Jrs Products v. Matsushita Elec. Corp.

• Decision Date: 26 January 2004
• Docket Number: No. C041611.,C041611.
• Citation: 115 Cal.App.4th 168,8 Cal.Rptr.3d 840
• Court: California Court of Appeals Court of Appeals
• Parties: JRS PRODUCTS, INC., Plaintiff and Appellant, v. MATSUSHITA ELECTRIC CORPORATION OF AMERICA, Defendant and Appellant.

8 Cal.Rptr.3d 840

115 Cal.App.4th 168

JRS PRODUCTS, INC., Plaintiff and Appellant, v. MATSUSHITA ELECTRIC CORPORATION OF AMERICA, Defendant and Appellant.

No. C041611.

Court of Appeal, Third District.

January 26, 2004.

As Modified on Denial of Rehearing February 25, 2004.

Review Denied May 12, 2004.

Freidberg Law Corporation, Freidberg & Parker, Edward Freidberg, Stephanie J. Finelli, and Susanna V. Pullen, Sacramento, for Plaintiff and Appellant.

Golenbock, Eiseman, Assor, Bell & Peskoe, Martin S. Hyman, Jeffrey T. Golenbock, New York, NY; Steefel, Levitt & Weiss, Daryl S. Landy and Aliya S. Gordon, San Francisco, for Defendant and Appellant.

RAYE, J.

A franchisor that wrongfully terminates a franchise is liable to the franchisee for breach of contract, not for intentional interference with prospective economic advantage. In this case, the franchisee's first cause of action against the franchisor was, in fact, predicated on a breach of contract theory, but the trial court erroneously granted a summary adjudication of that claim. After we dismissed the franchisee's appeal on the contract claim as an appeal from a nonfinal judgment, the franchisee was compelled to try the case solely on a tort theory and prevailed. We reverse the ensuing judgment because, as the franchisor argues on appeal, its conduct, though wrongful, consisted exclusively of breaching the contract. We also reverse the judgment dismissing the contract claim because, as the franchisee argues in the cross-appeal, the California Franchise Relations Act (Act; Bus & Prof.Code, § 20000 et seq.)¹ does not bar a franchisee from recovering damages for breach of contract.

FACTS

Plaintiff JRS Products, Inc. (JRS), objects to defendant Panasonic's concise summary of the facts, insisting that a detailed chronology of Panasonic's wrongdoing is essential to resolution of its appeal.² We disagree. Panasonic reiterates the significant concession it made at trial that its termination of the contract was wrongful under franchise and unfair competition law. In the context of Panasonic's concession and the issues we must resolve on appeal, the relevant facts can be briefly stated.

JRS became a copier dealer for Panasonic in 1989 and a fax machine dealer in 1991. The dealer contract gave Panasonic the right to terminate the agreement without cause with 90 days' notice and to compete with its dealers. In 1996 JRS sold the copier business and became a "dedicated" fax machine dealer, meaning it sold only a Panafax line of products. Doing business under the name XEL Imaging Systems, JRS sold fax machines to numerous business customers, including the State of California and Intel Corporation. Panasonic's western region sales manager for facsimile, Henry "Ski" Shekoski, provided JRS a boilerplate letter stating JRS was an authorized Panasonic dealer.

In November 1997 JRS began to market remanufactured original Panasonic toner cartridges and to sell them at lower prices than Panasonic charged for its new toner cartridges. Unbeknownst to Panasonic, JRS included a copy of the 1996 authorization letter as part of its solicitation package to potential customers. There was evidence to suggest that Shekoski and others concealed from JRS that JRS would be terminated if it did not stop using the authorization letter. Jack Scarzella, the chief executive officer of JRS, testified that Shekoski asked him to stop using the letter in a telephone conversation, but he did not tell him he would be terminated if he continued to use the letter. Shekoski prepared, but did not send, a letter warning JRS that continued misuse of the authorization letter could result in termination of the dealership. Scarzella testified that if he had been told the dealership would be terminated for misuse of the letter, he would have stopped using it.

Panasonic executives were very concerned that remanufacturing was cutting into profits and adversely impacting business. There was evidence that Panasonic decided to terminate dealers who were recharging and selling Panasonic cartridges. In December 1997 Panasonic management made the decision to terminate JRS. However, according to JRS, to obtain approval of the termination, these managers concealed from higher-ranking Panasonic executives that JRS had not been given a written warning.

Panasonic also sold directly to customers under its national account program (NAP). Panasonic believed its dealers were undermining the program by soliciting sales from NAP customers. In March 1998 Panasonic sent a memo to all fax dealers threatening to terminate their dealerships if they solicited sales from NAP customers. Scarzella believed his Intel account was a prospective NAP account and therefore the memo was directed at him. His suspicion was confirmed, from his point of view, when Shekoski asked Scarzella for information about Intel's sales. Shekoski also attempted to get information about Intel from an out-of-state dealer.

On April 1, 1998, JRS received a letter from Panasonic terminating the dealership in 90 days. The notice did not give a reason for the termination. The internal termination sheet stated "inactivity & conflict of business" as the reason for termination. It also stated, "They are recharging Panasonic toner cartridges and selling them to Panasonic dealers incorporating a letter to solicit business that includes the Panasonic logo. Written efforts were made to resolve the issue but the customer did not cease." Efforts to persuade Panasonic to reinstate the dealership proved unsuccessful.

LITIGATION FACTS

JRS's first amended complaint alleges eight causes of action, including a cause of action for breach of contract by wrongfully terminating the dealership agreement and a cause of action for the tort of interference with prospective economic advantage. The trial court overruled Panasonic's demurrers to these two causes of action. The court granted, however, Panasonic's subsequent motion for summary adjudication of all but the eighth cause of action for interference with prospective economic advantage.

The parties agreed that JRS would dismiss its eighth cause of action without prejudice to allow JRS to appeal the rulings as to the other causes of action. JRS appealed. After the case was briefed, we dismissed the appeal on our own motion as an appeal from a nonfinal judgment.

JRS's motion to reinstate the appeal was prophetic.³ JRS urged us to reinstate the appeal because "[o]rdinarily, a party to a contract ... cannot be liable under the tort of intentional interference with its own relationship[.]" JRS clearly articulated the very issue we now must decide: "Can a company be held liable for tortious interference because it failed to perform its contract, knowing that the other party to the contract has contractual obligations to third parties?" JRS cited the dispositive authorities and warned that failure to reinstate the appeal could result in a trial on the wrong theory. And so it was. We denied the motion and the case was tried as a tort rather than a contract action.

The trial court denied Panasonic's motion for a nonsuit on the interference claim. The jury awarded JRS compensatory damages of $720,620 and punitive damages of $2,500,000. Panasonic appeals the judgment on the tort claim; JRS cross-appeals the dismissal of the contract claim. Both appeals have merit. We reverse.

DISCUSSION

I

The cross-appeal raises the threshold issue whether a franchisee is entitled to contract damages for wrongful termination of a franchise agreement. The trial court granted summary adjudication of the cause of action for breach of contract because "[t]he remedy plaintiff seeks in the first amended complaint — reinstatement as a Panasonic dealer — is not available under the Franchise Relations Act." JRS, however, sought contract damages, as well as reinstatement, for wrongful termination of the franchise. Panasonic insists the ruling is correct because JRS cannot recover damages for breach of the franchise agreement as a matter of law. We review the ruling de novo. (Merrill v. Navegar, Inc. (2001) 26 Cal.4th 465, 476, 110 Cal.Rptr.2d 370, 28 P.3d 116.)

The Act prohibits a franchisor from terminating a franchise without good cause and requires the franchisor to give a franchisee notice to cure any transgressions. (§ 20020.) On appeal, Panasonic does not assert that it had good cause or that it gave JRS adequate notice; in fact, it concedes the termination was wrongful under the Act and under the unfair competition law. Rather, it contends that the repurchase of inventory is the exclusive remedy for wrongful termination of a franchise pursuant to section 20035. We disagree. Panasonic's argument disregards both the letter and the spirit of the law.

Section 20035 does, as Panasonic suggests, compel a franchisor to repurchase the franchisee's inventory if it terminates the franchise or fails to renew the franchise agreement. Section 20035 provides: "In the event a franchisor terminates or fails to renew a franchise other than in accordance with the provisions of this chapter, the franchisor shall offer to repurchase from the franchisee the franchisee's resalable current inventory meeting the franchisor's present standards that is required by the franchise agreement...." There is nothing in this provision, however, or in any other part of the Act to indicate that this remedy is exclusive. It is not.

Section 20037 plainly states: "Except as expressly provided herein, nothing in this article shall abrogate the right of a franchisee to sue under any other law." This statute provides that a franchisee may seek any common law or statutory remedy for wrongful termination of the franchise, including a breach of contract action. By expressly affording franchisees the right to pursue their remedies under any other law, the Legislature did not restrict a franchisee's remedy to reimbursement for inventory as Panasonic insists. Section 20037 expressly...