Harold Butler Enterprises No. 97, Inc. v. Vanlandingham

• Decision Date: 01 February 1973
• Parties: , 1973-1 Trade Cases P 74,518 HAROLD BUTLER ENTERPRISES #97, INC., an Oregon corporation, Respondent, v. Charles A. VANLANDINGHAM, Appellant.
• Court: Oregon Supreme Court

Page 1149

505 P.2d 1149

264 Or. 414, 1973-1 Trade Cases P 74,518

HAROLD BUTLER ENTERPRISES #97, INC., an Oregon corporation, Respondent, v. Charles A. VANLANDINGHAM, Appellant.

Supreme Court of Oregon, In Banc.

Argued and Submitted Nov. 3, 1972.

Decided Feb. 1, 1973.

Roger Tilbury and Henry Kane, Portland, argued the cause for appellant. With them on the briefs were Tilbury & Kane, Portland.

R. Alan Wight, Portland, argued the cause for respondent. With him on the brief were Norman J. Wiener, and Miller, Anderson, Nash, Yerke & Wiener, Portland.

HOWELL, Justice.

Plaintiff filed this action alleging an unlawful detainer of real property in its first cause of action and alleging unpaid rentals and management fees in its second cause of action. Both actions arise out of a restaurant franchise agreement between the parties. The case was tried before the court without a jury, and a judgment for restitution of the premises and for recovery of management fees was entered in favor of plaintiff. Defendant appeals.

Plaintiff, an Oregon corporation, is a wholly owned subsidiary of Denny's Restaurants, Inc. Denny's Restaurants is engaged in franchising individual restaurants to persons and also operates some restaurants of its own under the trade name of 'Denny's.' In 1965 defendant secured a Denny's franchise for the operation of a Denny's Restaurant in Portland. The franchise agreement which was executed between plaintiff as the franchisor and defendant as the franchisee required defendant to pay $50,000 for the franchise, plus certain weekly amounts for rental of the equipment and fixtures, for rent of the premises, and for sign rental.

The franchise agreement also recited that Denny's Restaurants had developed, advertised, and promoted certain styles and techniques of restaurant operation; that defendant, as the franchisee, should sell only such products as are prepared by plaintiff in accordance with Denny's policies; and that all items would be purchased by the franchisee from plaintiff or from any manufacturer authorized by plaintiff. The items were to be purchased by the franchisee at standard prices to be fixed by plaintiff.

The franchise agreement stated:

'* * *.

'5. f) There is attached hereto, marked Schedule 'A' and made a part hereof, a list of the principal goods, products, merchandise, supplies and commodities now being manufactured or sold by the First Party which the Second Party may need for use or sale at or from the place of business described above, and the Second Party agrees to pay therefor at prices to be fixed by the First Party from time to time for all Denny's Restaurant franchise operators in full, upon invoice. Such list may at any time be added to or subtracted from by the First Party. Only such merchandise, products, goods or commodities shall be sold or offered for sale by the Second Party, at or from the premises described above as are set forth in or shall become a part of the list set forth in Schedule 'A':'

Paragraph 7 of the agreement required the defendant franchisee to pay plaintiff 12 per cent on all items purchased:

'7. In consideration of First Party's Authorization to Second Party to use the trade name and the insignia, trade marks and designs and in consideration of First Party's imparting to Second Party all of its selling, promotion and merchandising methods and techniques, and in consideration of First Party's furnishing adequate and competent supervisory personnel to insure that all various retail outlets are operated in accordance with First Party's uniform standard of quality, cleanliness and service, Second Party agrees to pay to First Party a service charge of Twelve (12%) percent on all items purchased by Second Party from First Party or First Party's designees. All discounts given First Party from its suppliers for quantity purchases shall remain the property of First Party.'

The entire dispute in this case is focused on the 12 per cent management fee, or service charge as it was sometimes described by the parties. The defendant paid the management fee on all purchases from plaintiff or plaintiff's designees until July 1970. Apparently at that time he concluded that the obligation to pay the management fee violated the Sherman Anti-Trust Act. Subsequently, the defendant refused to pay the management fee on any purchases.

Plaintiff filed this f.e.d. action for restitution of the premises and for recovery of the management fees on November 9, 1971. Defendant filed a plea in abatement asking that the instant case be abated on the grounds that he had filed an antitrust action in the United States District Court for the District of Oregon against Denny's Restaurants, Inc., and Harold Butler Enterprises #97, Inc., the plaintiff herein. In the plea in abatement defendant alleged that the question of whether defendant was liable to plaintiff for payment of the management fees was one of the issues in the action in the federal court.

The trial court denied the plea in abatement, and the action was tried on the merits in the circuit court. However, after completion of the trial, the court entered an opinion in which it stated that the pivotal issue was the validity of the management fee and, therefore, the court would withhold the entry of a decision and judgment until that issue had been decided in the antitrust action in the federal court.

In March 1972 the defendant's action in the federal court was dismissed and no injunctive relief granted. Thereafter, the trial court in the f.e.d. action entered findings as follows:

'* * * (1) a franchise agreement and lease existed between plaintiff and defendant, under which defendant operated a restaurant as a Denny's franchisee, (2) said franchise agreement and lease was valid, (3) under the terms of said franchise agreement and lease defendant had the obligation to pay management fees but failed to do so, despite proper demand and notice, (4) such failure and refusal to pay management fees constituted a material breach of the agreement and lease, and (5) defendant's possession of the premises constituted a holding contrary to the conditions and covenants thereof; * * *.'

The trial court found that defendant was not delinquent in any respect under the terms of the franchise agreement except for failure to pay the management fees. The judgment entered by the court granted restitution of the premises to plaintiff and awarded plaintiff $15,032 as unpaid management fees due under the franchise agreement. The amount of the management fees is not contested by defendant.

The defendant contends that he is not obligated to pay the management fee for several reasons: (1) that the franchise agreement required the defendant to pay the management fee on purchases made from Plaintiff or Plaintiff's designated purveyors, but that Denny's, not plaintiff, was the one who designated the purveyors; (2) the 'Schedule A' mentioned in the franchise agreement which listed the designated purveyors from whom defendant was to purchase his restaurant goods was not introduced into evidence; and (3) the management fee is illegal as a violation of the Sherman Anti-Trust Act, 15 U.S.C. § 1 et seq., and is a violation of the common law prohibition against restraint of trade.

The defendant's first two arguments are without merit. From 1965 until July 1970, the defendant paid the management fee as required by the franchise agreement. Defendant sent to plaintiff a complete list of his purchases; plaintiff computed the 12 per cent fee and defendant paid the fee to plaintiff. It is true that the franchise agreement requires the defendant to pay the 12 per cent fee 'on all items purchased by Second Party (defendant) from First Party (plaintiff) or First Party's designees.' However, the same paragraph of the franchise agreement relating to the management fee states that the fee is in consideration of defendant's use of a trade name and the benefit to defendant of merchandising techniques and methods. The trade name and merchandising methods are those of Denny's Restaurants. The franchise agreement is replete with recitations of the background and importance of the 'promotion, sale and merchandising' of products sold under the name of Denny's Restaurants, plus the requirement that defendant sell only such products 'that are made or prepared in accordance' with standards established by Denny's Restaurants. After having paid the percentage fee for almost five years on purchases from Denny's, or Denny's designees, defendant is in no position at this time to contend that he is not obligated to pay the fee because Denny's, not plaintiff, designated the persons from whom defendant was required to make his purchases.

Neither are we impressed with defendant's argument that he does not owe management fees because a 1970 schedule of designated purveyors was not introduced into evidence. The defendant conceded that in July 1970 and thereafter he made purchases from persons not on the schedule and that he was refusing to pay the percentage fee based on purchases from those listed on the schedule. He testified:

'* * * I have went out and contacted these people and I am doing business with them as an independent operator.

'I have gotten price schedules from these people and I am not sending money to you to pay my bills. I am not making out the transmittals. We have documents showing prices and we are doing business with these people direct.'

In view of the fact that defendant admits that $15,032 is the proper computation of the management fees from July 1970 to the time of the judgment, we cannot see how a failure to introduce a schedule of designated purveyors could have been detrimental to defendant.

Apparently the defendant contends that the decision in the federal case held that the 12 per cent management fee on purchases made from plaintiff or plaintiff's designees violated the federal antitrust laws, and that if it did not the defendant is still...