Gator Apple, LLC v. Apple Tex. Rests., Inc.

• Court: Texas Court of Appeals
• Writing for the Court: Opinion by Justice FILLMORE.
• Citation: Gator Apple, LLC v. Apple Tex. Rests., Inc., 442 S.W.3d 521 (Tex. App. 2014)
• Decision Date: 05 March 2014
• Docket Number: No. 05–12–01369–CV.,05–12–01369–CV.
• Parties: GATOR APPLE, LLC, Appellant v. APPLE TEXAS RESTAURANTS, INC., Appellee.

442 S.W.3d 521

GATOR APPLE, LLC, Appellant

v.APPLE TEXAS RESTAURANTS, INC., Appellee.

No. 05–12–01369–CV.

Court of Appeals of Texas, Dallas.

March 5, 2014.

Hilaree A. Casada, R. Michael Northrup, Cowles & Thompson, P.C., Dallas, for Appellant.

Kristopher Hill, Beverly A. Whitley, Bell, Nunnally & Martin, PLLC, Dallas, for Appellee.

Before Justices FITZGERALD, LANG, and FILLMORE.

OPINION

Opinion by Justice FILLMORE.

Gator Apple, LLC (Gator Apple) appeals from the trial court's grant of summary judgment in favor of Apple Texas Restaurants, Inc. (Apple Texas) asserting, in four issues, that the trial court erred by concluding that Apple Texas is a third-party beneficiary of the entire franchise agreement between Gator Apple and Applebee's International, Inc. (Applebee's); applying Kansas law to determine whether the liquidated damages provision in the franchise agreement is an unenforceable penalty and to the breach of contract claim asserted by Apple Texas against Gator Apple; granting summary judgment for Apple Texas; and denying Gator Apple's motion for new trial. We affirm the trial court's judgment.

Background

On August 3, 1998, Applebee's and Florida Apple West, LLC, Gator Apple's predecessor,¹ along with its principal shareholders, signed an Applebee's Neighborhood Grill & Bar Franchise Agreement (the franchise agreement). The franchise agreement allowed Gator Apple to operate an Applebee's Neighborhood Grill & Bar restaurant in North Ft. Myers, Florida. The franchise agreement identifies Applebee's as a Delaware corporation with an address in Overland Park, Kansas and Gator Apple as a Florida limited liability company with an address in Palm Beach, Florida.

As relevant to this appeal, the franchise agreement provided:

20. NO WAIVER OF DEFAULT

20.1 The waiver by any party to this Agreement of any breach or default, or series of breaches or defaults, of any term, covenant or condition herein, or of any same or similar term, covenant or condition contained in any other agreement between Franchisor and any franchisee, shall not be deemed a waiver of any subsequent or continuing breach or default of the same or any other term, covenant or condition contained in this Agreement, or in any other agreement between Franchisor and any franchisee.

21. CONSTRUCTION, SEVERABILITY, GOVERNING LAW AND JURISDICTION

21.2 FRANCHISEE AND PRINCIPAL SHAREHOLDERS ACKNOWLEDGE THAT FRANCHISOR MAY GRANT NUMEROUS FRANCHISES THROUGHOUT THE UNITED STATES ON TERMS AND CONDITIONS SIMILAR TO THOSE SET FORTH IN THIS AGREEMENT, AND THAT IT IS OF MUTUAL BENEFIT TO FRANCHISEE AND PRINCIPAL SHAREHOLDERS AND TO FRANCHISOR THAT THESE TERMS AND CONDITIONS BE UNIFORMLY INTERPRETED. THEREFORE, THE PARTIES AGREE THAT TO THE EXTENT THAT THE LAW OF THE STATE OF KANSAS DOES NOT CONFLICT WITH LOCAL FRANCHISE STATUTES, RULES AND REGULATIONS, KANSAS LAW SHALL APPLY TO THE CONSTRUCTION OF THIS

AGREEMENT AND SHALL GOVERN ALL QUESTIONS WHICH ARISE WITH REFERENCE HERETO; PROVIDED, HOWEVER, THAT PROVISIONS OF KANSAS LAW REGARDING CONFLICTS OF LAW SHALL NOT APPLY HERETO.

22. INTERFERENCE WITH EMPLOYMENT RELATIONS

During the term of this Agreement, neither Franchisor nor Franchisee shall employ or seek to employ in a managerial position (i.e., in a position at a pay grade at or above that of Assistant Restaurant Manager or Kitchen Manager), directly or indirectly, any person who is at the time or was at any time during the prior six (6) months employed by the other party or any of its subsidiaries or affiliates, or by any franchisee in the System.² This section shall not be violated if, at the time Franchisor or Franchisee employs or seeks to employ such person, such former employer has given its written consent. Notwithstanding any other provision of this Agreement, the parties hereto acknowledge that if this Section is violated, such former employer shall be entitled to liquidated damages equal to three (3) times the annual salary of the employee involved, plus reimbursement of all costs and attorneys' fees incurred. In addition to the rights granted to the parties hereto, the parties acknowledge and agree that any franchisee from which an employee was hired by either party to this Agreement in violation of the terms of this Section shall be deemed to be a third-party beneficiary of this provision and may sue and recover against the offending party the liquidated damages herein set forth; provided however, the failure by Franchisee to enforce this Section shall not be deemed to be a violation of this Section.

In 2008, Apple Texas purchased a number of restaurants in North Texas from Applebee's and became a franchisee of Applebee's. At the time of the purchase, Richard Steven DiMeo was Applebee's Director of Operations for Texas. After the purchase, DiMeo became the Vice–President of Operations for Apple Texas. In October 2009, Apple Texas terminated DiMeo's employment. DiMeo's annual salary at the time his employment was terminated was $163,000. Apple Texas promoted an existing employee to be the new Vice–President of Operations. Apple Texas did not have to pay a recruiting fee to fill the position and did not incur costs to relocate or train the employee. Further, the new Vice–President of Operations' salary was $25,000 less per year than DiMeo's salary.

DiMeo contacted Applebee's about possible employment opportunities. Sam Rothschild, Applebee's Senior Vice–President of Operations at the time, requested that Apple Texas provide a letter of release that would allow Applebee's to discuss employment opportunities with DiMeo. Sunil Dharod, the owner and chief executive officer of Apple Texas, gave “written consent under section 22” for “Applebee's Services International to discuss possible employment opportunities with” DiMeo.

Applebee's did not have an opening that it felt was appropriate for DiMeo. Applebee's employees did, however, tell DiMeo about a potential employment opportunity at Gator Apple which, by that time, was operating a number of restaurants in Florida and Georgia as a franchisee of Applebee's. Jeff Hull, Applebee's Vice–President of Franchise Operations, told DiMeo that he thought the existing release was sufficient to allow DiMeo to discuss the opportunity with Gator Apple. However, Hull also told DiMeo that “Sam” interpreted the release as being “ASI specific.” Hull also encouraged Greg Georgas, a principal shareholder in Gator Apple, to contact Dharod directly because the release was specific to Applebee's. On November 30, 2009, DiMeo began working for Gator Apple as its Executive Vice–President and Chief Operating Officer. According to DiMeo, employees often moved within different Applebee's franchises with and without letters of releases.

Steve Pitts was an Area Director for Apple Texas. At some point before DiMeo was terminated, Pitts began looking for another job because he disagreed with decisions being made by Apple Texas. Pitts continued to talk to DiMeo after DiMeo left Apple Texas. At some point, Pitts obtained a release from Apple Texas. However, this release is not in the record, and the only evidence about the scope of the release indicates that Pitts was interested in “a position with Applebee's corporate.” On April 8, 2010, Pitts resigned from Apple Texas. His annual salary at the time of his resignation was $86,314. Pitts began working for Gator Apple in May 2010 as a Director of Operations. An existing employee of Apple Texas was promoted to Pitts's Area Director position. Apple Texas incurred no recruiting expenses to fill the position and no training expenses for the employee, but incurred costs to relocate the employee. The new Area Director was paid approximately $16,000 less per year than what Pitts had been paid.

Daniel Justice was employed as a General Manager for Apple Texas. Justice disagreed with decisions being made at Apple Texas and, by the time DiMeo was terminated, had decided that he was going to leave Apple Texas. Further, for personal reasons, Justice had decided he no longer wanted to live in Texas. At the time Justice resigned from Apple Texas on January 20, 2010, his annual salary was $53,986. Justice began working for Gator Apple as a General Manager on February 4, 2010.

Cherie Adams was a Training Kitchen Manager for Apple Texas. For personal reasons, Adams decided to move to Georgia. Adams resigned from Apple Texas effective April 22, 2010. At the time, her annual salary was $37,500. Adams began working for Gator Apple as a General Manager on April 26, 2010.

Dave Haakinson was employed by Apple Texas as an Area Director. Haakinson decided to leave Apple Texas because he was unhappy with the ownership. After contemplating it for “many months,” Haakinson resigned from Apple Texas on April 15, 2010. His annual salary at the time of his resignation was $78,924. Haakinson began working for Gator Apple on April 19, 2010 as a Director of Operations. After obtaining a letter of release from Applebee's, Apple Texas hired an employee of Applebee's to replace Haakinson. Apple Texas incurred costs to relocate the new Area Director. Further, Apple Texas paid the new employee approximately $21,000 more per year than Haakinson was being paid.

In response to Apple Texas's requests for admissions, Gator Apple admitted it hired DiMeo, Pitts, Justice, Adams, and Haakinson within six months of the termination of their employment with Apple Texas and did not obtain a letter of release from Apple Texas for any of these individuals. According to Rothschild, section 22 of the franchise agreement was intended to protect Applebee's franchisees from “poaching” by another franchisee. Section 22 applies regardless of whether an employee resigns or is terminated in order to prevent the employee from purposefully getting fired. Costs associated with the loss of a managerial employee include recruiter fees, relocation expenses, loss of productivity for ten weeks while the replacement employment is trained, minimal productivity from the employee during...