Brennan v. Carvel Corp.

• Decision Date: 30 July 1990
• Docket Number: Nos. 90-1077,90-1118,s. 90-1077
• Citation: 929 F.2d 801
• Parties: Robert BRENNAN and Joanne Brennan, Plaintiffs, Appellees, v. CARVEL CORPORATION and Raymond Urezzio, Defendants, Appellants. Robert BRENNAN and Joanne Brennan, Plaintiffs, Appellants, v. CARVEL CORPORATION and Raymond Urezzio, Defendants, Appellees. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 801

929 F.2d 801

Robert BRENNAN and Joanne Brennan, Plaintiffs, Appellees, v. CARVEL CORPORATION and Raymond Urezzio, Defendants, Appellants.

Robert BRENNAN and Joanne Brennan, Plaintiffs, Appellants, v. CARVEL CORPORATION and Raymond Urezzio, Defendants, Appellees.

Nos. 90-1077, 90-1118.

United States Court of Appeals First Circuit.

Heard July 30, 1990.

Decided March 29, 1991.

Robert L. Weigel with whom Haya M. Handel, Gibson, Dunn & Crutcher, New York City, John M. Reed, David A. Guberman, Barbara O'Donnell, and Sherin and Lodgen, Boston, Mass., were on brief, for defendants.

John C. Martland with whom Harold Brown, L. Michael Hankes and Law Offices of Harold Brown, Boston, Mass., were on brief, for plaintiffs.

Before CAMPBELL and TORRUELLA, Circuit Judges, and RE, ^* Judge.

RE, Chief Judge:

In this diversity action, defendants-appellants, the Carvel Corporation and Raymond Urezzio (collectively "Carvel"), appeal from a judgment of the United States District Court for the District of Massachusetts which granted plaintiffs-appellees, Robert and Joanne Brennan (the Brennans), $780,406.70 for breach of contract. The Brennans cross-appeal from the district court's judgment denying them recovery under the Massachusetts unfair trade practices statute. See Mass.Gen.L. ch. 93A, Sec. 2 (1985).

On appeal, Carvel contends that the district court, after a bench trial, erred in determining that Carvel was liable for breach of a contract entered into between the Brennans and Carvel prior to the finalization of their franchise agreement. Pursuant to the contract, Carvel agreed to evaluate and approve a suitable location for Alternatively, Carvel argues that, if the court finds that the deposit agreement constituted a separate contract, under the principles of waiver and estoppel, the Brennans are not entitled to damages for breach of contract. Carvel also contends that the district court's finding of fact that Carvel breached the contract was clearly erroneous. Finally, Carvel contends that the district court erred in granting the Brennans reliance damages.

an ice cream store for the Brennans. Carvel contends that the Application and Deposit Agreement for Carvel Retail Manufacturer's License (the deposit agreement) was not a separate and enforceable contract since the franchise agreement subsequently entered into by the parties, the Carvel Retail Manufacturer's License, contained a merger clause which stated that the franchise agreement contains the entire agreement between the parties.

The Brennans, on their cross-appeal, contend that the district court erred in denying their claim for damages under the Massachusetts unfair trade practices statute.

The first question presented on Carvel's appeal is whether the district court erred in concluding that, notwithstanding the merger clause contained in the franchise agreement, the deposit agreement constituted a separate and enforceable contract. Since we conclude that the district court did not err in determining that the deposit agreement constituted a separate and enforceable contract, we must consider whether, under the circumstances, the Brennans either waived or are estopped from asserting their rights under the contract, and whether the district court's finding of fact that Carvel breached the contract was clearly erroneous. We must also consider whether the district court erred in granting the Brennans reliance damages.

The question presented on the Brennans' cross-appeal is whether the district court erred in denying the Brennans' claim for damages under the Massachusetts unfair trade practices statute.

On Carvel's appeal, we conclude that the Brennans neither waived nor are they estopped from asserting their rights under the contract, and that the district court's finding that Carvel breached the contract was not clearly erroneous. We also conclude that the district court did not err in granting the Brennans reliance damages.

Since we conclude, however, that it was error to enter judgment against Urezzio individually, the district court's entry of judgment against him is reversed. As to the cross-appeal, we conclude that the district court did not err in denying the Brennans their claim for damages under the Massachusetts unfair trade practices statute. Hence, the judgment of the district court is affirmed in part and reversed in part.

BACKGROUND

This diversity case for breach of contract arises out of a franchise relationship, entered into in 1977 between the franchisees, Robert and Joanne Brennan (the Brennans) and the franchisor, the Carvel Corporation, for an ice cream store located in Boston, Massachusetts.

According to the testimony at trial, in 1977, the Brennans, who were interested in operating their own business, responded to a newspaper advertisement describing Carvel franchise opportunities. In response to the Brennans' inquiries, Carvel scheduled a meeting for them with Richard Monaco, an assistant to Carvel's vice president and sales manager Raymond Urezzio. On April 24, 1977, at a Carvel store in Brookline, Massachusetts, the Brennans met with Monaco, who gave the Brennans a Carvel informational brochure and a Carvel disclosure statement.

The Carvel informational brochure described the history of the Carvel Corporation, and provided an overview of Carvel operations. The brochure stated that "Carvel employs its own Real Estate location experts ... dedicated to help its owner-operators succeed in their stores." The brochure invited persons who were interested in becoming Carvel franchisees to contact Carvel for an interview. The disclosure statement, which was also given to Carvel will assume responsibility for selecting, obtaining and negotiating a suitable location for the Carvel Store. When a location has been approved, Carvel will negotiate a rental arrangement, prepare and approve lease documents, and handle the closing and signing of the lease. A one time real estate fee of $2,500.00 is paid by the Licensee.

the Brennans by Monaco at the meeting, stated in paragraph 11 that:

Paragraph 23 of the disclosure statement provided that:

Earnings and/or profits, if any, of a Carvel Store are the responsibility of the licensee and no representations or statements of projected earnings or profits are made to Licensees with respect to Carvel retail manufacturing stores. Neither officers nor employees of the Company are authorized to make any claims or statements as to the prospects or chances of success that any Licensee can expect or that past Licensees have had ... CARVEL WILL NOT BE BOUND BY ANY REPRESENTATIONS AS TO SUCCESS OR FAILURE AND AFFIRMS THAT A CARVEL STORE AND BUSINESS CAN FAIL.

(emphasis in original).

The testimony at trial further revealed that the Brennans, on May 21, 1977, again met with Monaco at the Brookline Carvel store. At the May 21 meeting, the Brennans gave Monaco a $1,000 deposit on a Carvel franchise, and the Brennans and Carvel entered into a deposit agreement. The deposit agreement, which was attached to the Carvel disclosure statement, was entitled Application and Deposit Agreement for Carvel Retail Manufacturer's License. The deposit agreement stated that "[t]he Applicant understands that, in reliance upon this application, a substantial amount of time and effort shall be exerted in seeking, surveying and showing locations suitable for a Carvel Store...." The deposit agreement also stated that:

In consideration of the services to be rendered to the Applicant hereunder, the Applicant agrees not to disclose or to make use of ... any trade secrets or information disclosed to [the Applicant] in reliance upon this application, including, but not limited to, contemplated locations for Carvel Stores, methods of financing, sources of supply, merchandising techniques and operating methods. It is intended that this clause shall be effective whether or not a Carvel Retail Manufacturer's License is entered into between the parties.

At the May 21 meeting, the Brennans told Monaco that they knew of available retail space where an ice cream store might be located. The Brennans' proposed site, at 195 State Street in Boston, Massachusetts, was owned by their lawyer, Walter McLaughlin. Monaco stated that he would not approve a location for the Carvel franchise until the proposed site was "studied, evaluated and approved" by Carvel. The Brennans continued to look at other possible locations for their Carvel store.

On July 16, 1977, the Brennans met at the 195 State Street location with Monaco, Urezzio, and Walter McLaughlin. At the meeting, Urezzio approved the 195 State Street location and, according to the testimony of the Brennans, stated that "everything checks out; the site appears to be okay; and ... he had never approved a site which had failed...."

There is evidence in the record that, at the time that Urezzio approved the 195 State Street site, he did not believe that the store could succeed on foot traffic alone, and instead believed that the Brennans would have to generate additional business in the form of office and institutional (O and I) sales. At trial, Urezzio was subject to cross-examination on the basis of his pre-trial deposition. During the deposition, he stated that the 195 State Street site had insufficient foot traffic to succeed as a Carvel store. In addition, the evidence presented at trial established that most Carvel stores were in suburban locations, and that 70% of the sales of a typical Carvel franchise were take-home sales. The 195 State Street site was located in downtown Boston, and, hence, was not well suited to take-home sales of ice cream.

Carvel's written survey for the 195 State Street site was not completed until after the July 16, 1977, meeting. The written survey, as prepared by Monaco, was inaccurate as to the location of the site in relation to other streets and landmarks, and also relied on outdated information. Additionally, Monaco, who was employed by Carvel in...