Little Caesar Enter v. OPPCO

• Citation: 219 F.3d 547
• Decision Date: 06 August 1999
• Docket Number: 98-1736,Nos. 98-1573,s. 98-1573
• Parties: (6th Cir. 2000) Little Caesar Enterprises, Inc., Little Caesar National Advertising Program, Inc., Plaintiffs-Appellants/Cross-Appellees, v. OPPCO, LLC ,Defendant-Appellee/Cross-Appellant. Argued:
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

Page 547

219 F.3d 547 (6th Cir. 2000)

Little Caesar Enterprises, Inc., Little Caesar National Advertising Program, Inc., Plaintiffs-Appellants/Cross-Appellees, v. OPPCO, LLC ,Defendant-Appellee/Cross-Appellant.

Nos. 98-1573, 98-1736

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

Argued: August 6, 1999

Decided and Filed: July 14, 2000

Rehearing Denied Aug. 16, 2000

Appeal from the United States District Court for the Eastern District of Michigan at Detroit; No. 95-72370--Horace W. Gilmore, District Judge.

David A. Ettinger, Steven P. Schneider, HONIGMAN, MILLER, SCHWARTZ & COHN, Detroit, Michigan, for Appellants.

Rodger D. Young, Terry Wuester Milne, YOUNG & ASSOCIATES, P.C., Southfield, Michigan, for Defendant-Appellee/Cross-Appellant.

Before: JONES, SILER, and GILMAN, Circuit Judges.

OPINION

NATHANIEL R. JONES, Circuit Judge.

This is a breach of franchise action between Little Caesar Enterprises, Inc. ("Little Caesar") and OPPCO, LLC ("OPPCO"), a company through which Erich Overhardt purchased four Little Caesar franchises. Overhardt closed the stores after all four franchises lost money. Little Caesar then terminated the franchise agreements and sued OPPCO for breach of the franchise agreements. OPPCO counterclaimed that Little Caesar should be found liable for fraud and breach of contract, and Overhardt sought a rescission of the franchise agreements. The district court granted Little Caesar summary judgment on OPPCO's fraud claims. Following a bench trial on the merits, the district court held that Overhardt was entitled to a rescission of all four franchise agreements and restitution of the money he spent on the franchises. Little Caesar and its corporate advertising arm, Little Caesar National Advertising Program ("LCNAP") now appeal the bench trial verdict entered against them. OPPCO cross appeals, challenging both the district court's decision to grant summary judgment against OPPCO's fraud counterclaims, and the court's refusal to award attorney's fees to OPPCO under South Dakota's Franchise Act. For the following reasons, we REVERSE the district court's summary judgment ruling on the fraud counterclaims, but AFFIRM the district court's judgments in all other respects. Accordingly, we REMAND the case for further proceedings.

I.

Overhardt co-owned several Little Caesar franchises in California from 1983 through 1993, when his co-owner retired. At that time, Overhardt approached Little Caesar about the possibility of purchasing franchises in other parts of the country. In the spring of 1993, Overhardt and Little Caesar engaged in a series of discussions during which Little Caesar encouraged Overhardt to purchase franchises in South Dakota. Overhardt traveled to South Dakota to meet with Little Caesar's real estate manager, Steve Walker, who recommended sites in Brookings and Watertown, South Dakota. These two small towns had Little Caesar franchises operating in local K-Mart stores ("Stations"). However, Walker assured Overhardt that the Stations did not directly compete with a free standing restaurant of the type in which Overhardt was interested. After these discussions, Overhardt decided to purchase the franchises.

During the negotiation period, South Dakota notified Little Caesar that the company's license to sell franchises in that state would soon expire. However, Little Caesar did not act to renew its registration status and, on April 30, 1993, lost its license to offer or sell franchises in the state. Overhardt was unaware of Little Caesar's registration status and Little Caesar did not disclose this information.

At the suggestion of Little Caesar's financial analyst, Overhardt formed OPPCO as a limited liability company and purchased the Watertown and Brookings franchises through OPPCO in the summer of 1993. At about the same time, Little Caesar also suggested that OPPCO purchase two additional franchises in Yankton and Aberdeen, South Dakota. Another Little Caesar franchisee, Pinnacle Pizza ("Pinnacle"), already operated these restaurants. Pinnacle was not financially successful and Little Caesar was concerned as to whether Pinnacle could continue to make the required franchise payments. However, Walker assured Overhardt that Pinnacle's lack of success was due to poor management. Little Caesar facilitated OPPCO's purchase of the Yankton and Aberdeen franchises in September 1993.

Little Caesar and OPPCO executed a separate agreement for each of the four franchises. Under each agreement, OPPCO acquired the right to own and operate a Little Caesar franchise, including the right to use the "Little Caesar" name, trademark, and trade secrets. OPPCO also agreed to pay royalty fees to Little Caesar and advertising fees to LCNAP. In addition, OPPCO agreed to purchase spices and dough from Little Caesar's approved distributor, Blue Line Distributing, Inc. ("Blue Line").

OPPCO operated the four South Dakota franchises for approximately 18 months. During that time, three of the restaurants suffered from competitive advertising by the nearby K-Mart Pizza Stations, and Overhardt protested to Little Caesar. Ultimately only the franchise that was not located near a K-Mart Pizza Station was profitable, and OPPCO fell behind in its debt payments. In April 1995, Overhardt wrote to Little Caesar expressing his frustration and requesting that it take remedial action. Specifically, Overhardt stated his belief that Little Caesar was not supporting him, requested that Little Caesar take over his operation and make him whole, and indicated his willingness to consider other creative solutions. When no further action was taken, Overhardt informed Little Caesar in a letter dated June 7, 1995, that he was closing the four franchises. Little Caesar then terminated the franchise agreements effective June 27, 1995.

Little Caesar and LCNAP jointly sued OPPCO in June 1995 for non-payment of debts, abandonment of the franchises, and breach of the franchise agreements. Seeking a rescission of each franchise agreement, OPPCO counterclaimed on several grounds: fraud, breach of contract, and tortious interference under Michigan law; fraud and other violations of South Dakota's Franchise Act; and franchise violations arising under Federal Trade Commission ("FTC") regulations. The district court granted Little Caesar's summary judgment motion on OPPCO's three Michigan law counterclaims. In a subsequent ruling, the district court granted summary judgment in favor of Little Caesar on OPPCO's FTC franchise violation and South Dakota fraud counterclaims. At that point, OPPCO's remaining counterclaim alleged that Little Caesar violated the registration requirements of South Dakota's Franchise Act. Following a bench trial,¹ the district court ruled in favor of OPPCO, finding that Little Caesar violated South Dakota's Franchise Act, that OPPCO met the requirements for rescission, and that OPPCO was entitled to $135,059 in restitution. Both sides now appeal.

II.

We review the district court's conclusions of law following a bench trial de novo and its findings of fact for clear error. See Fed. R. Civ. P. 52(a). We review summary judgment decisions de novo using the same Rule 56 standard applied by the district court. See Barrett v. Harrington, 130 F.3d 246, 251 (6th Cir. 1997). Under that standard, a motion for summary judgment should be granted if the evidence demonstrates that there is no genuine issue as to any material fact, and that the movants are entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986). The court must read the evidence, and all inferences drawn therefrom, in the light most favorable to the non-moving party. Smith v. Hudson, 600 F.2d 60, 63 (6th Cir. 1979). "[S]ummary judgment will not lie if the dispute about a material fact is 'genuine,' that is, if the evidence is such that a reasonable jury could return a verdict for the non-moving party." Anderson, 477 U.S. at 248. The court's function is not to weigh the evidence and determine the truth of the matters asserted, "but to determine whether there is a genuine issue for trial." Id. at 249. The relevant inquiry is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Id. at 251-52.

A.

OPPCO argues that its Michigan common law fraud claim should have survived summary judgment because Little Caesar's misrepresentations constitute, as a matter of law, more than mere opinion or "puffing." To plead a fraud claim under Michigan law, a plaintiff must allege that: (1) the defendant made a material representation; (2) the representation was false; (3) at the time the representation was made, it was either known to be false, or made recklessly without any knowledge of its truth; (4) the representation was made with the intention that it should be acted on by plaintiff; (5) plaintiff, in fact, acted in reliance on it; and (6) plaintiff suffered damages as a result. See H.J. Tucker & Assoc., Inc. v. Allied Chucker & Eng'g Co., 595 N.W.2d 176, 187 (Mich. Ct. App. 1999) (citing Hi-Way Motor Co. v. International Harvester Co., 247 N.W.2d 813 (Mich. 1976)). Mere exaggeration is not actionable as fraud. See VanTassel v. McDonald Corp., 407 N.W.2d 6, 8-9 (Mich. Ct. App. 1987)(classifying as non-actionable 'puffing' a "salesmen's talk in promoting a sale" and similar "hype . . . beyond objective proof").

OPPCO bases its fraud counterclaims on the representations of Little Caesar's real estate manager, Steve Walker. In an effort to convince Overhardt to purchase one or more of the four South Dakota franchises - franchises that potentially competed with nearby Little Caesar franchises located in K-Mart stores -- Walker claimed that the K-Mart pizza franchises would not compete with OPPCO because those franchises target in-store...