Opinion ID: 59474
Heading Depth: 2
Heading Rank: 5

Heading: Sterling's Tortious Interference Claims

Text: We have found no error in the district court's imposing of liability on Sterling under the Lanham Act. We now turn to the grounds on which Sterling argues its claims against Schlotzsky's were improperly denied. First, Sterling alleges that the district court erred when it granted judgment as a matter of law with respect to Sterling's state law claims for tortious interference with its contracts. Sterling argues that it presented sufficient evidence of this tort by proving that Schlotzsky's required franchisees to purchase ninety-five percent of their products from SYGMA and COI. That requirement is said to be economic duress against parties that had contracted with Sterling, duress which convinced them to abandon those contracts. Preliminarily, we note Schlotzsky's argument that Sterling never pled the issue of duress. A party must place an opposing party on notice of a claim. Fed. R. Civ. Proc. 8(a); EPCO Carbon Dioxide Prods., Inc. v. JP Morgan Chase Bank, NA, 467 F.3d 466, 470 (5th Cir.2006). An issue not pled also may be tried by consent. Fed. R.Civ.P. 15(b). We find that the allegations in Sterling's pleadings and the evidence that Schlotzsky's required franchisees to use SYGMA and COI adequately preserve the issue of tortious interference for our review. In reviewing the propriety of a trial court's grant of a Rule 50 motion for judgment as a matter of law, we: review all of the evidence in the record, draw all reasonable inferences in favor of the nonmoving party, and may not make credibility determinations or weigh the evidence. Credibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge. While we review the record as a whole, we must disregard all evidence favorable to the moving party that the jury is not required to believe. Thus, we are required to give credence to the evidence favoring the nonmovant as well as that evidence supporting the moving party that is uncontradicted and unimpeached, at least to the extent that that evidence comes from disinterested witnesses. Palasota v. Haggar Clothing Co., 499 F.3d 474, 480-81 (5th Cir.2007) (internal quotation marks and citations omitted). That review standard must be applied to any record evidence of the elements of the tort of economic duress as defined under Texas law. We have previously analyzed Texas law to require this: (1) a threat to do something beyond the legal right of the party making the threat; (2) an illegal exaction or some fraud or deception occurs; and (3) a restraint arises that is imminent and destroys free agency without present means of protection. Beijing Metals & Minerals Import/Export Corp. v. Am. Business Ctr., Inc., 993 F.2d 1178, 1184-85 (5th Cir.1993). The Texas precedents also hold that the opposing party must be responsible for the financial distress. Id. at 1185. In one precedent, this Court affirmed summary judgment in favor of Wal-Mart because the plaintiff failed to present any evidence of economic duress. Lee v. Wal-Mart Stores, Inc., 34 F.3d 285, 287 (5th Cir.1994). Wal-Mart sent Lee a commitment letter to execute a lease, but continued to negotiate specific terms. Id. at 289. Wal-Mart eventually cancelled the lease. Id. Lee argued that he had no choice but to sign a less favorable lease because the bank notes on his property were coming due. Id. The district court concluded, and we affirmed, that Wal-Mart was free to pursue its own interests in negotiating leases, even if the negotiations result in a perceived bad deal for the other party. Id. at 290. In another precedent cited by Sterling, we affirmed the district court's grant of summary judgment because there was no evidence presented on any element of duress. Beijing Metals, 993 F.2d at 1185. American Business claimed that absent its agreement to new conditions with its supplier with whom it had been in dispute over the quality of the products, it would suffer a substantial economic loss on the defective goods it had already received. Id. at 1184. However, the supplier had the right to seek a payment plan for the past-due amounts on previously-sent goods; the buyer could pursue legal remedies on its disputes regarding quality. Consequently, American Business failed to provide probative evidence indicating it lacked a reasonable alternative to signing the agreement at issue. Id. at 1185. These two cases set out the law that is to be applied. In dismissing Sterling's intentional interference claim, the district court found the following: Schlotzsky's and its franchisees had the right to enter into these contracts; and therefore, the conduct of Schlotzsky's was certainly reasonable under the circumstances. But additionally, any damage verdict should the jury find intentional interruption and interference with contracts of Sterling would be wholly speculative. They would have to infer that Sterling would have stayed in the market. They would have had to infer what products they would have been able to sell. There's no evidence of any of that. They would have to just pick a figure out of the air, and then, they would have to discount it. And there's simply no evidence in this record that would justify any jury verdict of damages on that cause of action. This reasoning is persuasive. Schlotzsky's had the legal right to execute the contracts with SYGMA and COI. Such contracts are standard and are a significant part of what makes franchising financially attractive. Specifically, in a pre-trial order, the trial court found that Sterling had admitted at a hearing that Schlotzsky's had the right to set quality standards for its products, and also had the right to approve all suppliers and distributors of their branded products. [3] Consequently, Schlotzsky's insistence that franchisees abandon other arrangements and begin exclusive dealing with the applicable distributor for their region was within its contractual rights. In addition, the non-exclusive and revocable nature of Schlotzsky's authorization with Sterling allowed Schlotzsky's to pursue its own financial interests, even if unfavorable to Sterling. What Sterling lost when the franchisees turned to SYGMA and COI was its interests under revocable agreements with the franchisees. There was not any threat or commission of an act that was beyond Schlotzsky's legal rights. Sterling lost what it was always legally vulnerable to losing. A separate issue is raised of whether Sterling ever presented evidence by which lost profits could be measured. Because of our finding that there was no evidence to support the other elements of the tort, we need not address damages. The district court properly granted the Rule 50 judgment with respect to Sterling's state law claims for tortious interference with its contracts.