Court Opinion

ID: 1015974
Source: CourtListenerOpinion
Date Created: 2013-07-04 21:41:36.104483+00
Date Added: 2024-06-11T09:43:31.528448
License: Public Domain

UNPUBLISHED

                    UNITED STATES COURT OF APPEALS
                        FOR THE FOURTH CIRCUIT

                             No. 04-1357

JOHN A. MCDONALD; JOHN A. MCDONALD, II,

                                           Plaintiffs - Appellants,

           versus

ROBERT FRIEDMAN; RED HOT & BLUE RESTAURANTS,
INCORPORATED,

                                            Defendants - Appellees.

Appeal from the United States District Court for the District of
Maryland, at Baltimore. Richard D. Bennett, District Judge. (CA-
02-2812-RDB)

Argued:   February 2, 2005                 Decided:   April 19, 2005

Before WILKINSON and KING, Circuit Judges, and Samuel G. WILSON,
United States District Judge for the Western District of Virginia,
sitting by designation.

Affirmed by unpublished per curiam opinion.

ARGUED: W. Stanwood Whiting, OFFICE OF THE ATTORNEY GENERAL OF
MARYLAND, Towson, Maryland, for Appellants. Steven Keith Fedder,
LEITESS, LEITESS & FRIEDBERG, P.C., Baltimore, Maryland, for
Appellees. ON BRIEF: William F. C. Marlow, Jr., MARLOW & WYATT,
Towson, Maryland, for Appellants. Damon L. Krieger, PIPER RUDNICK,
L.L.P., Baltimore, Maryland, for Appellees.

Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
PER CURIAM:

      This is an action for fraud brought under the district court’s

diversity jurisdiction by John A. McDonald and his son John A.

McDonald, II (the “McDonalds”), against Red Hot & Blue Restaurants,

Inc. (“RHB”) and its president, Robert Friedman, arising out of the

failure of a franchising agreement with RHB’s subsidiary, Red Hot

& Blue, Inc. (referred to herein as the “subsidiary” or as “RHB’s

subsidiary”).    The district court granted summary judgment to the

defendants, and we affirm.

                                   I.

      In March 1997, the McDonalds entered into a written franchise

agreement with RHB’s subsidiary to operate a restaurant franchise

in Morgantown, West Virginia.      Under the agreement, the McDonalds

paid the subsidiary an initial, non-refundable franchise fee of

$25,000 and agreed to pay royalties based on a percentage of their

gross sales. The agreement, which contained an integration clause

and a “time is of the essence” provision, called for the McDonalds

to   construct   the   facility   and       begin   operation    within      twelve

months.1   The agreement also required the McDonalds to submit their

site proposals in writing.        The McDonalds submitted one written

proposal   and   RHB’s   subsidiary         approved   it   on   July   9,   1999.

      1
      The agreement provided for a one-year limitations period for
all claims arising out of the agreement or the relationship of the
parties.

                                        2
However, due to some problems with that site, the McDonalds did not

open a franchise at the approved location.        Although the McDonalds

claim they sought to identify alternative sites, they did not make

any further written proposals.        On August 23, 2000, nearly three

and a half years after the execution of the franchise agreement,

Friedman sent the McDonalds a letter noting that the McDonalds had

failed to open a franchise restaurant as the agreement required and

indicating RHB’s desire to bring its business relationship with

them to an “amicable end.”           Although not required under the

agreement, the letter proposed to refund $5,000 of the initial

$25,000 franchise fee.       The McDonalds rejected the offer, and on

October 30, 2000, Friedman terminated the franchise agreement

because the McDonalds had failed to comply with its express terms.

     Six   months   later,   in   June   2001,   the   McDonalds’   counsel

notified RHB of the sale at public auction of used restaurant

equipment that the McDonalds had purchased “as is” from a third

party in 1998 for $115,000.         The letter referred to the “recent

wrongful termination of their franchise” and alleged that the

McDonalds “were defrauded into not only purchasing the equipment

but entering into the franchise agreement in the first instance.”

The McDonalds sold the equipment at public auction for less than

$10,000.

        The McDonalds filed this action in July 2002, in the Circuit

Court   for   Baltimore   County,    Maryland.     Rather   than    sue   the

                                     3
franchisor,    RHB’s     subsidiary,        for   breach     of    the    franchise

agreement, the McDonalds sued RHB and Friedman, alleging two counts

of fraud.2    On the first count, the McDonalds essentially claimed

that the defendants fraudulently induced them to enter into a

franchise    agreement    that   they   never      intended       to   honor.      The

McDonalds claimed that Friedman orally represented that RHB’s

subsidiary    would    approve   site   selections      in    other      locations,

including Maryland, and that he promised the McDonalds “all the

time they needed” to find a restaurant site.            They claimed that the

defendants did not honor these oral inducements or intend to at the

time Friedman gave them.           On the second count, the McDonalds

claimed that the defendants intentionally misrepresented the value

of the used restaurant equipment the McDonalds purchased from a

former   franchisee.      The    defendants       removed    this      case   to   the

district court.       Following discovery, the court found that the

McDonalds’    evidence    was    insufficient      to   establish        reasonable

reliance, an essential element of their fraud claims, and entered

summary judgment for the defendants.

                                    II.

     We review a district court’s award of summary judgment de

novo.    Shaw v. Stroud, 13 F.3d 791, 798 (4th Cir. 1994).                      After

     2
      As the district court correctly noted, the McDonalds could not
raise a breach of contract claim because the franchise agreement’s
one-year limitations period had passed.

                                        4
careful consideration of the parties’ briefs and oral argument, the

record, and the relevant legal authorities, we conclude that the

district court properly granted summary judgment to defendants.

Accordingly, we affirm essentially on the reasoning of the District

Court.   McDonald v. Friedman, Case No. RDB-02-2812 (D. Md. Feb. 3,

2004).     Our review of the record also convinces us that there is

insufficient evidence from which a jury could conclude that the

defendants made material misrepresentations.                    See Sass v. Andrew,

832 A.2d 247, 256 (Md. Ct. Spec. App. 2003)(noting that “fraud or

fraudulent inducement means that a party has been led to enter into

an agreement...as a result of deceit.”)

     The     McDonalds’    theory   as       to    their   claim     of   fraudulent

inducement can be reduced to this: the failure of RHB’s subsidiary

to revise the express terms of the contract as to the franchise

location and its refusal to extend indefinitely the “time is of the

essence” provision is evidence that the defendants never intended

to   honor    the   agreement.      This          theory   is    untenable.     The

franchisor’s ultimate reliance on the express terms of the contract

certainly cannot be evidence of fraud. Indeed, the argument stands

logic on its head.        The McDonalds cannot breach their unequivocal

written promise to begin franchise operations within twelve months

and then cite the franchisor’s reliance on the unequivocal, clearly

understandable provisions of its written franchise agreement as

their evidence of fraud.

                                         5
     The McDonalds’ theory and evidence on the second claim fare no

better.   The McDonalds inspected and purchased “as is, where is”

used restaurant equipment from a third party, a former franchisee.

They complain that defendants represented that the equipment was a

“good deal” but that years later they were able to resell it for

only a fraction of the purchase price.   There is no evidence that

the price they paid for the equipment was inflated or that the

defendants had any financial stake in the sale of the equipment.

In essence, their proof of fraud seems to boil down to nothing more

than their inability to sell the equipment years later for a price

close to the price they paid for it.   There is simply no evidence

showing that defendants misrepresented the value of the equipment.

Furthermore, even if the McDonalds had produced evidence showing

that the purchase price was inflated, we would still find no

evidence of any material misrepresentation on the part of the

defendants.   See First Union Nat’l Bank v. Steele Software Syst.

Inc., 838 A.2d 404,442 (Md. Ct. Spec. App. 2003) (noting that “a

representation which merely amounts to a statement of opinion,

judgment, probability or expectation, or is vague and indefinite in

its nature and terms” is not a material misrepresentation).

                              III.

     We find that the district court appropriately considered and

addressed this matter.    In addition, we find no evidence from

                                6
which   a   jury   could   find   that   the   defendants   made   material

misrepresentations and therefore affirm.

                                                                   AFFIRMED

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