Burger King Corp. v. Ashland Equities, Inc.

• Decision Date: 26 June 2002
• Docket Number: No. 00-1804-CIV.,00-1804-CIV.
• Parties: BURGER KING CORPORATION, Plaintiff, v. ASHLAND EQUITIES, INC., Reinold T. Belle, and Robert E. Clarke, Defendants.
• Court: U.S. District Court — Southern District of Florida

217 F.Supp.2d 1266

BURGER KING CORPORATION, Plaintiff, v. ASHLAND EQUITIES, INC., Reinold T. Belle, and Robert E. Clarke, Defendants.

No. 00-1804-CIV.

United States District Court, S.D. Florida.

June 26, 2002.

Jonathan Perlman, Jessica Serell Erenbaum, Michael D. Joblove, Dennis Dean Leone, Nina Greene Kersh, Genovese Joblove & Battista, Miami, FL, for Plaintiff.

Robert Zarco, Robert Mitchell Einhorn, Jude Christopher Cooper, Zarco Einhorn & Salkowski, Miami, FL, for Defendants.

ORDER ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

GOLD, District Judge.

THIS CAUSE is before the Court upon Plaintiff Burger King Corporation's ("BKC") Motion for Summary Judgment [D.E. 76], filed on December 28, 2001. Defendants Ashland Equities, Inc. ("Ashland"). Reinold T. Belle ("Belle"), and Robert E. Clarke ("Clarke") filed a Response to Plaintiff's Motion for Summary Judgment on January 22, 2002 [D.E. 102] and Plaintiff BKC replied [D.E. 122] on February 15, 2002. Oral argument on Plaintiff's Motion for Summary Judgment was held on April 12, 2002.

The Complaint, filed on May 24, 2000, alleges three counts: Breach of Contract against Defendant Ashland (Count I); Breach of Contract against Defendants Belle and Clarke (Count II), and Breach of Guaranty against Belle and Clarke (Count III). In response, the Defendants assert the following claims against BKC in their Answer and First Amended Counterclaim [D.E. 23]: Breach of Contract (Count I). Breach of Implied Covenant of Good Faith and Fair Dealing (Count II), and Tortious Interference with Contractual Relations (Count III).¹ Jurisdiction is invoked pursuant to 28 U.S.C. § 1332(a)(1) as the case at bar involves diverse parties and a matter in controversy exceeding the sum or value of $75.000.00, exclusive of costs and interest. Upon a review of the parties' arguments, relevant case law, and record, the Court concludes that Plaintiff's Motion for Summary Judgment on the Complaint and Defendants' Counterclaim should be granted.

I. FACTUAL BACKGROUND²

Plaintiff BKC is a Florida corporation with its principal place of business in Miami, Florida. Defendant Ashland is a Kentucky corporation and Defendants Belle and Clarke are both citizens of the state of Kentucky. It is undisputed that the Defendants were the franchisees of five Burger King restaurants located in Kentucky and Ohio. See Statement of Undisputed Facts ("SUF"), ¶ 1; Defendants' Statement of Disputed Facts ("SDF"), p. 1. These restaurants were governed by Franchise Agreements, each with a twenty (20) year term period.³ Id. The Franchise Agreements for the restaurants were executed on various dates and were, accordingly, scheduled to expire on different dates.⁴ Id. The Defendants also executed Lease/Sublease Agreements in which they leased premises for restaurants # 2726 and # 2980 from Plaintiff BKC. See SUF, ¶ 2; Decl. of Frank Taylor, ¶ 6. On November 4, 1996, Defendants Clarke and Belle assigned their Franchise Agreement for BKC restaurant No. 4230 to Defendant Ashland. SUF, ¶ 3; SDF, pp. 1-2. Pursuant to the Assignment and Assumption of Restaurant Franchise Agreement and Consent to Assignment, Defendants Clarke and Belle remained "personally liable for, unconditionally obligated to and bound by each and every term, obligation and restriction applicable to the franchisee under the Franchise Agreement, and the ASSIGNEE [Ashland] under any other agreements hereafter entered into by BKC and ASSIGNEE, whether for monies or duties, and for any other obligation of ASSIGNOR to BKC." Assignment Agreement, Plaintiff Appendix, Exh. C, ¶ 2.

According to the express terms of the Franchise Agreements, the Defendants were required "to pay to BKC a royalty of 3.5% of gross sales for use of the Burger King System and the Burger King Marks" on a monthly basis. See Franchise Agreement, ¶ 8A, Plaintiff Appendix, Exh. A. The Defendants also agreed to "pay to BKC an amount equal to 4% of FRANCHISEE's monthly gross sales ... for advertising, sales promotion and public relations both in the market area ... and on a national basis." See Franchise Agreement, ¶ 8B, Plaintiff Appendix, Exh A. Under the terms of the Franchise Agreements, the failure to pay any royalty or advertising and sales promotions constituted an act of default. See Decl. of Frank Taylor, ¶ 5; Franchise Agreement, ¶ 16A(2), Plaintiff Appendix, Exh. A.

Additionally, the Sublease/Lease Agreements for Burger King Restaurants Nos. 2726 and 2989 further required Defendants Belle and Clarke to pay rent, percentage rent, and to reimburse BKC for property taxes paid. See Decl. of Frank Taylor, ¶ 6; Lease, Plaintiff Appendix, Exh. B. Failure to pay monthly rent also would be considered a breach of the leases. Id. It is not disputed by the parties that the Defendants failed to make the required royalty payments due since November 1999, all advertising payments due, as well as property taxes due in September 2000. See Taylor Decl., ¶ 9; SDF, p. 2. Defendants admit that Plaintiff BKC provided notice to the Defendants of the defaults under the Franchise and Lease Agreements. SDF, p. 2; May 15, 2000 Notice of Default, Pl. Appendix, Exh. D.

Upon expiration of various Franchise Agreements and receipt of the notice of default, the Defendants requested several extensions to the Franchise Agreements in order to locate a purchaser for the franchises and pay outstanding fees and royalties owed to BKC. See SUF, ¶ 7; SDF, p. 2. Although not required to do so under the terms of the Franchise Agreements, Plaintiff BKC granted the Defendants several extensions. See Agreements to Extend Restaurant Franchise Agreement, Plaintiff Appendix, Exh. E; Extensions to Notice of Default, Reply, Exh. D (Composite exhibit showing eleven extension of termination provided to Defendants by BKC within a four (4) month period). Plaintiff BKC offered to renew the franchise agreements upon selection and approval of a new buyer/purchaser. See SUF, ¶ 7; SDF, p. 2.

The Franchise Agreements provide detailed guidelines and provisions regarding Defendants' ability to sell franchised restaurants, namely the following:

14. ASSIGNMENT: CONDITIONS AND LIMITATIONS

A. This Agreement and license are personal to FRANCHISEE and FRANCHISEE shall not sell, assign or transfer this Agreement or any right or interest in the license granted, nor permit any such assignment or transfer to occur directly, indirectly or contingently by agreement or operation of law without the prior written consent of BKC.... The assignment of any interest, except as provided in paragraphs 14 and 15, shall constitute a material breach of this Agreement. Franchise Agreement, ¶ 14.A.

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15. RIGHT OF FIRST REFUSAL

A. In the event FRANCHISEE receives an acceptable bona fide offer from a third party to purchase the Franchised Restaurant, he shall give BKC written notice setting forth the name and address of the prospective purchaser, the price and terms of the offer together with a franchisee application completed by the prospective purchaser, a copy of the sales contract and such other information that BKC may request in order to evaluate the offer. BKC shall then have the prior option to purchase FRANCHISEE's interest covered by such offer at the price and upon the terms of such offer.

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D. If BKC does not accept the offer to purchase the Franchised Restaurant, FRANCHISEE may conclude the sale to the purchaser who made the offer provided BKC's consent to the assignment be first obtained, which consent will not be unreasonably withheld upon compliance with the conditions imposed by BKC on assignment. Conditions on assignment may include without limitation:

(1) All obligations of FRANCHISEE to BKC, whether arising under this Agreement or otherwise, must be satisfied at the time of transfer.

(2) Prospective purchaser must complete and be approved through BKC's standard franchisee selection process including satisfactorily demonstrating to BKC that he meets the financial, character, managerial, equity ownership and such other criteria and conditions as BKC shall then be applying in considering applications for new licenses.

(3) Prospective purchaser shall have satisfactorily completed BKC's training for new franchisees. See Franchise Agreement, ¶ 15.A., 15D.1-3.

The Defendants located Regional Investments, Inc. ("Regional") as a potential purchaser of the five (5) franchise Restaurants at issue. See Belle Decl., ¶¶ 9-11; Marvin Virgin Decl, ¶¶ 9-11. Regional is an investment group created by Mr. Marvin Virgin and Ms. Melissa Virgin for the purpose of purchasing the BKC restaurants from the Defendants. See Belle Decl., ¶ 9; Marvin Virgin Decl, ¶ 9. The Defendants and Regional entered into a Purchase Agreement for the sale of the Restaurants in January of 2000. See Belle Decl., ¶ 10; Marvin Virgin Decl, ¶ 10. Soon thereafter, in February of 2000, Regional submitted an application to BKC, as required by the Franchise Agreements, to be approved as the franchisee of the five restaurants. See Belle Decl., ¶ 11; Marvin Virgin Decl. ¶ 11. Defendants assert that Regional maintained an appropriate level of experience and capital to satisfy BKC's standards and conditions for approval of a sale to a third-party.

However, upon a review of Regional's application, Plaintiff BKC rejected Regional as a potential buyer of the Franchised restaurants. BKC notified Regional of its denial of the sale in a letter dated May 3, 2000, a copy of which was sent to the seller, Defendant Belle. See May 3, 2000 letter from Debra C. Arone to Marvin Virgin, Def. Appendix, Exh. G. The letter informed Regional that based upon BKC's review of the documents submitted in connection with its application, BKC determined that Regional did "not satisfy BKC's standards for franchise approval." Id. Pursuant to the record, Burger King initially rejected Regional's application for various reasons, including lack of operational experience and failure to meet BKC's...