Court Opinion

ID: 13565
Source: CourtListenerOpinion
Date Created: 2010-04-25 06:28:00+00
Date Added: 2024-06-11T16:46:32.741289
License: Public Domain

REVISED
                   United States Court of Appeals,

                           Fifth Circuit.

                            No. 96-30957.

     AMERICA'S FAVORITE CHICKEN COMPANY, Plaintiff-Appellee,

                                  v.

         CAJUN ENTERPRISES, INC.;      et al.,   Defendants,

   Cajun Enterprises, Inc.;   Harriet Sandy Anaya, individually,
Defendants-Appellants,

                                  v.

Alvin C. Copeland; New Orleans Spice Company;       My Favorite Year,
Inc., Third Party-Defendants-Appellees.

                           Dec. 17, 1997.

Appeal from the United States District Court for the Eastern
District of Louisiana.

Before GARWOOD, DUHÉ and DeMOSS, Circuit Judges.

     PER CURIAM:

     Appellants Cajun Enterprises, Inc. ("CEI") and Harriet Anaya1

appeal the district court's dismissal of their counterclaims and

third party demands.   We affirm.
                              BACKGROUND

     In the mid-1980s, Appellee America's Favorite Chicken Company

("AFC") licensed four Popeye's Fried Chicken Franchises to CEI, a

California corporation, for operation in the San Francisco area.

The franchise agreements required CEI, inter alia, to pay royalties

to AFC and to make contributions to an advertising fund that would

    1
     Anaya was CEI's president and the personal guarantor of CEI's
obligations under the franchise agreements.      Unless otherwise
indicated, references to "CEI" include Anaya as well.
serve the entire Popeye's nationwide franchise system.                   AFC sued

CEI   in   1989    to    recover    past    due   royalties   and   advertising

contributions.

      CEI filed a series of counterclaims against AFC, alleging

various fraud, breach of contract, and state statutory claims under

both Louisiana and California law.                CEI also made third party

demands against Alvin C. Copeland, Sr., New Orleans Spice Company

("NOSC"), and My Favorite Year, Inc. ("MFY"), alleging intentional

interference with contract.

      The district court granted in part AFC's motions for summary

judgment, dismissing CEI's claims under the California Franchise

Investment Law ("CFIL"), the Louisiana Unfair Trade Practices Act

("LUTPA"), and several fraud and breach of contract claims.                   The

court also dismissed all third party claims against NOSC and MFY.

Several fraud and breach of contract claims went to the jury,

however,    as    well   as   the   tortious      interference   claim    against

Copeland.    The jury found in favor of AFC on its claims and in

favor of AFC and Copeland on all of CEI's counterclaims and third

party claims.      CEI now appeals.

                                    DISCUSSION

                                           I.

       CEI claims that AFC breached the franchise agreements by

failing to allocate sufficient advertising funds to CEI's local

market.    The district court dismissed this claim based on language

in the franchise agreements vesting in AFC complete discretion over

advertising fund allocation.           We agree with the district court.

The franchise agreements commit advertising placement to the "sole
discretion" of AFC. See Clark v. America's Favorite Chicken Co.,

110 F.3d 295, 298 (5th Cir.1997). Furthermore, AFC's discretion is

not overridden, as CEI contends, by any language either in the

Uniform   Offering     Circulars      submitted     to   CEI   or   in   Popeye's

Confidential     Operations        Manual.      Those      documents     actually

underscore     the   fact   that    advertising     fund    distribution       is   a

"corporate decision" committed wholly to AFC's discretion.

                                       II.

       The district court granted AFC's motion for summary judgment

on CEI's claim that AFC breached the franchise agreements by

failing   to    provide     "continuing      advisory      assistance"    in    the

operation of the franchises.           Again, we agree with the district

court that the franchise agreement vested complete discretion in

AFC over this matter.       The agreements provide that AFC "will make

available such continuing advisory assistance ... as [AFC] may deem

appropriate." (emphasis added).

       We also reject CEI's contention that AFC's deficient advisory

assistance violated the "implied covenant of good faith and fair

dealing" implied in every Louisiana contract.                  See La. Civ.Code

Ann.   art.     2055    (West      1987);     La.   Civ.Code     Ann.    art.1965

(repealed)(West 1977).        In American Bank & Trust of Coushatta v.

F.D.I.C., 49 F.3d 1064 (5th Cir.1995), we found that to prove a

breach of the implied covenant of good faith and fair dealing under

current Louisiana law, a plaintiff must show an "intentionally

malicious failure to perform."         Id. at 1068;      see also La. Civ.Code

Ann. art.1997 cmt. c (West 1987). CEI's evidence, particularly the

testimony of former AFC Franchise District Manager Mary Ann Grybow,
fails to demonstrate AFC's intentionally malicious failure to

render advisory assistance.

                                      III.

      The district court dismissed CEI's claim under the CFIL, Cal.

Corp.Code § 31.000 et seq., based on its finding that Louisiana,

rather than California, law applied to this issue.2            CEI maintains

that the district court erred in applying Louisiana law because the

parties' choice of law clause does not apply to the CFIL claims and

because California has a greater interest in having its law applied

to this issue.       We decline to reach the conflict of laws issue

because we find that, in any event, CEI could not prevail on its

CFIL claims.

          We note initially that the parties' choice of law clause does

not mandate application of Louisiana law to this issue. The choice

of   law    clause   in   the   franchise    agreements   provides   that   the

"Franchise Agreement[s] shall be interpreted and construed under

the laws of the State of Louisiana, which shall prevail in the

event of any conflict of laws."             On its face, the choice of law

clause is restricted to the interpretation or construction of the

franchise agreements.        Caton v. Leach Corp., 896 F.2d 939, 943 & n.

3 (5th Cir.1990);         AAA Delivery, Inc. v. Airborne Freight Corp.,

646 So. 2d 1113, 1116 (La.App. 5th Cir.1994).                See also Dollar

Systems, Inc. v. Avcar Leasing Systems, Inc., 890 F.2d 165, 171

(9th Cir.1989).           Since the CFIL claims do not implicate the

      2
      It is somewhat ambiguous whether the district court applied
Louisiana law based on the parties' choice of law clause or based
on an interest analysis under the Restatement (Second) of
Conflicts.    This is immaterial, however, since we find that
applying California law to this dispute would not avail CEI.
interpretation or construction of the franchise agreements, they

are not governed by the narrow choice of law clause present here.

See Cottman Transmission Systems, Inc. v. Melody, 869 F. Supp. 1180,

1188 n. 4 (E.D.Pa.1994).

        CEI seeks damages and rescission of the franchise agreements

under       CFIL    §§   31,300    and    31,301.      CEI    must   show    that   AFC

"willfully" made an "untrue statement of material fact" in an

application,          notice      or     report    filed     with    the    California

Commissioner of Corporations (or willfully omitted a material fact

therein).          CFIL § 31,200.        Alternatively, CEI must show that AFC

offered or sold a franchise in California "by means of any written

or oral communication not enumerated in Section 31,200 which

includes an untrue statement of material fact" (or omits a material

fact therefrom).          CFIL § 31,201.          Specifically, CEI contends that

AFC violated the CFIL by (1) failing to disclose "certain material

civil actions" filed against AFC; (2) falsely representing that it

had not, within the last ten years, been subject to any "material

complaint or legal proceeding";                (3) falsely representing that it

did not provide prospective franchisees with sales and profit

forecasts;          and, (4) omitting to state that it provided such

information to prospective franchisees.3

     We find that, even if allowed to proceed under the CFIL, CEI

could not prevail.             The posture in which CEI presents its CFIL

claims      shows     that   they      are   largely   a   recapitulation      of   the

        3
       CEI alleges that these false representations and material
omissions occurred both in AFC's registration with the California
Commissioner of Corporations and in the Offering Circulars and
other materials provided to CEI.
Louisiana fraud claims already presented to the jury.                The jury

specifically found that AFC's failure to disclose franchise-related

litigation was not material to CEI. Further, as the district court

found, the disclaimer clause in the franchise agreements states

that   CEI   was   not   induced   to   execute   the   agreements    by   any

extra-contractual representations.           The misrepresentations and

omissions upon which CEI bases its CFIL claims thus could not have

been "material."

       We therefore affirm the district court's dismissal of the CFIL

claims, albeit for different reasons.

                                     IV.

       CEI argues the district court erred when it applied Louisiana

law to CEI's intentional interference with contract claims and when

it dismissed third-party defendants NOSC and MFY on finding that

Louisiana does not recognize an intentional interference claim

against corporate defendants.       CEI alleged that Al Copeland, NOSC

and MFY engaged in a scheme to inflate the prices of Popeye's

products that CEI was contractually bound to purchase, thus making

CEI's performance of the franchise agreements more burdensome. The

jury exonerated Al Copeland on the tortious interference claim.

        We assume without deciding that California's more expansive

tortious interference claim would encompass actions against NOSC

and MFY, see, e.g., Pacific Gas and Electric Company v. Bear

Stearns & Company, 50 Cal. 3d 1118, 270 Cal. Rptr. 1, 791 P.2d 587,

589-90 (Ca.1990), because we find, in any event, that Louisiana law

should apply to this issue and, further, that Louisiana would not

recognize a cause of action against NOSC and MFY under these facts.
      Because CEI filed its third party demands before January 1,

1992, we apply Louisiana's pre-codification conflicts law to this

issue.    See Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487,

61 S. Ct. 1020, 85 L. Ed. 1477 (1941);               Book IV, La. Civ.Code

Ann.(West 1994);      1991 La. Acts No. 923, § 4. Before Louisiana's

conflicts     codification,    Louisiana    courts    generally     applied   a

combination of Professor Brainerd Currie's "interest analysis" and

the   "most    significant    relationship"    test    of   the    Restatement

(Second) of Conflicts.         Jagers v. Royal Indemnity Company, 276
So. 2d 309, 312-13 (La.1973);        Sandefer Oil & Gas v. AIG Oil Rig of

Texas, Inc., 846 F.2d 319, 322-24 (5th Cir.1988).

      We find that this case presents a "true conflict."                     See

Sandefer Oil & Gas, 846 F.2d at 322-23;          see generally B. Currie,

Selected Essays on the Conflict of Laws (1963).             California has an

interest in applying its expansive tortious interference law to

protect       California     franchisees,     while     Louisiana      has    a

countervailing interest in applying its limited cause of action to,

and   thus     shielding     from   unrecognized      liability,     Louisiana

corporations.     See 9 to 5 Fashions, Inc. v. Spurney, 538 So. 2d 228,

234 (La.1989);      Brinkley & West, Inc. v. Foremost Insurance Co.,

499 F.2d 928, 934 (5th Cir.1974);           Ardoyno v. Kyzar, 426 F. Supp.
78, 82 (E.D.La.1976).

      We are persuaded that, with respect to this issue, Louisiana

has the "most significant relationship" to the parties and the

transactions allegedly giving rise to liability.             See Restatement

(Second) of Conflicts §§ 6 and 145 (1971).              Louisiana's limited

tortious interference action is, in part, a rule proscribing
certain conduct.    See 9 to 5 Fashions, 538 So. 2d at 231.        The state

in which such conduct took place (i.e., the alleged overpricing

scheme occurring in Louisiana) is therefore an important contact

for conflicts purposes.        See Restatement, § 145 cmt. e. We are

further guided by the more recent expressions of Louisiana's

conflicts policies contained in Book IV of the Louisiana Civil

Code. Although Louisiana's Conflicts articles technically do not

apply to an action filed before January 1, 1992, we are at least

persuaded by article 3543, which would apply Louisiana law to an

"issue of conduct and safety" where the injury-causing conduct

occurred in Louisiana and was caused by a Louisiana domiciliary.

La. Civ.Code Ann. art. 3543 & cmt. a (West 1994);                see Symeon

Symeonides, Louisiana Conflicts Law: Two "Surprises", 54 La.L.Rev.

497, 595 n. 41 (1994).

     Louisiana's recent recognition of the tortious interference

action, after nearly one hundred years of disallowing it, also

evidences   a   policy   of   cautious   expansion   of   the   tort   and   a

reluctance to apply wholesale its "rather broad and undefined"

common law version.      See 9 to 5 Fashions, 538 So. 2d at 234, quoting

W. Page Keeton et. al, Prosser & Keeton on the Law of Torts § 129,

at 979 (5th ed.1984).         Thus, quite apart from its interest in

deterring tortious conduct, Louisiana also has an interest in

shielding its domiciliary corporations from expansive tortious

liability Louisiana has not yet adopted, particularly for conduct

occurring within its borders.

     We recognize California's interest in providing redress to its

domiciliary     franchisees    allegedly   injured   there.       We   find,
nonetheless,            that      Louisiana       has    the     more        "significant

relationship"4 to the parties and the transaction where the issue

involves            Louisiana's      limited      tortious     interference       action,

defendants domiciled in Louisiana, and, most importantly, allegedly

tortious conduct occurring within Louisiana.5                        We thus find that

Louisiana law should apply to CEI's tortious interference claims

against NOSC and MFY.

              Our   Court   and     various    Louisiana     courts    of    appeal   have

uniformly           recognized      the    narrowness    of    Louisiana's       tortious

interference action. See, e.g., American Waste & Pollution Control

Co.   v.        Browning-Ferris,          Inc.,   949 F.2d 1384,       1386-87   (5th

Cir.1991);             White   v.    White,    641 So. 2d 538,    541    (La.App.   3d

Cir.1994);           Tallo v. The Stroh Brewery Co., 544 So. 2d 452, 453-55

(La.App. 4th Cir.1989). Even Louisiana appellate courts purporting

to "expand" the cause of action have done so within the limited

confines of the 9 to 5 Fashions decision.                     See, e.g., Guilbeaux v.

      4
     While we are guided by its reasoning, we distinguish Brinkley
& West on its facts. That case involved Louisiana plaintiffs suing
for interference occurring in other states with contracts perfected
and to be performed outside Louisiana. Brinkley & West, 499 F.2d
at 934-35 & n. 28. Compare Ardoyno, where the district court found
Louisiana law applicable to a tortious interference claim on a
contract with a Mississippi domiciliary "made and performable"
within Louisiana.    Ardoyno, 426 F. Supp. at 81-82.      While not
precisely on point, Ardoyno is closer to the present situation,
given that the franchise agreements were at least in part made and
"performable" in Louisiana.
          5
      The district court allowed the tortious interference action
to proceed against Al Copeland, Sr., the owner of NOSC and MFY.
Deposition testimony in the record showed that the alleged
price-inflation scheme was carried out largely pursuant to
Copeland's directives. Thus, it seems that California's deterrence
and compensation policies were at least partially vindicated in
this case; the jury, however, found that Copeland's actions did
not unjustifiably burden CEI's franchise agreements with AFC.
The Times of Acadiana, 693 So. 2d 1183, 1186 (La.App. 3d Cir.1997);

Neel v. Citrus Lands of Louisiana, Inc., 629 So. 2d 1299, 1301

(La.App. 4th Cir.1993).         Under the present facts, CEI's tortious

interference claim against NOSC and MFY does not fall within the

narrow parameters set forth by the Louisiana Supreme Court in 9 to

5 Fashions, see 538 So. 2d at 234, and not since broadened.

       We have recognized that before a Louisiana court will allow a

tortious interference action, the plaintiff must identify a duty

existing between it and the alleged tortfeasor, the violation of

which would give rise to delictual liability.         See American Waste,
949 F.2d at 1390;       see also 9 to 5 Fashions, 538 So. 2d at 231;

Spencer-Wallington, Inc. v. Service Merchandise, Inc., 562 So. 2d
1060, 1063 (La.App. 1st Cir.1990).              For example, a corporate

officer owes a duty to a third person contractually related to the

corporation to refrain from intentional actions that would make the

corporation breach the contract or render its performance more

burdensome.     See 9 to 5 Fashions, 538 So. 2d at 231.

       CEI has not identified any duty owed it by either NOSC or MFY

that    would   bring   those    corporations    within   the   purview   of

Louisiana's tortious interference cause of action.          While NOSC and

MFY may have been closely affiliated to AFC through Al Copeland,

Sr., CEI has not demonstrated, nor can we discern, any relationship

between the alleged tortfeasors and CEI that would give rise to the

requisite duty.    See American Waste, 949 F.2d at 1390.         We believe

that a Louisiana court would have done what the district court here

did:   allow the tortious interference claim to proceed against the

corporate officer, Al Copeland, Sr., whose duty it was not to
interfere with the franchise agreements between AFC and CEI. The

jury       found   Copeland      had   not    interfered      with   the    franchise

agreements, and we decline to allow CEI to relitigate the same

issue against different defendants, particularly when deposition

testimony in the case indicated any alleged overpricing scheme was

done pursuant to Copeland's own guidelines.

       Thus, we affirm, for slightly different reasons, the district

court's dismissal of CEI's tortious interference claims against

NOSC and MFY.

                                             V.

           CEI based its LUTPA claims against AFC on the overpricing

scheme allegedly orchestrated by AFC, NOSC and MFY. The district

court read         the   LUTPA   limitations        period6   as   "peremptive"   and

dismissed the claims as time-barred. CEI argues the district court

erred by not considering that the allegedly tortious scheme was a

"continuing violation" that did not abate until 1994; only at that

time, according to CEI, did the one-year LUTPA period begin to run.

       The district court relied on Neill v. Rusk, 745 F. Supp. 362,

365    (E.D.La.1988)       in    holding     that    the   "continuing     violation"

doctrine did not apply to the LUTPA peremptive period.                     Two recent

Louisiana appellate decisions, however, have found that where a

       6
        The LUTPA limitations period reads:

               The action provided by this section shall be prescribed
               by one year running from the transaction or act which
               gave rise to this right of action.

       La. Stat. Ann. 51:1409(E)(West 1987). Louisiana courts have
       interpreted this period to be peremptive rather than
       prescriptive.   See, e.g., Spencer-Wallington, 562 So. 2d at
       1063.
violation of LUTPA is "continuing" (i.e., where the violation gives

rise to a new cause of action every day), the peremptive period

does not begin to run until the violation ceases.       See Benton,

Benton and Benton v. Louisiana Public Facilities Authority, 672
So. 2d 720, 723 (La.App. 1st Cir.1996);      Fox v. Dupree, 633 So. 2d
612, 615 (La.App. 1st Cir.1993).

     We assume without deciding that the "continuing violation"

doctrine applies to the LUTPA peremptive period, because we find,

in any event, that CEI's LUTPA claims would fail on the merits.    A

trade practice is unfair "when it offends established public policy

and when the practice is unethical, oppressive, unscrupulous, or

substantially injurious to consumers...." American Waste, 949 F.2d

at 1391, quoting Roustabouts, Inc. v. Hamer, 447 So. 2d 543, 548.

What constitutes an unfair trade practice is determined by the

courts on a case-by-case basis.    American Waste, 949 F.2d at 1391.

     While CEI's LUTPA claims are rather amorphous, the only

allegations that could possibly survive the one-year limitation

period (aided by the "continuing violation" doctrine) are those

surrounding   the   alleged   overpricing   scheme.   These   claims

essentially revisit CEI's tortious interference claims, albeit

against a different defendant. As we have observed supra, the jury

has already rejected CEI's tortious interference claims against the

only possible defendant under Louisiana law.     We decline to allow

CEI to rehash those claims against different parties, nor do we

accept its implicit invitation to recognize a cause of action under

LUTPA not otherwise actionable under Louisiana law.     See American

Waste, 949 F.2d at 1392.
     We thus affirm, for alternate reasons, the district court's

dismissal of CEI's claims under LUTPA.

                                        VI.

     The district court granted AFC's motion for summary judgment

on CEI's fraud claims based on allegations that AFC fraudulently

induced CEI to enter the franchise agreements by misrepresenting

sales figures, expenses and profits regarding the San Francisco

area stores.       The court found that the integration/disclaimer

clauses in the franchise agreements prevented CEI from justifiably

relying on any extra-contractual representations allegedly made by

AFC. CEI argues that the integration/disclaimer clauses cannot

insulate AFC from its own fraudulent misrepresentations.

      We need not address the effect of those clauses, because we

find that the allegedly fraudulent statements made to CEI are not

actionable as a matter of law.            Under Louisiana law, a cause of

action exists for fraudulent misrepresentation of past or present

facts;    "unfulfilled promises or statements as to future events,"

however, cannot be the basis for a fraud action.              Watermeier v.

Mansueto,    562 So. 2d 920,   923    (La.App.   5th   Cir.1990)(emphasis

added);    see La. Civ.Code Ann. arts.1953 et seq.           (West 1987).

         According to CEI, AFC stated that CEI could expect sales

similar to those in the Washington, D.C. area given the demographic

similarities between the markets, and that sales would definitely

increase in the San Lorenzo Store if CEI ran it properly.7             These

statements are nothing more than projections of future events and,

      7
      CEI does not allege that AFC misrepresented present sales
figures for any of the locations.
as such, are not actionable as fraud under Louisiana law.                      We

therefore affirm, for alternate reasons, the district court's grant

of summary judgment.

      The district court also granted AFC summary judgment as to

CEI's claims that AFC committed fraud by failing to disclose

certain equipment problems with one of the locations and by failing

to inform CEI that a competitor of Popeye's was planning to

relocate next to another location. Under Louisiana law, "[t]o find

fraud from silence or suppression of the truth, there must exist a

duty to speak or to disclose information."              Greene v. Gulf Coast

Bank, 593 So. 2d 630, 632 (La.1992).        Such a duty could arise from

statute, or from a special relationship between the parties, such

as a fiduciary relationship.       Id. at 633.       We have observed before,

however, that a franchisor and a franchisee are not ordinarily

considered fiduciaries in Louisiana.            See, e.g., Delta Truck &

Tractor, Inc. v. J.I. Case Co., 975 F.2d 1192, 1205 (5th Cir.1992).

     We agree with the district court that CEI has failed to

identify any duty on AFC's part that would have required it to

disclose the facts CEI complains of.       First, as already discussed,

CEI and AFC were not in a fiduciary relationship.                 Second, CEI is

a   relatively    sophisticated      consumer        with   the     ability    to

independently investigate the condition of the locations it planned

to take over.    See Greene, 593 So. 2d at 633.         Finally, AFC was only

indirectly   involved   in   the   purchase     of    the   two    locations   in

question;    CEI actually bought them from a third-party franchisee,

Natraj Corporation.

     Since we find AFC had no duty to disclose the information, we
affirm the district court's grant of summary judgment in favor of

AFC.

                               VII.

       For the foregoing reasons, we AFFIRM the district court's

dismissal of, and grant of summary judgment on, CEI's counterclaims

and third party demands.