Ferreira v. Quik Stop Markets, Inc.

• Citation: 141 Cal.App.3d 1023,190 Cal.Rptr. 778
• Court: California Court of Appeals Court of Appeals
• Decision Date: 19 April 1983
• Parties: Robert J. FERREIRA and Kristen M. Ferreira, Plaintiffs, Cross-Defendants and Appellants, v. QUIK STOP MARKETS, INC. et al., Defendants, Cross-Complainants and Respondents. Civ. 49817. A0 13978.

Page 778

190 Cal.Rptr. 778

141 Cal.App.3d 1023

Robert J. FERREIRA and Kristen M. Ferreira, Plaintiffs, Cross-Defendants and Appellants, v. QUIK STOP MARKETS, INC. et al., Defendants, Cross-Complainants and Respondents.

Civ. 49817.

A0 13978.

Court of Appeal, First District, Division 1, California.

April 19, 1983.

Brown & Finney, Robert M. Brown, San Francisco, Stark, Stewart, Wells & Robinson, Wm. Barry Balamuth, Oakland, for plaintiffs, cross-defendants and appellants.

Norman C. Hile, Jeffrey S. White, James A. Hughes, of Orrick, Herrington & Sutcliffe, P.C., San Francisco, for defendants, cross-complainants and respondents.

BREINER, Associate Justice Pro Tem. ^*

In February 1974, plaintiffs Robert and Kristen Ferreira, husband and wife, purchased a franchise to operate a Quik Stop Market, a convenience grocery and gasoline store. In October 1975, they brought suit against Quik Stop Markets, Inc., the franchisor, seeking damages under several theories: intentional and negligent misrepresentation, breach of the franchise agreement and violation of the Franchise Investment Law. Quik Stop, in turn, cross-complained against the plaintiffs for breach of the franchise agreement. At the conclusion of a lengthy trial, the jury found that defendants had committed no fraud, but awarded plaintiffs $10,000 for breach of contract. The jury further found in favor of Quik Stop on the cross-complaint and awarded Quik Stop $15,616. Judgment was entered in favor of Quik Stop for $5,616.

FACTS

In 1973, plaintiff Robert Ferreira owned and operated two sporting goods businesses--one in Oakland. He was in the process of selling his partnership interest in the Oakland store. In December 1973, plaintiff learned that a Quik Stop Market on Grand Avenue--just blocks away from his store-- was for sale and entered into discussions with the market's owner, Ken Vales. Vales gave plaintiff the quarterly operating statements and monthly purchase records for the market (store No. 46 in the Quik Stop Market chain). Vales told plaintiff how many hours he worked and what his payroll costs were. He showed plaintiff that his net profit from operations was $21,581. Vales also explained that payroll came out of the draw.

Plaintiff Robert Ferreira and his then-fiancee Kristen decided to purchase the market, completed an application, and met with representatives of the Quik Stop Market Company. It is the events at the initial meeting between the Ferreiras and the Quik Stop executives held in January 1974 which form the basis of plaintiffs' claims of fraud.

Plaintiffs presented evidence that Larry Kranich, Assistant Director of Operations, and Joe Yancey, another Quik Stop executive, represented at that meeting that the Quik Stop Market chain was "very successful"; that there had been only one previous failure of a Quik Stop Market; ¹ that Quik Stop would provide expert assistance in operating the store whenever needed; that Quik Stop would engage in an advertising campaign to promote Store No. 46; that plaintiffs' expected earnings of $20,000 was a reasonable expectation; ² that plaintiffs should be able to pay off their $25,000 inventory in 11 months; that other Quik Stop stores were earning net profits of $40,000 per year; that Store No. 46 was one of the best stores in the system.

Yancey and Kranich denied making the alleged statements. Their testimony was supported by testimony of another Quik Stop employee present at the meeting. ³

In February 1974, plaintiffs purchased the franchise for store No. 46 for $20,000 and began operating the store that same month.

For the first two weeks, a representative from Quik Stop worked in the store with plaintiffs and showed them how to complete the various financial reports. Quik Stop also redesigned the store, relocating the merchandise, stocking the shelves, and changing price labels. These changes were made because Quik Stop's experts believed they would help increase sales.

In April or May 1974, after plaintiffs had operated the store for three months, plaintiff Robert Ferreira met with Quik Stop representatives to review his performance. The accounting statements showed plaintiffs had suffered a loss of approximately $4,000. ⁴ Quik Stop suggested that plaintiffs reduce their personnel. Plaintiffs did so--firing all but two employees. For a period of time thereafter, plaintiffs worked extra hours in the store themselves.

The next quarterly operating statement (6/30/74) showed a net profit from operations of $8,327; the remaining statements for 1974 also showed a net profit from operations. What plaintiffs did not understand was that the "net profit from operations" as shown on those statements did not take into account the weekly $400 draw which plaintiffs had been receiving from Quik Stop. Plaintiffs were aware, however, that their draw was an advance--a draw against future profits--and that payroll expenses came out of the draw.

Later in the year plaintiffs began experiencing problems with theft. The Quik Stop area coordinator suggested training the store employees to watch the customers. ⁵ Eventually, in the summer of the next year, after rampant customer shoplifting continued, Quik Stop redesigned the store--to put the deli case in the front of the store where it could be watched.

Plaintiffs also had problems with overrings--a method of employee theft--and cash shortages. A tax audit conducted by the Board of Equalization in May 1977 discovered $73,639 in unreported sales for the period of plaintiffs' operation of the store, 1974-1976. By June 1975, Quik Stop recommended to plaintiffs that they sell the store since they were losing so much money.

Indeed, in May 1975, after about 15 months of operation, plaintiffs decided to sell the market, and listed it for sale for $55,000. By this time, plaintiffs were devoting their time and energy to a newly acquired dry cleaning business. Plaintiff Robert Ferreira's brother took over management of the market in July. Still, the problems continued. ⁶

In September 1975, Quik Stop discovered an error which had been perpetuated in the accounting statements for Store No. 46. The error first occurred in the March 31, 1974, statement--the first quarter plaintiffs operated the store. Because the gross profits seemed uncommonly low (showing a 9.5 percent loss), the secretary-treasurer of Quik Stop believed the inventory count must be wrong. He manually overrode the computer and used a fictitious figure based on an expected 20 percent gross profit, adding $10,000 to the inventory. Although the inventory was later checked, the $10,000 surplusage added to the records was never removed. This error overinflated the quarterly net profits from operations and was not discovered until September 28, 1975. On September 30, plaintiff Robert Ferreira was informed there was a problem with the inventory adjustment and was invited to a meeting. Plaintiffs did not attend; instead, they immediately filed this action. Eventually, in June 1976, plaintiffs transferred their ownership back to Quik Stop.

At the time of the termination of the franchise agreement, the total amount showing on Quik Stop's records as amounts owed to it by plaintiffs for their inventory, for monthly service fees (a percentage of the gross sales), for advances against profits, and for merchandise and gasoline taken by plaintiffs for their use, but not paid for, was $48,305. This figure was later reduced by $15,000 paid for goodwill when the store was sold to a new owner. In addition, based on the tax auditor's discovery of unreported sales, Quik Stop claimed $9,941 in service fees plus the assessed taxes of $4,000. Quik Stop's total claim on its cross-complaint was $52,493.

As noted earlier, the jury found that Quik Stop had made no misrepresentations, had concealed no facts, and had committed no violations of the franchise laws. The jury found only that Quik Stop had breached the franchise agreement by failing to provide accurate accounting statements. The jury further found that plaintiffs owed Quik Stop $15,616 on the cross-complaint.

This appeal by plaintiffs raises three issues: (1) whether certain evidence was erroneously excluded; (2) whether certain instructions were erroneously refused; and (3) whether affidavits by two jurors were admissible to impeach the verdict. For the reasons which follow we find no reversible error in the proceedings and we affirm the judgment.

I

Among the misrepresentations allegedly made by defendants were the statements of Larry Kranich and Joe Yancey that the Quik Stop Market chain was very successful and that the chain had had only one previous failure. Both Mr. and Mrs. Ferreira testified that defendants made such statements at the initial meeting.

At trial, plaintiffs sought to introduce certain evidence purportedly to demonstrate that the statements made by Kranich and Yancey were false--i.e., that the Quik Stop chain had not been "successful"; that there had been more than one "failure." The evidence proffered by the plaintiff, but excluded by the trial court, was as follows:

(1) During the examination of Joe Yancey, counsel for plaintiffs asked: "Q. All right. Now, as of that point in time, Mr. Yancey, was it your understanding that only one franchisee of Quik Stop had ever failed? MR. HILE: Objection, Your Honor. This goes into an area which Your Honor has previously ruled on. MR. BROWN: I don't believe it does. THE COURT: Sustained." The trial court sustained defendants' objection. Plaintiffs made an offer of proof that Yancey would testify that as early as 1972 he knew there had been franchisee failures. Nevertheless, the court excluded the testimony.

(2) During the examination of Larry Kranich, counsel for plaintiffs asked: "Q. You knew, did you not, going into that meeting, that in 1973 there had been more than one failure of a Quik Stop franchisee? MR. WHITE: Objection, Your Honor, to the word 'failure.' THE COURT: Sustained. MR....