Massey, Inc. v. Moe's Sw. Grill, LLC

• Decision Date: 03 February 2015
• Docket Number: CIVIL ACTION NO. 1:07-CV-0741-RWS
• Court: U.S. District Court — Northern District of Georgia
• Parties: MASSEY, INC., et al., Plaintiffs, v. MOE'S SOUTHWEST GRILL, LLC, et al., Defendants.

MASSEY, INC., et al., Plaintiffs, v. MOE'S SOUTHWEST GRILL, LLC, et al., Defendants.

CIVIL ACTION NO. 1:07-CV-0741-RWS

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION

February 3, 2015

ORDER

This case came before the Court for a bench trial beginning January 12, 2015.After reviewing the record and considering the evidence and arguments of counsel, the Court enters the following findings of fact and conclusions of law.

Findings of Fact

I.Creation and Development of Moe's Southwest Grill

1.Formed in July 2000 as a Georgia limited liability company, Moe's Southwest Grill, LLC("Moe's") is in the business of franchising fast, casual Mexican food restaurants.

2.In approximately January 2001, Moe's began marketing its franchise to potential franchisees.From approximately 2001 to 2007, Moe's franchised the "Moe's Southwest Grill" restaurants, growing from 17 stores at the end of 2001 to 343 stores at the end of 2006.

3.Prior to joining the Moe's franchise, each prospective franchisee received a Uniform Franchise Offering Circular ("UFOC"), which described in detail the Moe's franchise system, including but not limited to information regarding Moe's, its predecessors and affiliates, the franchise's business experience, all ongoing litigation, the investment and financing requirements of franchisees, and both franchisor and franchisee's ongoing obligations.

4.In keeping with the standard in the industry, Moe's regular business practice was to update its UFOC in the first quarter of each calendar year.

5.To become a Moe's franchisee, potential franchisees were required to execute both a Market Development Agreement and a Franchise Agreement.The standard Moe's Market Development Agreement was marked as Exhibit C to each UFOC, and detailed the franchisee's obligations as a developer of theMoe's franchise and granted a franchisee the right to develop one or more Moe's franchises.

6.The standard Moe's Franchise Agreement was marked as Exhibit D to each UFOC, and detailed the obligations of Moe's and the franchisee with respect to the operation of a specific Moe's franchise.

7.Each Moe's franchisee executed a single Market Development Agreement, which covered all of the franchises operated by the franchisee.By contrast, each Moe's franchise is operated under a separate Franchise Agreement.For example, if a franchisee sought to operate three Moe's franchises, that franchisee was required to execute a single Market Development Agreement and three separate Franchise Agreements.

8.The relevant Moe's Market Development Agreements executed by Plaintiffs contain the following language:

12.FRANCHISE AGREEMENTS.

(a) Upon the due performance by Developer within the time periods set forth, of all of the requirements set forth above (including, without limitation, payment of the Development Fee and Franchise Fee, and satisfaction of all construction and training requirements) with respect to any MOE'S SOUTHWEST GRILL restaurant contemplated by this Agreement, Franchisor, except as set forth below, will execute, issue anddeliver to Developer Franchisor's then-current form of Franchise Agreement to operate such MOE'S SOUTHWEST GRILL restaurant; provided, however, that, in the event that this Agreement is for the development of more than one (1) MOE'S SOUTHWEST GRILL restaurant, the Franchise Fees and royalties payable under any Franchise Agreement for a MOE'S SOUTHWEST GRILL restaurant to be built and operated within the Territory shall be at the rate set forth in Exhibit A.In addition, in the event that this Agreement is for the development of more than one (1) MOE'S SOUTHWEST GRILL restaurant, during the term of this Agreement or any renewal hereof, with respect to any Franchise Agreement executed for a MOE'S SOUTHWEST GRILL restaurant to be built and operated within the Territory, Franchisor agrees that:

. . .

(b) . . . Developer shall comply with Franchisor's then-current franchising policies and procedures for issuance of each Franchise Agreement . . . .If and when any Franchise Agreement contemplated in this Agreement is executed by Franchisor, it shall supersede this Agreement and govern the relations between the parties with respect to the particular restaurant.

(Def.'sTr. Ex. 28).

9.The relevant Moe's Market Development Agreements executed by Plaintiffs further provide:

24.ENTIRE AGREEMENT.This Agreement contains the entire agreement between the parties hereto and there are no representations, inducements, promises, agreements, arrangements or undertakings, oral or written, between the parties that have been relied upon by either party other than those set forth herein.No agreement of any kind relating to the matters covered by this agreement shall be binding upon either party unless and until the same is made in writing and executed by both Developer and Franchisor.

25.DEVELOPER'S ACKNOWLEDGMENTS.Developer understands and acknowledges that there are significant risks in any business venture and that the primary factor in Developer's success or failure under this Agreement will be Developer's own efforts.IN ADDITION, DEVELOPER ACKNOWLEDGES THAT FRANCHISOR AND ITS REPRESENTATIVES HAVE MADE NO REPRESENTATIONS TO DEVELOPER OTHER THAN OR INCONSISTENT WITH THE MATTERS SET FORTH IN THE UNIFORM FRANCHISE OFFERING CIRCULAR PROVIDED TO DEVELOPER AND THAT DEVELOPER HAS UNDERTAKEN THIS VENTURE SOLELY IN RELIANCE UPON THE MATTERS SET FORTH IN THE UNIFORM FRANCHISE OFFERING CIRCULAR AND DEVELOPER'S OWN INDEPENDENT INVESTIGATION OF THE MERITS OF THIS VENTURE.

(Id.)

10.The relevant Moe's Franchise Agreements executed or assumed by Plaintiffs contain the following language:

7.Standards and Uniformity of Operation.Franchisee recognizes the mutual benefit to Franchisee, Franchisor and other Franchisees of Franchisor of the uniformity of appearance, service, products and advertising of the MOE'S System and understands that such uniformities are necessary for the successful operation of the MOE'S SOUTHWEST GRILL restaurants.Franchisee also acknowledges that products sold under the MOE'S name and restaurants using the MOE'S System have a reputation for excellence.This reputation has been developed and maintained by Franchisor, and Franchisee acknowledges that it is of the utmost importance to Franchisor, and to all other Franchisees that such reputation be maintained.To this end Franchisee covenants and warrants with respect to the operation of the MOE'S SOUTHWEST GRILL restaurant at the Franchised Site that Franchisee and its employees willcomply with all of the requirements of the MOE'S System and will throughout the term of the agreement:

(a) Operate the restaurant and prepare and sell all products sold therein in accordance with the specifications, standards, business practices and policies of Franchisor now in effect or hereafter promulgated by Franchisor for its Franchisees, and comply with all requirements of the MOE'S System as they are now or hereafter established.

. . .

(g) Use only ingredients, supplies, furnishings and equipment that conform to the standards and specifications designated by Franchisor.Such items may be purchased from any source that can supply items that meet such standards and specifications.

(Def.'sTr. Ex. 29).

11.The relevant Moe's Franchise Agreements executed by all Plaintiffs except Parde Roswell further provide:

34.Entire Agreement.This agreement and any addendum hereto contains the entire agreement between the parties hereto relating to the operation of the restaurant at the Franchised Site and there are no representations, inducements, promises, agreements, arrangements or undertakings, oral or written, that have been relied upon by the parties other than those set forth herein.No agreement of any kind relating to the matters covered by this agreement shall be binding upon either party unless and until the same is made in writing and executed by all interested parties.

35.Franchisee's Acknowledgments.

(a) Franchisee assumes sole responsibility for the operation of the business Franchised hereunder and acknowledges that, while Franchisormay furnish advice and assistance to Franchisee from time to time during the term of this agreement, Franchisor has no legal or other obligation to do so except as specifically set forth herein.In addition, Franchisee acknowledges that Franchisor does not guarantee the success or profitability of the business Franchised hereunder in any manner whatsoever and shall not be liable therefor; in particular, Franchisee understands and acknowledges that the success and profitability of the business Franchised hereunder depend on many factors outside the control of either Franchisor or Franchisees (such as interest rates, unemployment rates, demographic trends and the general economic climate), but principally depend on Franchisee's efforts in the operation of the business.

Franchisee understands and acknowledges that there are significant risks in any business venture and that the primary factor in Franchisee's success or failure in the business Franchised hereunder will be the Franchisee's own efforts.IN ADDITION, FRANCHISEE ACKNOWLEDGES THAT FRANCHISOR AND ITS REPRESENTATIVES HAVE MADE NO REPRESENTATIONS TO FRANCHISEE OTHER THAN OR INCONSISTENT WITH THE MATTERS SET FORTH IN THE UNIFORM FRANCHISE OFFERING CIRCULAR PROVIDED TO FRANCHISEE, AND THAT FRANCHISEE HAS UNDERTAKEN THIS VENTURE SOLELY IN RELIANCE UPON THE MATTERS SET FORTH IN THE UNIFORM FRANCHISE OFFERING CIRCULAR AND FRANCHISEE'S OWN INDEPENDENT INVESTIGATION OF THE MERITS OF THIS VENTURE.

(Id.)

12.The Parde Roswell Moe's Franchise Agreement executed in 2007 contains substantially the same language:

34.Entire Agreement.This agreement and any addendum hereto contains the entire agreement between the parties hereto relating to the operation of the restaurant at the Franchised Site and there are no representations, inducements, promises, agreements, arrangements or

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