Mackey v. Judy's Foods, Inc.

• Decision Date: 10 February 1987
• Docket Number: No. 3-84-0108.,3-84-0108.
• Citation: 654 F. Supp. 1465
• Parties: David MACKEY, et al. v. JUDY'S FOODS, INC., et al.
• Court: U.S. District Court — Middle District of Tennessee

654 F. Supp. 1465

David MACKEY, et al. v. JUDY'S FOODS, INC., et al.

No. 3-84-0108.

United States District Court, M.D. Tennessee, Nashville Division.

February 10, 1987.

COPYRIGHT MATERIAL OMITTED

Laurence M. Papel, Taylor, Schlater, Lassiter, Tidwell & Trentham, Raymond G. Prince, Nashville, Tenn., Thomas P. Malone, Minneapolis, Minn., for plaintiffs.

Tyree B. Harris, Dodson, Harris Robinson & Aden, Nashville, Tenn., Peter J. Nickles, Theodore Voorhees, Jr., William L. Saunders, Jr., Covington & Burling, Washington D.C., David M. Zolensky, also Mark H. Lynch, for defendants.

MEMORANDUM

WISEMAN, Chief Judge.

The issues for decision are the Magistrate's recommendations, upon defendants' motion for summary judgment, that the Court dismiss plaintiffs' claims as barred (1) by the statutes of limitations, and (2) by the terms of a release agreement concluded in 1981 between the plaintiffs and Judy's Foods, Inc. The Court finds the Magistrate's Report and Recommendations to be well-reasoned and thorough. For the reasons stated below, the Court adopts the Magistrate's conclusions that there are no unresolved genuine issues of material fact and that both the applicable statutes of limitation and the release agreement bar plaintiffs' claims as a matter of law. Defendants' motion for summary judgment, therefore, is granted.

I. Factual Background

This is one of several cases that have arisen out of the Judy's hamburger franchising operation, which was headquartered in Nashville in the late 1970s and early 1980s. Plaintiffs Mackey, Dyer, and Dyer-Mackey Enterprises, an Alabama partnership, operated two fast-food franchises in Alabama until 1982. They have sued Judy's Foods, Inc. (hereinafter Judy's) and the other corporate and individual defendants¹ alleging breach of contract, a series of business torts,² intentional infliction of emotional distress, and violation of the Tennessee Consumer Protection Act, Tenn.Code Ann. § 47-18-110. Plaintiffs' theory in essence is that defendants fraudulently misrepresented the profitability of a Judy's franchise, fraudulently concealed the fact that a "retrofit" or redesign of the Judy's restaurants was required by the terms of a settlement of separate litigation between Judy's and Wendy's International, Inc.,³ and fraudulently misrepresented their intentions toward continued development of the Judy's franchising network after HCA acquired the Judy's operation in 1979.

Defendants contend⁴ that plaintiffs knew or should have known of the existence of their claims against defendants: (1) at the very latest, in June, 1981, when they received a letter from Thomas M. Grammer, plaintiff in another lawsuit alleging fraud against Judy's et al.; (2) in November, 1980, when plaintiff Dyer attended a meeting of Judy's franchisees also attended by inter alia, three other franchisees and two attorneys already involved in litigation against the Judy's; (3) in mid-1980, when a series of three lawsuits⁵ were filed against Judy's; or (4) as early as February, 1980, when an earlier meeting of franchisees was held in Kansas City, at which was formed a committee to discuss possible "legal action."

Plaintiffs contend in affidavits that, at least until February, 1983, they did not discuss details of the other lawsuits with other franchisees and did not know about the 1980 lawsuits. Shortly after they received the Grammer letter in June, 1981, plaintiffs say, they received misleading assurances from a Judy's official that the suit was "unfounded." Plaintiffs argue that any applicable statute of limitations was tolled by defendants' fraudulent concealment of the Wendy's-Judy's settlement and of other material facts until about February 14, 1983, when Dyer⁶ acknowledges he learned of the verdict against Judy's in Judico, Inc. v. Judy's Foods, Inc., No. 82-3194 (M.D.Tenn.1982).

Defendants further contend that, without reference to the statute of limitation, this action is barred by the terms of the Termination Agreement and Cross Release executed between plaintiffs and Judy's on November 9, 1981. In that agreement, for due consideration of some $2,600, the plaintiffs agreed to "hereby release Judy's from all claims for damages arising out of any agreement with Judy's relating to the establishment, equipping, and operation of Judys Restaurants and from all future obligations under any such agreement." Exhibit L to Defendants' Motion for Summary Judgment at 2.

Plaintiffs respond that a confidential relationship existed between franchisor and franchisees at the time Judy's secured this release, that the existence of this relationship imposed a duty on Judy's to disclose material facts to them, and that Judy's failed in this duty. Plaintiffs argue that the confidential relationship issue⁷ both tolls the statutes of limitation and makes the release voidable.

II. Choice of Law

In a diversity case, the District Court is obliged by the Erie doctrine to apply the law of the forum, including the forum's approach to choice of law. Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); Day & Zimmermann, Inc. v. Challoner, 423 U.S. 3, 96 S.Ct. 167, 46 L.Ed.2d 3 (1975).

A. Substantive Law

Most of plaintiffs' claims sound in tort. See Part III, infra. Tennessee choice-of-law principles, thus, as the Magistrate correctly held, dictate that the law of the place of the tort would govern much of the substantive law of this case. Great American Insurance Co. v. Hartford Accident & Indemnity Co., 519 S.W.2d 579 (Tenn.1975); Trahan v. E.R. Squibb & Sons, Inc., 567 F.Supp. 505, 507 (M.D.Tenn. 1983). When the tortious acts and the resulting injuries occur in separate states, Tennessee will apply the law of the state of injury. Trahan, 567 F.Supp. at 507. Thus, in a fraud case, the place of the wrong is where the loss is sustained, not where the fraudulent representations were made. Bailey v. Chattem, Inc. 684 F.2d 386, 392 (6th Cir.1982); Restatement of Conflict of Laws § 377, Note 4 (1934).

Alabama law, not Tennessee law, therefore will govern the substantive fraud issues in this case.

B. Statutes of Limitations

The Magistrate correctly held that Tennessee courts apply the statute of limitations of the forum as a "procedural" measure unless the action (1) is one encompassed by the state borrowing statute, Tenn.Code Ann. § 28-1-112, or (2) is one in which the foreign state's limitation is not merely upon the remedy but upon the underlying substantive right. Whitfield v. City of Knoxville, 756 F.2d 455 (6th Cir. 1985); McDaniel v. Mulvihill, 196 Tenn. 41, 263 S.W.2d 759 (1953); Bournias v. Atlantic Maritime Co., 220 F.2d 152 (2d Cir.1955). A statute of limitation in a foreign jurisdiction is held "substantive" only when it is built into the same statute that creates the cause of action in question or when the limitation, though appearing in a different statute, is "directed to the newly created liability so specifically as to warrant saying that it qualified the right." Davis v. Mills, 194 U.S. 451, 454, 24 S.Ct. 692, 694, 48 L.Ed. 1067 (1904); see E. Scoles & P. Hay, Conflict of Laws §§ 3.09-.10 (1982).

The Magistrate further was correct in holding that the plaintiffs' claims meet neither of the above criteria. First, Tenn. Code Ann. § 28-1-112 "borrows" another state's statute only to bar actions that accrue while the "party to be charged" is resident in the foreign state; all defendants here were and are Tennessee domiciliaries. Second, although Alabama has separate statutes that describe the action for fraud and set out a specific statute of limitations for fraud, neither is of a type to satisfy the Davis-Bournias criteria. Rather than creating a new right, the fraud statutes merely codify the pre-existing common-law action for fraud. Code of Alabama §§ 6-5-100 to -104; Harton v. Belcher, 195 Ala. 186, 70 So. 141 (1915). The fraud limitation statute, furthermore, is properly viewed not as a specific qualification of the right to sue for fraud but rather as a "`saving provision,' which extends the time period for a right of action when there has been a fraudulent concealment." Ryan v. Charles Townsend Ford, Inc., 409 So.2d 784, 786 (Ala.1981) (emphasis added); see Code of Alabama § 6-2-3.

Tennessee law, thus, will apply to determine the applicable statutes of limitation for all claims in this case.

C. The Release

Plaintiffs executed the release agreement with Judy's in Nashville, Tennessee. If effective against all claims made in this case, the release would provide an absolute defense to the plaintiff's claims, most of which, as noted above, arise under Alabama law. Which law would Tennessee apply to govern the validity and effect of the release: the law of Tennessee, the locus of formation of the contract? Or the law of Alabama, the locus of the alleged torts that comprise the gravamen of the complaint against which the release would serve as a defense?

The Court has discovered no Tennessee cases that deal directly with this question. The parties appear to have ignored the issue or to have assumed⁸ that Tennessee law would apply because the agreement was entered into here. The Tennessee approach to the choice of law applicable to contracts, however, dictates not a strict lex loci contractus approach but rather an inquiry into the intention of the parties.⁹ Thus, rights and obligations of parties to a contract "are governed by the law of that state with the view to which it is made." The parties' intentions in this respect are "to be gathered from the terms of the instruments and all of the attending circumstances." Ohio Casualty Insurance Co. v. Travelers Indemnity Co., 493 S.W.2d 465, 467 (Tenn.1973) (quoting First American National Bank v. Automobile Insurance Co., 252 F.2d 62, 64 (6th Cir. 1958)).

The 1981 release agreement specified no law that would govern its validity...