Court Opinion

ID: 2969360
Source: CourtListenerOpinion
Date Created: 2015-09-22 15:47:20.214141+00
Date Added: 2024-06-11T11:43:23.910142
License: Public Domain

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12    Cook, et al. v. Little Caesar Enterprises No. 99-1163                         Pursuant to Sixth Circuit Rule 206
                                                                            ELECTRONIC CITATION: 2000 FED App. 0147P (6th Cir.)
                                                                                        File Name: 00a0147p.06
  Michigan courts have held that to maintain a cause of
action for tortious interference, a plaintiff must establish that
defendant was a “third party” to the contract or business
relationship. See Reed v. Michigan Metro Girl Scout Council,        UNITED STATES COURT OF APPEALS
201 Mich. App. 10, 12 (Mich. Ct. App. 1993).                                          FOR THE SIXTH CIRCUIT
   The district court properly held that, because the franchise                         _________________
agreements gave Little Caesar Enterprises the right, under

                                                                                                        ;
specified conditions, to approve or disapprove any sale of the

                                                                                                         
franchises, Little Caesar Enterprises was not a “third party”        KEVIN R. COOK and K. COOK
                                                                                                         
and, consequently, Cook could not maintain a cause of action         ENTERPRISES, INC.
                                                                                                         
for tortious interference. See Cook, 972 F. Supp. at 414-16.                 Plaintiffs-Appellants,
                                                                                                         
The franchise agreements included language that any                                                         No. 99-1163
proposed sale or transfer of the franchise must be approved by
                                                                                                         
Little Caesar Enterprises. Cook’s purchase agreement with                        v.                       >
Aboujaoude was expressly (and properly) conditioned upon                                                 
the approval of the transaction by Little Caesar Enterprises.        LITTLE CAESAR ENTERPRISES, 
                                                                                                         
                                                                                Defendant-Appellee. 
                                                                     INC.,
  Little Caesar Enterprises was a party to the contract. Cook
cannot establish that Little Caesar Enterprises was a “third                                             
party.” A cause of action for tortious interference is                                                  1
precluded. See Reed, 201 Mich. App. at 12. We therefore do
not reach Cook’s contention that Little Caesar Enterprises’                 Appeal from the United States District Court
“means of interference” with this purchase agreement were                   for the Eastern District of Michigan at Flint.
intentional, improper, and unjustified.                                    No. 95-40234—Paul V. Gadola, District Judge.
  AFFIRMED.                                                                             Argued: March 15, 2000
                                                                                   Decided and Filed: April 24, 2000
                                                                    Before: RYAN, MOORE, and FARRIS,* Circuit Judges.

                                                                        *
                                                                        The Honorable Jerome Farris, Circuit Judge of the United States
                                                                    Court of Appeals for the Ninth Circuit, sitting by designation.

                                                                                                    1
2    Cook, et al. v. Little Caesar Enterprises No. 99-1163        No. 99-1163 Cook, et al. v. Little Caesar Enterprises         11

                    _________________                             an element required in every claim based                      on
                                                                  misrepresentations.” Bonfield, 708 F. Supp. at 876.
                         COUNSEL
                                                                    Similarly, the district court noted that reasonable reliance
ARGUED: Alan D. Penskar, SMITH, HARRIS, GOYETTE,                  was required for a fraud action under the Indiana Franchise
WINTERFIELD, PENSKAR & FERREHI, Flint, Michigan,                  Act. See Hardee’s of Maumelle, Ark., Inc. v. Hardee’s Food
for Appellants. Irwin Alterman, KEMP, KLEIN, UMPHREY              Systems, Inc., 31 F.3d 573, 579 (7th Cir. 1994). In Hardee’s,
& ENDELMAN, Troy, Michigan, for Appellee. ON BRIEF:               the franchisee alleged that the franchiser had made
Alan D. Penskar, SMITH, HARRIS, GOYETTE,                          misrepresentations about sales estimates and future
WINTERFIELD, PENSKAR & FERREHI, Flint, Michigan,                  opportunities which were not included in the written
for Appellants. Irwin Alterman, KEMP, KLEIN, UMPHREY              agreement (which included an integration clause). After a
& ENDELMAN, Troy, Michigan, for Appellee.                         bench trial, the franchisee appealed to the Seventh Circuit.
                                                                  On appeal, the court held that “it is simply unreasonable to
                    _________________                             continue to rely on representations after stating in writing that
                                                                  you are not so relying.” Id. at 576.
                        OPINION
                    _________________                               It was not error to look to case law interpreting the Illinois
                                                                  and Indiana franchise laws. We agree that reasonable or
  JEROME FARRIS, Circuit Judge. Kevin R. Cook and K.              justifiable reliance was necessary for a Michigan Franchise
Cook Enterprises, Inc., appeal the district court’s summary       Investment Law claim. The existence of an integration clause
judgment for defendant Little Caesar Enterprises, Inc., in this   in the franchise agreements made Cook’s alleged reliance
diversity action arising from the parties’ franchise              unreasonable, as the district court concluded. See Cook, 972
agreements. We have jurisdiction pursuant to 28 U.S.C.            F. Supp. at 412-14.
§ 1291. We affirm.
                                                                     Cook’s claim under Section Five of the Michigan Franchise
                        Background                                Investment Law, which prohibits fraudulent acts and
                                                                  statements in franchise contracts, “is basically a contractual
   Cook is a Little Caesar franchisee with three restaurants in   fraud claim.” General Aviation, Inc. v. Cessna Aircraft Co.,
Fresno, California. Cook’s basic contention is that although      13 F.3d 178, 183 (6th Cir. 1993). As General Aviation
he was promised (1)“the entire territory ‘east of Blackstone in   concluded, “this argument simply rehashes the breach of
the City of Fresno,’” and (2) that he would “be allowed to        contract claim that we have already dismissed.” Id.
exclusively develop locations in the nearby cities of Clovis
and Sanger,” Little Caesar Enterprises infringed on his           F. Tortious interference           with    contractual      and
territories by franchising additional restaurants and not         advantageous relationships
allowing him to open additional restaurants. The franchise
agreements, however, provide only that Little Caesar                Cook contends that the district court erred by granting
Enterprises will not locate other Little Caesar restaurants       summary judgment on his tortious interference with
within one mile of Cook’s locations. Each franchise               contractual and advantageous relationships claim because
agreement includes an integration clause with respect to any      Little Caesar Enterprises forfeited its status as a party to the
prior agreements or promises.                                     sale agreement. We reject the argument.
10    Cook, et al. v. Little Caesar Enterprises No. 99-1163         No. 99-1163 Cook, et al. v. Little Caesar Enterprises         3

fails to create a genuine issue of material fact concerning any        A threshold issue involves the application of the parole
bad faith on the part of Little Caesar Enterprises.                 evidence rule to various documents Little Caesar Enterprises
                                                                    provided to Cook prior to his signing the franchise
   Cook argues that he reasonably relied on Little Caesar           agreements and also oral promises that Little Caesar
Enterprises’ representations and this reasonable reliance is an     Enterprises representatives allegedly made. When Cook
element of actionable fraud.            Reliance upon oral          began investigating franchise opportunities, Little Caesar
representations or prior documents, even if false, is               Enterprises sent him a dear-prospective-franchisee letter and
unreasonable if the party enters into a subsequent agreement.       a franchise-offering circular. After meeting with Little Caesar
See 3 P.M., Inc. v. Basic Four Corp., 591 F. Supp. 1350, 1366       Enterprises real estate representatives, Cook eventually signed
(E. D. Mich. 1984) (interpreting Michigan law and holding           a franchise option agreement. Cook alleged that Little Caesar
that a plaintiff may not reasonably rely on prior oral              representatives, both orally and in written map outlines, set
statements that directly contradict the terms of a written          aside specific territory exclusively for him.
contract). Cook’s signing the franchise agreements precludes
his reasonable reliance on the prior representations.                  Cook opened his first Little Caesar restaurant in November,
                                                                    1990, for which he signed a franchise agreement on April 8,
D. Innocent misrepresentation                                       1991. Sometime in January or February of 1992, another
                                                                    franchisee opened a Little Caesar restaurant in Clovis,
  Cook also contends that the district court erred by granting      California, just to the east of Fresno which Cook alleges was
summary judgment on his innocent misrepresentation claim            part of his exclusive territory. In May of 1992, Cook opened
because the representations addressed present facts. We             his second Little Caesar restaurant. He signed a franchise
reject the argument. It finds no support in the record.             agreement for this in July of 1992. In May of 1993, Cook
                                                                    signed the franchise agreement for his third Little Caesar
E. Michigan Franchise Investment Law                                restaurant. He also attended two national franchise
                                                                    conventions where his meetings with Little Caesar Enterprises
   Cook contends that the district court erred by granting          representatives, in his view, affirmed his expectation of
summary judgment on his Michigan Franchise Investment               exclusive territories for his restaurants.
Law claim because “reasonable reliance” was not required.
We reject the argument. Although there is no direct Michigan          In 1994, Cook and Jean Aboujaoude, who is another
authority, the district court noted that under the similar          Fresno-area Little Caesar franchisee, signed a purchase
Illinois Franchise Act any reliance on an alleged                   agreement for Cook’s three Little Caesar restaurants. Within
misrepresentation made prior to signing the agreement was           a month, Little Caesar Enterprises disapproved this purchase
found to be not reasonable. See Bonfield v. AAMCO                   agreement, for the alleged reasons that the price was too high
Transmissions, Inc., 708 F. Supp. 867, 876-78 (N. D. Ill.           and Aboujaoude was not contributing enough capital.
1989) (superseded by statute on other grounds). In Bonfield,
a franchisee claimed that he had relied on the franchiser’s           In May of 1996, Cook sought approval from Little Caesar
alleged misrepresentations made prior to signing the franchise      Enterprises to close one of his Little Caesar restaurants. It
agreement, even though he acknowledged the existence of an          was losing sales, he alleged, to other Little Caesar franchises.
integration clause. The Bonfield court granted summary              Little Caesar Enterprises rejected Cook’s application for
judgment for the franchiser, finding that, under the anti-fraud     closure.
section of the Illinois Franchise Act, “justifiable reliance [is]
4       Cook, et al. v. Little Caesar Enterprises No. 99-1163                  No. 99-1163 Cook, et al. v. Little Caesar Enterprises         9

   Cook brought this action in district court on July 12, 1995.                C. Fraudulent misrepresentation
In a second amended complaint, he alleged seven counts:
breach of contract, breach of implied covenant of good faith                     Cook contends that the district court erred by granting
and fair dealing, fraudulent misrepresentation, violation of the               summary judgment on his fraudulent misrepresentation claim
Michigan Franchise Investment Law, tortious interference                       because the representations addressed present facts. We
with contractual and advantageous relationships, innocent                      reject the argument.
misrepresentation, and he sought a declaratory judgment that
Little Caesar Enterprises could not deny him the right to                        To establish fraud, the allegedly false statements must
permanently close one of his restaurants. The district court                   relate to past or existing facts, not to future promises or
granted Little Caesar Enterprises’      motion for summary                     expectations. See Two Men and a Truck v. Two Men and a
judgment on August 7, 1997.1 See Cook v. Little Caesar                         Truck, 955 F. Supp. 784, 785 n.1 (W. D. Mich. 1997); Haque
Enterprises, Inc., 972 F. Supp. 400 (E. D. Mich. 1997).2 The                   Travel Agency, Inc. v. Travel Agents Int’l, Inc., 808 F. Supp.
district court entered judgment on January 7, 1999. Cook                       569, 572 (E. D. Mich. 1992). We agree with the district court
filed a timely notice of appeal.                                               that Hi-Way Motor Co. v. Int’l Harvester Co., 398 Mich. 330
                                                                               (Mich. 1976), is “strikingly similar to the instant case.”
                        Standard of Review                                     Hi-Way involved negotiations leading to a franchise
                                                                               agreement, complete with an integration clause. The written
  We review a district court’s grant of summary judgment de                    agreement made no mention of some key elements of the
novo. See Terry Barr Sales Agency, Inc. v. All-Lock Co., Inc.,                 prior negotiations. See id. at 333-35. In Hi-Way, the court
96 F.3d 174, 178 (6th Cir. 1996). In contract actions,                         held there was no fraudulent misrepresentation because “an
summary judgment may be appropriate when the documents                         action for fraudulent misrepresentation must be predicated
and evidence underlying the contract are undisputed and                        upon a statement relating to a past or an existing fact. Future
there is no question as to intent. See P. F. Manley v.                         promises are contractual and do not constitute fraud.” Id. at
Plasti-Line, Inc., 808 F.2d 468, 471 (6th Cir. 1987) (citation                 336.
omitted). Normally, however, disputed issues of contractual
intent are considered to be factual issues which preclude an                      The district court properly concluded that Little Caesar
award of summary judgment. See id. (citations omitted); see                    Enterprises representatives’ allegedly false statements referred
                                                                               to events which might happen in the future and not to past or
                                                                               present facts. See Cook, 972 F. Supp. at 410-11. Cook’s
    1                                                                          amended complaint and opening brief on appeal support the
       The district court denied summary judgment for Little Caesar            conclusion that he is complaining about future promises. The
Enterprises on Cook’s seventh claim, seeking a declaratory judgment that
Little Caesar Enterprises could not deny him the right to permanently          allegations and contentions all concern alleged representations
close one of his restaurants. See Cook, 972 F. Supp. at 416-17. Because        about future events.
the language in the franchise agreement addressing the permanent closure
of a restaurant was ambiguous, the district court held, there was a material     Cook also argues that the district court erred by dismissing
issue of fact concerning the parties’ intent on this claim. See id. Cook,      out-of-hand the “bad faith” exception to the “past or present
however, later dismissed this claim with prejudice “to concentrate on          fact requirement” of the fraudulent misrepresentation
pursuing the damage claims now before this Court.” Appellants’ Opening
Brief at 4. This claim is not part of the present appeal.                      doctrine. See Hi-Way, 398 Mich. at 337-38 (“a fraudulent
                                                                               misrepresentation may be based upon a promise made in bad
    2                                                                          faith without intention of performance”). Cook, however,
     In denying Cook’s motion for reconsideration, the district court
corrected some minor clerical errors concerning case names.
8    Cook, et al. v. Little Caesar Enterprises No. 99-1163         No. 99-1163 Cook, et al. v. Little Caesar Enterprises             5

See General Aviation, Inc. v. Cessna Aircraft Co., 915 F.2d        also Parrett v. American Ship Building Co., 990 F.2d 854,
1038, 1041 (6th Cir. 1990) (construing Michigan law). In the       858 (6th Cir. 1993) (noting that the interpretation of
franchise agreements, Little Caesar Enterprises reserved the       ambiguous contract language is usually a factual issue turning
right to grant licenses to others subject only to Cook’s           on the intent of the parties).
“exclusive territory,” which, by the terms of the franchise
agreement, was a one-mile exclusive territory. This limitation                                Discussion
was an express term of the franchise agreements and as such,
under Michigan law, the implied covenant of good faith and         A. Breach of contract
fair dealing cannot be employed to override it. See id.
                                                                     Cook contends that the district court erred by granting
   Cook could not employ the implied covenant of good faith        summary judgment on his breach of contract claim because,
and fair dealing to override the express term of the franchise     since there are material issues of fact regarding the meaning
agreements which allowed Little Caesar Enterprises to license      of the franchise agreements, the court must consider parole
franchises outside of Cook’s one-mile exclusive territories.       evidence and look to the parties’ intent. We reject the
The district court did not err. See Cook, 972 F. Supp. at          argument.
409-10.
                                                                      Michigan follows the parole evidence rule which does not
   Cook specifically contends that to the extent that Little       permit extrinsic evidence to be used to contradict the terms of
Caesar Enterprises made the manner of its performance a            a written contract that was intended to be the final        and
matter of its own discretion, the implied covenant would           complete expression of the parties’ agreement.3 See
apply. See Burkhardt v. City Nat’l Bank of Detroit, 57 Mich.       American Anodco, Inc. v. Reynolds Metals Co., 743 F.2d 417,
App. 649, 652 (Mich. Ct. App. 1975) (“Where a party to a           422 (6th Cir. 1984). The court must first find, however, “that
contract makes the manner of its performance a matter of its       the parties intended the written instrument to be a complete
own discretion, the law does not hesitate to imply the proviso     expression of their agreement as to the matters covered.
that such discretion be exercised honestly and in good faith.”).   Extrinsic evidence of prior or contemporaneous agreements
Cook argues that Little Caesar Enterprises had discretion in       or negotiations is admissible as it bears on this threshold
three ways because: (1) the franchise agreements are silent as     question of whether the written instrument is such an
to where Little Caesar Enterprises can locate franchises           ‘integrated’ agreement.” NAG Enters., Inc. v. All State Indus.,
outside of the one-mile radius of Cook’s restaurants, (2) the      Inc., 407 Mich. 407, 410 (Mich. 1979) (per curiam).
franchise option agreement referred to an “approximate” one        Recently, the Michigan Court of Appeal has held “that when
mile radius, and (3) the dear-prospective-franchisee letter        the parties include an integration clause in their written
promised to allocate one restaurant for a minimum of 15,000        contract, it is conclusive and parole evidence is not admissible
population. It does not follow that, because the franchise         to show that the agreement is not integrated except in cases of
agreements prohibit Little Caesar Enterprises from locating        fraud that invalidate the integration clause or where an
other franchises within the one-mile radius, Little Caesar         agreement is obviously incomplete ‘on its face’ and,
Enterprises cannot place other franchises outside this radius
even though it did not expressly reserve the right to do so.
The parole evidence rule bars consideration of matters not             3
                                                                        As noted by the district court, Michigan law permits parties to
incorporated into the written agreement.                           choose which state’s law will govern their contract and, here, the
                                                                   franchise agreements provide that Michigan law should govern. See
                                                                   Cook, 972 F. Supp. at 406.
6       Cook, et al. v. Little Caesar Enterprises No. 99-1163                No. 99-1163 Cook, et al. v. Little Caesar Enterprises                   7

therefore, parole evidence is necessary for the ‘filling of                     Cook’s contention that the trial court is bound by a previous
gaps.’” UAW-GM Human Resources Ctr. v. KSL Recreation                        decision in Eberhardt v. Comerica Bank, 71 B.R. 239 (E. D.
Corp, 228 Mich. App. 486, 502 (Mich. Ct. App. 1998)                          Mich. 1994), is of no consequence. In Eberhardt, the court
(quoting 3 Corbin, Contracts, § 578, p. 411).                                held that the presence of an integration clause was not
                                                                             conclusive “when the contract is a pre-printed form drawn by
  The record supports the conclusion that the franchise                      a sophisticated seller, and presented to the buyer without any
agreements were intended to be complete expressions of the                   negotiations.” Eberhardt, 71 B.R. at 243. There, the court
parties’ agreements and they are not ambiguous. See Cook,                    looked to all writings and oral statements to ascertain the
972 F. Supp at 408. Each franchise agreement: (1) provided                   parties’ intentions. See id. at 243-44. Eberhardt, however,
Cook with only an exclusive territory of the geographical area               involved a situation where both parties agreed that the pre-
within a one-mile radius of each restaurant, and (2) included                printed term was not consistent with the essence of the
an integration clause and acknowledgment by Cook that he                     contract. A non-party creditor sought to enforce the provision
had no knowledge of any representations by Little Caesar                     of the contract. See id. The distinction is pivotal.
representatives that are contrary to the terms of the agreement.
Cook could not use parole evidence to elude the clear                           Cook’s further contention that the district court erred by
provisions of the franchise agreements.                                      basing its decision on the “officer approval” requirement of
                                                                             Kovacs v. Electronic Data Sys. Corp., 762 F. Supp. 161
   Cook’s bare allegation that he was promised “the entire                   (E. D. Mich. 1990), is without merit. The contract at issue in
territory ‘east of Blackstone in the City of Fresno,’” is                    Kovacs included language that required approval of an EDS
insufficient to create a genuine issue of material fact since the            officer to modify the contract. See id. at 164. Cook’s
plain language of the franchise agreements specifically                      franchise agreements include language that any change or
provides otherwise. Cook’s allegation is based entirely on                   modification must be   “in writing and signed by both parties
documents received prior to his signing the first franchise                  to this Agreement.”5
agreement and oral representations allegedly made by Little
Caesar representatives   prior to and after his signing of the first         B. Breach of implied covenant of good faith and fair
franchise agreement.4 The franchise agreements provide only                  dealing
that Little Caesar Enterprises will not establish other Little
Caesar restaurants within one mile of Cook’s locations. Each                   Cook contends that the district court erred by granting
agreement also includes an integration clause with respect to                summary judgment on his breach of implied covenant of good
any prior agreements or promises, indicating that the parties                faith and fair dealing claim because Little Caesar Enterprises
intended the written franchise agreements to be complete                     undertook discretionary actions which injured Cook. We
expressions of their agreements. See NAG, 407 Mich. at 410.                  reject the argument.
There is no evidence of fraud or that the agreements are
incomplete. See UAW-GM, 228 Mich. App. at 502.                                 The obligation of good faith cannot be employed, in
                                                                             interpreting a contract, to override express contract terms.

    4
      Unlike the alleged prior representations, the franchise agreements         5
do not provide that: (1) territories would have a minimum of 15,000                In arguing that “the District Court erred by confusing Morley Bros.
population, (2) Cook would have an exclusive territory east of Blackstone,   with Kovacs,” Appellants’ Opening Brief at 25, Cook ignores the district
or (3) Cook would have future options to open restaurants in Clovis and      court’s acknowledgment of this error, and its correction, in the denial of
Sanger.                                                                      Cook’s motion for reconsideration.