Dunkin' Donuts of America, Inc. v. Minerva, Inc.

• Citation: 956 F.2d 1566
• Decision Date: 08 April 1992
• Docket Number: 90-3244 and 90-3373,Nos. 90-3124,s. 90-3124
• Parties: DUNKIN' DONUTS OF AMERICA, INC., a foreign corporation, Plaintiff-Appellant, Cross-Appellee, v. MINERVA, INC., a Florida Corp., Rosebud, Inc., a Florida Corp., Katherine Apostoleres, an individual, Defendants-Appellees, Cross-Appellants. DUNKIN' DONUTS OF AMERICA, INC., a foreign corporation, Plaintiff-Appellee, v. MINERVA, INC., a Florida Corporation, Rosebud, Inc., a Florida Corporation, Katherine Apostoleres, an individual, Defendants-Appellants. DUNKIN' DONUTS OF AMERICA, INC., a foreign corporation, Plaintiff-Appellant, v. MINERVA, INC., a Florida Corporation, Rosebud, Inc., a Florida Corporation, Katherine Apostoleres, an individual, Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1566

956 F.2d 1566

DUNKIN' DONUTS OF AMERICA, INC., a foreign corporation, Plaintiff-Appellant, Cross-Appellee, v. MINERVA, INC., a Florida Corp., Rosebud, Inc., a Florida

Corp., Katherine Apostoleres, an individual,

Defendants-Appellees, Cross-Appellants.

DUNKIN' DONUTS OF AMERICA, INC., a foreign corporation, Plaintiff-Appellee, v. MINERVA, INC., a Florida Corporation, Rosebud, Inc., a

Florida Corporation, Katherine Apostoleres, an

individual, Defendants-Appellants.

DUNKIN' DONUTS OF AMERICA, INC., a foreign corporation, Plaintiff-Appellant, v. MINERVA, INC., a Florida Corporation, Rosebud, Inc., a

Florida Corporation, Katherine Apostoleres, an

individual, Defendants-Appellees.

Nos. 90-3124, 90-3244 and 90-3373.

United States Court of Appeals, Eleventh Circuit.

April 8, 1992.

Edward O. Savitz, Patricia Labarta, Tampa, Fla., for Dunkin' Donuts of America, Inc.

Martin L. Garcia, Dennis P. Waggoner, Tampa, Fla., for Minerva, Inc., et al.

Appeals from the United States District Court for the Middle District of Florida.

Before HATCHETT and DUBINA, Circuit Judges, and CLARK, Senior Circuit Judge.

HATCHETT, Circuit Judge:

In this breach of contract case, we affirm the magistrate judge's grant of judgment n.o.v. reducing damages awarded to the franchisees, denial of judgment n.o.v. as to the franchisor's liability, and denial of the franchisees' motion for attorney's fees. ¹

FACTS

In 1976, Katherine Apostoleres became the sole shareholder of Minerva, Inc., which owned the rights to a Dunkin' Donuts of America, Inc. (Dunkin') franchise in Brandon, Florida. In 1978, Apostoleres became the sole shareholder of Rosebud, Inc., which owned the rights to a Dunkin' franchise in Temple Terrace, Florida. Apostoleres and her family (the franchisees) operated both stores.

In early 1982, Dunkin' offered to all its franchisees the right to renew the term of the franchisee's existing franchise agreement for an additional ten years at a fixed cost of $5,000. In return, the franchise owner would be required to participate in a program to abide by advertising decisions favored by at least two-thirds of the local franchise owners in a given television market. Apostoleres refused to accept the offer because she did not want to be bound by the "two-thirds" clause.

In August, 1982, Dunkin' employees audited Apostoleres's Temple Terrace and Brandon stores including use of the "yield and usage" method which projects a store's gross sales by taking the weights of a small number of donuts and extrapolating how many donuts should have been produced based upon those weights. The franchisees' agreements with Dunkin' did not provide authority to conduct an audit based upon such methodology.

In late 1982, the audits revealed that reported sales generally agreed with the sales run through the cash registers, bank deposits, and tax returns for the audited period; however, the yield and usage analysis detected an apparent underreporting of gross sales at both stores. The franchisees denied any underreporting and asserted that the yield and usage analysis provided inherently unreliable results.

In September, 1985, Dunkin' again audited the franchisees' stores. The audit of the Temple Terrace store disclosed no underreporting. The audit of the Brandon store reflected an underreporting of gross sales based upon the yield and usage analysis. The audit also detected a substantial difference between the total of sales rung into the registers at the Brandon store and the total of sales actually reported to Dunkin'. In a June 17, 1986 letter, Dunkin' gave the franchisees notice of immediate termination of the franchises.

Despite the notice of termination and the ensuing litigation, the franchisees have continued to operate profitably the two stores as Dunkin' franchises.

PROCEDURAL HISTORY

In June, 1986, Dunkin' filed a two-count complaint alleging that the franchisees breached provisions of the franchise agreements. Both counts sought damages and injunctive relief as a result of the franchisees' alleged acts of failing to record and report all sales and failing to pay Dunkin' the appropriate percentages on those unreported sales.

In July, 1986, the franchisees filed a five-count counterclaim against Dunkin'. Count I alleged that Dunkin' had breached the obligation of good faith implied in the franchise agreements; Count II alleged that Dunkin' had breached a fiduciary duty; Count III alleged a violation of the Florida Deceptive and Unfair Trade Practices Act; Count IV alleged a violation of a Massachusetts unfair business practices statute; and Count V alleged that a Dunkin' employee had slandered Apostoleres. The franchisees sought monetary relief and injunctive relief prohibiting Dunkin' from attempting to terminate either of the franchise agreements by reason of the alleged underreporting of sales.

In response to a motion Dunkin' filed, the district court dismissed Counts II and IV of the counterclaim. On January 25, 1989, the parties jointly requested that the district court refer the case to a United States magistrate judge for all further proceedings, including trial, and the district court granted the motion. The trial commenced in September, 1989, and the jury returned a verdict against Dunkin' on its breach of contract claim, against the franchisees on the slander claim, and in favor of the franchisees on their breach of contract claim, awarding the franchisees $650,000. The franchisees filed a notice of tender of their franchise rights.

On December 8, 1989, the magistrate judge granted Dunkin's motion for judgment notwithstanding the verdict as to damages and reduced the $650,000 award to a nominal award of $2. The magistrate judge also granted conditionally Dunkin's motion for partial new trial as to the franchisees' counterclaims to the extent that the judgment n.o.v. should be reversed on appeal, but denied Dunkin's motion for judgment n.o.v. on the issue of Dunkin's liability. On January 5, 1990, the magistrate judge denied the franchisees' application for attorney's fees and awarded costs of $7,122.31 to the franchisees. On February 27, 1990, the magistrate judge denied the franchisees' petition for injunctive relief asking the magistrate judge to enjoin Dunkin' from committing continued breaches of the franchise agreements. Both Dunkin' and Apostoleres now appeal. ²

CONTENTIONS

Apostoleres contends that the magistrate judge erred in entering judgment n.o.v. with respect to damages and erred in conditionally granting a new trial with respect to her counterclaim. Apostoleres also contends that the magistrate judge erred in denying her motion to recover attorney's fees. Finally, Apostoleres contends that the magistrate judge properly denied Dunkin's motion for judgment n.o.v. or new trial on the issue of Dunkin's liability.

Dunkin' contends that the magistrate judge erred in denying Dunkin's motion for judgment n.o.v. or new trial as to Dunkin's liability. Dunkin' also contends that the magistrate judge properly granted Dunkin's motion for judgment n.o.v. concerning damages, properly conditionally granted Dunkin's motion for partial new trial, and properly denied Apostoleres's motion for reasonable attorney's fees.

ISSUES

The issues are: (1) whether the magistrate judge erred in denying Dunkin's motion for judgment n.o.v. or new trial on the issue of Dunkin's liability; (2) whether the magistrate judge erred in entering judgment n.o.v. with respect to damages; and (3) whether the magistrate judge erred in denying Apostoleres's motion for attorney's fees.

DISCUSSION

The standard of review for the grant or denial of a motion for judgment n.o.v. is the same as that applied by the district court. Carter v. City of Miami, 870 F.2d 578, 581 (11th Cir.1989). We consider all the evidence and reasonable inferences in the light most favorable to the party opposed to the motion. If the facts and inferences point overwhelmingly in favor of the moving party, such that a reasonable jury could not arrive at a contrary verdict, then the motion should be granted. Carter, 870 F.2d at 581. On the other hand, if substantial evidence opposed to the motion exists, such that reasonable people might reach different conclusions, then the motion should be denied. Miles v. Tennessee River Pulp and Paper Co., 862 F.2d 1525, 1528 (11th Cir.1989).

I. Dunkin's Liability

Under Massachusetts law, an implied obligation of good faith exists by operation Dunkin' argues that no credible evidence shows that Dunkin' breached its implied obligation of good faith. According to Dunkin', it had scheduled the 1982 audits in the summer of 1981, before Apostoleres rejected the 1982 franchise renewal program. Dunkin' also asserts that the 1985 audit of the Brandon store showed a continuing unfavorable variance, and an unusually large discrepancy between the sales rung through the registers and the sales reported to Dunkin'.

of law in every contract. ³ See Zapatha v. Dairy Mart, Inc., 381 Mass. 284, 408 N.E.2d 1370, 1378 n. 15 (1980).

Nevertheless, Dunkin' cannot ignore testimony by Apostoleres, her employees, accounting experts, and a former Dunkin' employee which belies Dunkin's contention that it acted in good faith. In denying Dunkin's motion for judgment n.o.v. on the issue of Dunkin's liability for breach of the implied obligation, the magistrate judge concluded that sufficient evidence exists for a reasonable jury to find that:

(1) the 1982 audits conducted of defendants' stores were substantially motivated by Mrs. Apostoleres' refusal to subscribe to a franchise renewal option agreement offered by plaintiff; (2) the yield and usage test used by plaintiff to audit the stores had not been disclosed in the franchise agreements as a measure which plaintiff would utilize to enforce its contractual rights and was not an appropriate and reasonably accurate accounting tool in the trade to detect underreporting; and (3) the terminations were not based on...