on the Letter Agreements could lead a rational factfinder

to infer that right of first refusal granted by AFC in the Letter Agreements included

both the Popeye’s and Church’s brands. See Empire Distrib, Inc. v. George L. Smith

II Georgia World Congress Center Authority et. al., 235 Ga. App. 742, 744 (1998)

(explaining that both extrinsic and parol evidence are admissible to explain ambiguity

within a written contract); Cox Broadcasting Corp. et. al. v. National Collegiate

Athletic Association et. al., 250 Ga. 391, 297 S.E.2d 733 (1982) (stating that courts

may consider extrinsic evidence when deciding if there was a mutual assent to an

agreement). See also Exh., Dep. of E.Carlson at 42-43 (testifying that he understood

the scope SCF’s territorial exclusivity to be the same as the territorial exclusivity of

his other Popeye’s franchise in Plaquemines Parish and, therefore, to include “all

brands. Anything the parent company or franchiser [sic] was trying to sell or

opening.”); Exh., Dep. of C. Carlson at 38-43 (explaining that both the Englanders

and his father, as long-time Popeye’s franchisees, had told him that when the

predecessor to AFC became the franchiser of the Church’s brand, it sent its existing

Popeye’s franchisees letters assuring them that they would be given a right of first

refusal on any Church’s restaurants to be opened within the exclusive territory they

12
had been granted for their Popeye’s franchise and even offered the Popeye’s

franchisees special financing to open Church’s restaurants; and further explaining that,

although he did not see any documentation that SCF held such a right of first refusal,

he did not request this documentation because “as the transaction developed, we got

that protection”); Exh., Dep. of Richard W. Englander, Jr. at 124-25 (stating that when

AFC’s predecessor acquired the Church’s brand, SCF received a letter explaining the

merits of the Church’s acquisition and explaining that Popeye’s “franchisees in a

particular area, who wanted, would have first rights to acquire that Church’s

franchise.”); Exh., Dep. of Marilyn H. Englander at 7 (“I was aware of that Church’s,

when it was bought by Popeyes, that we had the right to buy the Church’s first in our

parish. There was a letter that was sent out to us and it soothed my feelings of what

if someone came in on us.”).

Moreover, we are persuaded that the rules of contract construction require that

the ambiguity in this contract be construed against AFC. See Georgia-Pacific Corp.,

959 F.2d at 905 (It is well established [in Georgia] that any ambiguity in a contract is

to be construed against the party who drafted it’”) (quoting Crook v. West, 196 Ga.

App. 4, 4-5, 395 S.E.2d 260, 261 (1990); brackets in original); see also O.C.G.A. §

13-2-2(5). Michael Anderson, acting as an agent for AFC, drafted the Letter

Agreements. He used the term “any development within St. Charles Parish.”

13
Applying the “usual and common signification” of these words, O.C.G.A. § 13-2-

2(2), this term could be interpreted to mean “every [or] all” development

contemplated by AFC. THE RANDOM HOUSE DICTIONARY OF THE ENGLISH

LANGUAGE, UNABR. 96 (2d ed. 1987). This interpretation seems all the more likely

given the fact that the letters were written by an agent of both franchises on stationary

displaying the logos of both franchises.

The district court found that “the best indicator of the parties’ intent is their

prior relationship.” R7-84 at 9. Accordingly, the district court relied upon the fact

that the SCF had only dealt with AFC as a Popeye’s franchisee prior to the Letter

Agreements as support for its conclusion that the right of first refusal should be

limited to the Popeye’s restaurants. In contrast, because the current and past owners

of SCF were franchisees of Al Copeland Enterprises prior to the acquisition of the

Church’s brand, a reasonable jury could find that any assurances they may have

received at the time that the Church’s brand was acquired created a foundation within

their past and existing relationship to support the interpretation that the Letter

Agreements provided SCF a right of first refusal that included both the Popeye’s and

Church’s brands within St. Charles Parish.

Similarly, the district court believed that an interpretation of the Letter

Agreements to provide SCF a right of first refusal for both the Church’s and Popeye’s

14
brands was antithetical to the parties’ franchise agreement provision which explicitly

preserved AFC’s right to compete with SCF’s Popeye’s restaurants via “other

franchise systems,” such as Church’s. See R7-84 at 11 (applying O.C.G.A. § 13-2-

2(4) by using “‘the whole contract ... in arriving at the construction of any part’”).

However, C. Carlson explained that SCF negotiated the right of first refusal in

question as a response to the clause in a separate document, AFC’s Uniform Franchise

Offering Circular, that preserved AFC’s right to compete against its Popeye’s

franchisees using the Church’s brand. See Exh., Dep. of C. Carlson at 49-69. Given

this background to the negotiations of the right of first refusal, a reasonable factfinder

could conclude that the Letter Agreements were intended to limit the franchise

agreement and provide SCF some protection against potential competition from

Church’s within St. Charles Parish. It is well established under Georgia law that

parties have a right to change the terms of their agreement by subsequent agreements,

so long as the subsequent agreement is supported by some consideration. See Nalley

v. Hanover Fire Ins. Co., 56 Ga. App. 555, 193 S.E. 619, 626 (1937). Here, the Letter

Agreements are supported by SCF relinquishing its territorial exclusivity and signing

a new franchise agreement.4

4
We acknowledge that the clause in the franchise agreement whereby AFC retains the
right to compete against its franchisees under a different set of proprietary marks has been
enforced by other courts and found not to breach the implied covenants of good faith and fair
dealing. See Clark v. America’s Favorite Chicken Company, 110 F. 3d 295, 298 (5th Cir.

15
 Therefore, we conclude that because reasonable factfinders could interpret the

Letter Agreements between SCF and AFC differently after applying the Georgia rules

of contract construction, the contract remains ambiguous. Accordingly, we find that

the district court erred in granting summary judgment and the ambiguity of the Letter

Agreements should be left for a jury to resolve.

B. MOTION TO AMEND COMPLAINT

SCF petitioned the district court for leave to amend its complaint by adding four

causes of action based upon unfair trade practices, breach of implied covenants,

detrimental reliance, and breach of other duties. See R5-70 at 6. Specifically, SCF

alleged (1) that AFC “used unfair methods of competition and unfair or deceptive acts

or practices in conducting its trade in violation of the Unfair Trade Practices and

Consumer Protection Law;” id. at ¶ 26, (2) that AFC “breached its implied covenant

of good faith and fair dealing by placing another franchise in direct competition with

an existing franchisee;” id. at ¶ 27, (3) that SCF “detrimentally relied on promises and

conduct of AFC, resulting in damages”; id. at ¶ 28, and (4) that AFC “breached other

1997). However, this case hinges not on the validity of that clause within the franchise
agreement, but on whether the Letter Agreements were intended to limit the application of
that clause by providing SCF a right of first refusal for the development of both Popeye’s and
Church’s restaurants in St. Charles Parish.

16
duties and obligations owed to [SCF] under the prevailing circumstances,” id. at ¶ 29.

The district court found that “[a]ll of the claims plaintiff seeks to add to its complaint

depend for their success on plaintiff’s assertion that defendant breached an agreement

to extend a right of first refusal for the Church’s brand.” R7-84 at 14. The district

court concluded that its holding that AFC never promised to grant SCF a right of first

refusal for the Church’s brand “dispose[d] of all of the claims plaintiff seeks to add

to its complaint.” Id. at 15. Accordingly, the district court found that SCF’s

amendment of its complaint would be futile and, thus, denied the motion to amend .5

Id.

When a district court denies the plaintiff leave to amend a complaint due to

futility, the court is making the legal conclusion that the complaint, as amended,

would necessarily fail. See Motorcity of Jacksonville, Ltd. v. Southeast Bank N.A.,

83 F.3d 1317, 1323 (11th Cir. 1996), vacated on other grounds by Hess v. F.D.I.C.,

519 U.S. 1087, 117 S. Ct. 760, 136 L. Ed. 2d. 708 (1997), reinstated by Motorcity of

Jacksonville, Ltd. v. Southeast Bank N.A., 120 F.3d 1140 (11th Cir. 1997), cert.

denied, ___ U.S.___, 118 S. Ct. 1559, 140 L. Ed. 2d 791 (1998). We review de novo

5
The district court commented that it was inclined to agree with AFC that SCF’s
motion to amend its complaint is untimely since it was “submitted eighteen months after this
case was filed and nearly a year after its docketing in this Court.” R7-84 at 13-14. However,
because the district court found that the amendments would be futile, it did not address the
timeliness issue. Id. at 14.

17
that conclusion of law. See id.6 The district court based its finding that the additional

causes of action which SCF sought to include in its complaint were futile on its earlier

conclusion that AFC did not grant SCF a right of first refusal in the Church’s brand.

Our conclusion that the contract between SCF and AFC remains ambiguous after

applying the Georgia rules of contract construction and that the scope of the right of

first refusal AFC promised SCF must be determined by a jury, invalidates the district

court’s basis for denying the amendment. Therefore, on remand the district court

should reconsider whether, in light of this ruling, SCF’s amendment to its complaint

would be futile.7

III. CONCLUSION

Because genuine issues of material fact exist that preclude summary judgment,

we REVERSE the district’s court judgment and REMAND this case for further

proceedings consistent with this opinion.

6
Generally, a court’s refusal to allow a plaintiff to amend its complaint is reviewed for
abuse of discretion, see Shipner v. Eastern Air Lines, Inc., 868 F.2d 401, 407 (11th Cir. 1989);
however, when the denial is based upon a finding that amendment of the complaint as
proposed would be futile, then the standard of review is de novo, see Ochran v. United States,
117 F. 3d 495, 503 n. 3 (11th Cir. 1997).
7
In determining whether SCF’s additional causes of action are viable, the district court
should “focus precisely on the nature and contours of each.” Motorcity of Jacksonville, Ltd.,
83 F.3d at 1338-39.

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