Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-93-07189/USCOURTS-caDC-93-07189-0/pdf.json

Parties Involved:
Bennett Enterprises, Inc.
Appellant
Domino's Pizza Distribution Corporation, Inc.
Appellee
Domino's Pizza, Inc.
Appellee

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued December 6, 1994 Decided February 3, 1995

No. 93-7188

BENNETT ENTERPRISES, INC.,

APPELLEE

v.

DOMINO'S PIZZA, INC.,

APPELLANT

DOMINO'S PIZZA DISTRIBUTION CORPORATION, INC.,

APPELLANT

No. 93-7189

BENNETT ENTERPRISES, INC.,

APPELLANT

v.

DOMINO'S PIZZA, INC.,

APPELLEE

DOMINO'S PIZZA DISTRIBUTION CORPORATION, INC.,

APPELLEE

Cross Appeals from the United States District Court

for the District of Columbia

92cv01111

John F. Verhey argued the cause for appellant/cross-appellee. With him on the briefs were Marc P.

Seidler, David J. Cynamon and Ellen M. Jakovic.

Michael J. McManus argued the cause for appellee/cross- appellant. With him on the brief was John

A. Bonello. John Joseph Brennan, III, entered an appearance for appellee/cross-appellant.

Before SILBERMAN, BUCKLEY, and SENTELLE, Circuit Judges.

Opinion for the Court filed by Circuit Judge SENTELLE.

SENTELLE, Circuit Judge: Domino's Pizza, Inc. ("Domino's") appeals a jury verdict awarding

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Bennett Enterprises,Inc.("Bennett") $2,250,000 in compensatoryand punitive damages on its claims

for breach of contract and tortious interference with a prospective economic benefit, arising from

Domino's' default of its franchise agreement for failure to pay taxes and the subsequent sale of its

store. Because the franchise agreement was, as a matter of law, unambiguous regarding Domino's'

right to place a franchisee in default for failure to adhere to the tax laws and there was no other

sufficient evidence of contract breach, and because the elements of tortious interference were not

made out, the judgment is hereby reversed.

I. BACKGROUND

In December 1987, Bennett, a corporation created by Bruce and Arthur Bennett, two

experiencedDomino'smanagers, entered a franchise agreement withDomino's providing thatBennett

would operate a Domino's pizza store on Hawaii Avenue in Washington, D.C. The agreement

provided in section 15.2, under the heading "Operating Requirements," that Bennett "agree[d] to

secure and maintain in force allrequired licenses, permits and certificates and operate the Store in full

compliance with all applicable laws, ordinances and regulations." Section 18.2, under "Termination

and Expiration," stated that Domino's had the right to terminate the franchise agreement if Bennett

did certain enumerated things, such as underreporting royalty sales, or "fail[ing] to comply with any

other provision of this Agreement or any specification, standard or operating procedure and [failing]

to correct this failure within thirty (30) calendar days after written notice." In section 11, Domino's

agreed to provide "such reasonable operating assistance as [it] determined from time to time to be

necessary for the operation ofthe Store," including advice and guidance regarding "the establishment

of administrative, bookkeeping, accounting, inventory control and general operating procedures."

Section 11 further stated that this assistance did not obligate Domino's to operate the store or "to

provide the accounting or bookkeeping services required for the operation of the Store."

Additionally, section 18.2(j) provided that Domino's had the right to terminate the agreement if

Bennett failed to "pay when due any amount owed to [Domino's] ... or any creditor or supplier of the

Store (other than amounts being bona fide disputed through appropriate proceedings)" and did not

remedy this failure within fifteen days after the receipt of written notice.

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After opening in December 1987, the store sold many pizzas but, for variousreasons, did not

turn a profit. Central to the problems was Bennett's failure to control its costs, file its required profit

and loss reports with Domino's, and, most importantly, pay its federal, state, and D.C. payroll,

income, and sales taxes for most of 1988. At trial, Arthur Bennett stated that Bennett's first two

accountants, whom Bennett chose and who were not employed by Domino's, both failed to pay any

of Bennett's taxes or file the profit and loss statements. Bruce Bennett admitted that he had to write

all the checksto pay bills and accounts payable and that while he paid other bills, he did not write any

checks to pay taxes. Bennett had also failed to make payments to a creditor James Artis, who had

loaned the Bennett brothers initial capital. Artis obtained a $66,300 judgment against Bennett in

April 1989.

Bennett's first accountant, Patrick Miller, called Domino's in February 1988 to say that

Bennett was having accounting and cash control problems and stated that he felt they may not have

paid any taxes. Artis contacted Domino's' Franchise Operations Director Patricia Harriday in July

1988 and told her that Bennett was not giving its accountantsthe proper information to prepare profit

and loss statements and was not paying its taxes. Domino's then contacted Bennett's accountant to

confirm that Bennett had not paid taxes, and arranged a July 1988 meeting with Bennett, during

which Domino's told Bennett to resolve its tax problem and suggested ways it could cut costs and

increase profits. Harriday testified that in September and October 1988 she had several meetings with

Bennett to advise the company further and that Bennett failed to show up for several and generally

showed little progress in making tax payments.

In December 1988, Domino's notified Bennett that it was placing it in default of the franchise

agreement for violating section 15.2 by failing to pay taxes, and gave Bennett thirty days to cure the

default. In February 1989, after the IRS said it would take six to ten weeks to get a tax payment plan

set up, Domino's took Bennett out of default with the proviso that if Bennett did not have its

prepayment plan set up within ten weeks, it would again be placed in default.

InNovember 1988,Bennett hired accountant GordonClay. Claytestified that, as of his hiring,

Bennett had not yet paid any 1988 taxes and that, starting in late 1988 to early 1989, Bennett began

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to pay its current tax liabilities and to get its costs under control. Bennett also handed over its check

writing responsibilities to Clay at this time. Clay stated that Domino's contacted him in December

1988 inquiring about the status ofBennett'sfinancial information and preparation of a tax plan to pay

those liabilities. In the spring of 1989, Clay was able to work out a tax repayment plan with D.C. but

had not yet worked out such a plan with Maryland or the IRS by April 1989. 

In April 1989, Domino's notified Bennett that its failure to remedy its tax liabilities placed it

in default of section 15.2 of the franchise agreement, and gave Bennett thirty days to either pay the

taxes or demonstrate to Domino's that it had payment plans in place. Unable to resolve its tax

problems, Bennett sought a buyer for the franchise, and Domino's gave it until June 1989 to do so.

There were several ways in which to value the store to determine its offering price. The valuation

method in section 19 of the franchise agreement, which gave Domino's the option to purchase the

store, gave a value of approximately $424,000 based on salesin the previoustwelve months. At trial,

the parties disputed whether another formula, used for successful stores, would yield a valuation of

$1.2 million or of roughly $600,000.

In May 1989, Bennett approached Meeks, another Domino's franchise owner, with an offer

to sell him the store for $1.5 million, which Meeks refused. Bennett then negotiated with another

owner, Duignan, who originallysuggested a price of$900,000 based onBennett'srepresentationsthat

its sales were $1.8 million. After finding out that his bank would not lend him $900,000 to buy the

store and that Bennett's sales were actually $1.3 million, Duignan decided to withdraw his offer.

Bennett then agreed to sell the store to Meeksfor $500,000 but made a last minute dealwith Duignan

to sell for $600,000. Domino's gave Bennett an extension of the default deadline to complete

negotiations and approved the sale to Duignan. At trial, Bennett offered evidence of a conversation

between Domino's franchise consultant, Susan Fulton, and Meeks, after Meeks had made his

$500,000 offer, in which Meeks stated that Bennett's store had operational problems and Fulton

acknowledged that these problems did exist.

Three yearslater, Bennettsued Domino'sfor breach ofthe franchise agreement on the ground

that the agreement did not entitle Domino'sto declare Bennett in default on the basis of tax liabilities.

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Bennett asserted that section 15.2, which required compliance with all applicable laws, did not give

Domino's the right to default Bennett for nonpayment of taxes. At trial, Bennett elicited testimony

from Domino's officials that the term "applicable laws" would not encompassthingssuch as parking

tickets. On the basis of the franchise agreement's purported ambiguity, the district court admitted into

evidence subsequent versions of Domino's' standard franchise agreement, which specified that

Domino's had a right to default the franchisee for nonpayment of taxes. Bennett further argued that

Domino's had an obligation under the agreement to assist it in resolving its tax problems, which

Domino's failed to fulfill. Bennett also claimed that Domino's tortiously interfered with its

prospective economic advantage by disseminating information about Bennett's financialsituation to

potential buyers, thus causing the buyersto rescind or lower their offers. As a result, Bennett claimed

that it was forced to sell the store for less than its actual value.

After a three-day trial, the jury awarded Bennett $850,000 in damages on its claim that

Domino's breached the franchise agreement by declaring Bennett in default and by failing to offer

reasonable assistance in resolving Bennett's tax problems. The jury also found that Domino's

intentionally and tortiously interfered with Bennett's prospective economic advantage and awarded

$450,000 in damages. Finally, the jury gave Bennett $950,000 in punitive damages.

Domino's moved for judgment as a matter of law or a new trial on the basis that the verdict

was against the weight ofthe evidence and that the tortiousinterference award was duplicative of the

breach of contract damages. The district court concluded that the jury's verdict was consistent with

the evidence and thatrecoveryintort and contract was permissible because the damages compensated

Bennett for two discrete harms. The district court also denied Bennett's motion to alter or amend the

judgment, which argued that the district court erred in instructing the jury to subtract the $600,000

sale price from the breach of contract award.

II. DISCUSSION

A. Breach of Contract Claims

Domino'sstatesthat section 15.2 unambiguously authorized Domino'sto default Bennett for

failure to obey the tax laws since it obligated Bennett to operate its store "in full compliance with all

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applicable laws, ordinances and regulations." Although the tax laws were not specifically mentioned,

Domino's asserts that the term "all applicable laws" must be read in its plain and ordinary meaning

to encompass every law without exception.

District of Columbia law governs this diversity action. Erie R.R. Co. v. Tomkins, 304 U.S.

64 (1938); Gray v. American Express Co., 743 F.2d 10, 16-17 (D.C. Cir. 1984) (District of

Columbia law is treated as state law for purposes of the "Erie Doctrine"). Under District law, the

question whether a contract provision is ambiguousis a question of law, which this court reviews de

novo. Harbor Ins. Co. v. Omni Constr., Inc., 912 F.2d 1520, 1522 (D.C. Cir. 1990). A contract

provision is ambiguous if it is reasonably susceptible of different constructions, id., but it is not

ambiguous merely because the parties later disagree on its meaning. Clayman v. Goodman

Properties, Inc., 518 F.2d 1026, 1034 (D.C. Cir. 1973); Kass v. William Norwitz Co., 509 F. Supp.

618, 623 (D.D.C. 1980). The admissibility of extrinsic evidence and the possible need for a jury to

assess it depend upon the existence of an ambiguity in the contract. Clayman, 518 F.2d at 1034;

Kass, 509 F. Supp. at 623.

The language ofsection 15.2 is not ambiguous in its application in this case because it is not

reasonably or fairly susceptible to an interpretation that does not encompass compliance with state

and federal tax laws. That the contract may not be interpreted absolutely so as to include parking

laws does not change the fact that any reasonable construction of the language "all applicable laws"

in a business franchise agreement must include tax statutes at the very minimum. To that extent the

contract is unambiguous, and that isthe only extent with which we are concerned. Thus, the district

court erroneously admitted into evidence subsequent forms of Domino's' standard franchise

agreement that expressly set forth violation of the tax laws as a reason for default. Under the

franchise agreement Domino's had the right to place Bennett in default for failure to pay taxes. The

question then becomes whether the evidence established that Domino's breached the contract as

interpreted by this court.

In reviewing the trial court's decision on a motion for judgment as a matter of law, we

evaluate de novo whether the prevailing party proffered sufficient evidence upon which a jury could

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properly base a verdict in itsfavor. Mackey v. United States, 8 F.3d 826, 829 (D.C. Cir. 1993). We,

like the trial court, view the evidence in the light most favorable to the prevailing party, and the jury's

verdict must stand unless the evidence, together with all inferences that can reasonably be drawn

therefrom, is so one-sided that reasonable people could not disagree on the verdict. Id. See also

McNeal v. Hi-Lo Powered Scaffolding, Inc., 836 F.2d 637, 640-41 (D.C. Cir. 1988); Carter v.

Duncan-Huggins, Ltd., 727 F.2d 1225, 1227 (D.C. Cir. 1984).

While, at the end of 1988, Bennett started to pay current taxes asthey became due, as of April

1989, when Domino's placed it in default, Bennett admittedly still had not remedied its large

outstanding tax liabilities arising from its failure to pay taxes for much of 1988, and it never

negotiated payment plans with Maryland or the IRS. Thus, the evidence was undisputed that Bennett

was not in compliance with the tax laws at the time of default. Because there was no countervailing

evidence upon which the jury could base its conclusion that Domino's breached the contract by

exercising its right to place Bennett in default for failure to adhere to the applicable tax laws, the

verdict on this claim cannot stand.

Bennett also failed to make out a breach of contract under section 11 of the franchise

agreement. The evidence is undisputed that Domino's provided Bennett more than the reasonable

assistance that section 11 of the franchise agreement required. Bennett admitted that Domino's

offered an accounting service to provide bookkeeping and tax services for an extra charge and that

it declined to use this service and instead hired its own accountant. Also, neither Bennett nor its

accountant submitted the required profit and lossstatements untilmanymonths had elapsed, and thus

Domino's could not verify whether the accountant'sspeculation that Bennett was not paying tax was

true. Bennett either knew or should have known that it was not paying its tax at this time since Bruce

Bennett was responsible for writing the checks to pay all bills until he turned over this responsibility

to his accountant at the end of 1988. Furthermore, once Domino's confirmed that Bennett had tax

problems, it reviewed Bennett's books, scheduled meetings to help Bennett handle this problem,

recommended that Bennett hire a new accountant to set up a tax repayment plan, and gave Bennett

several months to cure by taking it out of default after the December notice.

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Undersection 11 ofthe franchise agreement, Domino's was obligated merelyto provide "such

reasonable operating assistance as[it] determined fromtime to time to be necessary for the operation

of the Store." It specifically was not obligated to operate the store or "to provide the accounting or

bookkeeping services required for the operation of the Store." The franchise agreement makes it

explicit that Bennett was responsible for obtaining its own accounting services and paying its own

taxes. The undisputed evidence established that once the tax problem was verified, Domino's

provided Bennett extensive assistance, and no reasonable factfinder could draw from this evidence

the inference that Domino's failed to offer Bennett the contractually required "reasonable operating

assistance." Accordingly, the jury's verdict on this issue is unsupported by the evidence and must be

reversed. Cf. Mackey v. United States, 8 F.3d at 829 (the jury's verdict must stand unless the

evidence, together with allthe inferencesthat can reasonably be drawn therefrom, isso one-sided that

reasonable people could not disagree on the verdict). 

B. Tortious Interference with Economic Advantage

Bennett argued that Domino's tortiously interfered with its reasonable business expectancy

ofreceiving between $900,000 and $1.5 million. The jury awarded $450,000 in damages for tortious

interference, suggesting that the store could have been sold for $1,050,000 had Domino's not

allegedly interfered. At trial, Bennett pressed two grounds for its tortious interference claim: 1) that

Domino's wrongly placed it in default and gave it only thirty daysin which to sell, thereby preventing

it from maximizing the sales price for the business; and 2) that Domino's improperly gave bidders

confidential information that led them to withdraw their bids or make lower offers. In light of our

holding that Domino's did not wrongly place Bennett in default, however, Bennett's first ground

cannot support a tortious interference claim since the default was not wrongful. 

As to the second asserted ground, Bennett introduced testimony regarding a conversation

betweenDomino'sfranchise consultant Susan Fulton and Meeks, after Meeks had made his $500,000

offer, in which Meeksstated that Bennett'sstore had operational problems and Fulton acknowledged

that these problems did exist. It appears, however, Meeks did not need to obtain this information

from Domino's since Bennett had supplied him with financial information before he made his offer,

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and Meeks testified that the Bennett brothers told him that they had a short time in which to sell.

Moreover, Bennett offered no evidence of any communications between Domino's and Duignan, and

Duignan specifically stated that although he made an initial offer of $900,000, it was based on

Bennett'sinitialrepresentation that sales were $1.8 million, and that he made a $600,000 second offer

based on the correct sales figure of approximately $1.3 million.

To establish a claim for tortious interference with economic advantage under District of

Columbia law, the evidence must show:

(1) the existence of a valid business relationship or expectancy,

(2) knowledge of the relationship or expectancy on the part of the interferer,

(3) intentional interference inducing or causing a breach of termination of the

relationship or expectancy, and

(4) resultant damage.

Genetic Sys. Corp. v. Abbott Labs., 691 F. Supp. 407, 422-23 (D.D.C. 1988); see also Alfred A.

Altimont, Inc. v. Chatelain, Samperton & Nolan, 374 A.2d 284 (D.C. App. 1977). As its name

would suggest, intentional interference requires an element of intent. Further, "a general intent to

interfere or knowledge that conduct willinjure the plaintiff's business dealingsisinsufficient to impose

liability." Genetic Sys., 691 F. Supp. at 423. Plaintiff cannot establish liability without a "strong

showing ofintent" to disrupt ongoing businessrelationships. Id. Bennett's evidence in this case does

not meet that standard.

Through the testimony of Meeks and Duignan and the rest of its evidence, Bennett has

established at most that Domino's, through the legitimate disclosure of truthful information in the

ordinary course of business, contributed to Bennett's failure to sell its troubled enterprise for as high

a price as it wished. Nothing in the evidence supports more than the rankest speculation that

Domino's or anyone acting on its behalf harbored any ill motive or intent to disrupt Bennett's

economic advantage. Because the claim was not made out as a matter of law, the jury's verdict must

be reversed.

In light of our conclusion that Bennett did not establish liability, we need not address the

parties' arguments on the proper methods for calculating damages or on the propriety of awarding

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punitive damages.

III. CONCLUSION

Based on the foregoing reasons, we conclude that Domino's did not breach the franchise

agreement by placing Bennett in default, and that Bennett failed to proffer sufficient evidence upon

which a jury could properly base a verdict in its favor for the remaining breach of contract and

tortious interference with prospective economic advantage claims. Accordingly, the judgment is

reversed.

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